OREANDA-NEWS. August 09, 2010. Last week the Cabinet of Ministers of Moldova approved a Development Strategy of Non-banking Financial Market for 2010-2013 and an Action Plan on its implementation. The document is a follow-up of earlier started reforms in this field.

As a result of implementation of the Strategy the non-banking financial market is expected to grow qualitatively. The changes will also touch upon all its elements – securities market, insurance market, micro-financing sector (savings and loan associations and micro-financing organizations, the leasing companies, non-state pension funds, credit history bureaus).

The main measures, stipulated within the Strategy, refer to expansion and improvement of legislative field of activity for participants of this market. Some part of measures refer to improvement of work of financial market’s mega-regulator directly: the NCFM will implement a system of information management and a system of internal audit and control. Before the end of the year the National Commission of Financial Market (NCFM) will joint the profile international organizations, particularly, will conclude a collaboration agreement with the International Organization of Securities Commissions (IOSCO) and the World Council of Credit Unions (WOCCU).

The NCFM also suggests expanding its own functions and authorities in respect of some rights, such as: to exercise interference and control, to impose the bans, disciplinary and administrative penalties; operative information acquisition, necessary for fulfillment of legally established tasks, etc.

Very interesting clause of the Strategy refers to new supervision method that will be based on risk assessment. The NCFM will reveal in the companies the risk areas by means of determination of “significant risk indexes, administration quality assessment, organization of internal system of participant’s risk assessment, revelation of risk areas and elaboration of early warning or improvement measures.”

The procedure of licensing of participants of non-banking financial sector will change in the same way – besides the specific criteria for every field of activity there will also appear the “analytic” ones – the NCFM will estimate the resources of the applicant, including finances, administration system, personnel, and internal monitor system. Besides, the NCFM will test the business plan of the applicant on compliance with the main requirements for implementation of operation at non-banking financial market (heretofore the requirement to submit the business plan referred only to participants of micro-financing sector). The mega-regulator is to assign the clear criteria of license issuance, list and contents of submitted documents, order and term of their consideration.

It’s not indicated whether this clause of the Strategy will apply to all participants of non-banking financial market, but some “nuances” provoke at least tender emotions now. For example, the applicant for a license will have to demonstrate the competence and ability of its personnel to meet the legislation requirements. Besides, he has to guarantee that only persons, possessing high exactingness and decency (!) when exercising their functions, are taken on his company. It’s interesting on which scale the NCFM is intended to measure “decency” and whether the special collaborators will be appointed for this… Before the end of 2010 the NCFM will elaborate a Code of Behavior for professional participant of non-banking financial market. This document will possibly bring clarity in the order of determination of moral and mental qualities of workers of non-banking financial organizations.

All above-mentioned measure, as specified in the document, taken on the stage of licensing, are directed at protection of financial services’ consumers of companies-participants of non-banking financial sector and at image and stabilization support of financial market in tote.

It should be noted, that the main idea of this part of the document is the intention to bring the monitoring at non-banking financial market closer to acting one in banking sector. Toughening of control is officially connected with prevention of possible money laundering by means of participants of non-banking financial sector. It’s a known fact that the developing non-banking sector is a serious competitor to banking one. Currently the assets of banking system amount to 39,65 billion leis.

The same data on non-banking market aren’t accumulated yet. But the approximate assets of non-banking financial market are easy to be calculated: volume of securities issuance at the end of 2009 amounted to 644,2 million leis, volume of securities transactions – 621,9 million leis, volume of insurance premiums accrued – 816,6 million leis, owned capital of insurance companies – 812,7 million leis; volume of loans, issued by savings and loan organizations – 322,9 million leis, issued by micro-financial organizations – 1360,9 million leis, by leasing companies – 412,5 million leis, etc. Intensive stimulation of capital, micro-financing and insurance market will allow the non-banking sector if not to surpass the banking sector then to come closer to it. Though, on the other hand, the mixed model of Moldavian capital market allows the Moldavian banks to participate actively in it, carrying out the transactions at securities market rather than to compete with non-banking sector.

The NCFM Vice-Chairman Aurica Doina, when presenting the draft Strategy, specified that the Strategy was directed at investments attraction in capital market and establishment of trust of creditors and population to non-banking financial sector of the country. On initial estimation, the expenses for implementation of the Strategy amount to 34,45 million leis and the sources of financing are as follows: technical assistance of sponsors, resources of professional participants of non-banking financial market and budget of NCFM.

The NCFM is intended to stimulate the capital market by means of legislation and infrastructure improvement, and implementation of new financial instruments. Before the end of 2010 a new law on capital market and all complex of normative documents will be elaborated. They will allow creating the conditions for effective market development and favoring the integration of Moldova in international capital market. Diversification of financial instruments assumes the development of corporate bond market at first.

The National Securities Depository of Moldova (NSD) will be modernized and will be able to maintain a share register of joint-stock companies, included in the listing of the Stock Exchange of Moldova (SEM). This will allow reducing temporal and financial costs when carrying out the securities transactions. Besides, the problem of the SEM integration in the Computerized System of Inter-bank Payments is to be solved. Public securities, bonds, derivative securities, and so on will be also included in the computerized system of securities transactions used at the SEM only for transactions with shares.

The NCFM is also intended to attract free funds of population at the capital market. For this purpose the draft laws on free pension funds and organizations of collective investment will be elaborated. Though, such “initiatives on initiatives” on stimulation are undertaken not the first year. For this time the NCFM plans to carry out a large-scale information campaign on popularization of services of non-banking financial market and investment products. Even 1,6 million leis were appropriated for these purposes.

At the insurance market the process of capitalization of insurance organizations will continue. It will be recalled that, starting from 2011 the request, adopted in 2006, on step-by-step increase of charter capital of insurance companies up to minimal permitted level (15 million leis) will come into force for all market participants.

The licensing of the activity of all insurance brokers and agents, as well as strengthening of control of their activity will become an obligatory element. The reporting form of insurance organizations will change according to international requirements. New centralized database on motor vehicle insurance that will take into account the data on presence of insurance policy, the bonus-malus system, will exclude the false policies, etc. will be implemented by the end of 2012. The motor vehicle insurance still remains “the engine” of the insurance market. At the same time, the insurance of household goods and voluntary insurance of public liability is practically absent in Moldova. The majority of enterprises and organizations of the real economy and public sectors aren’t insured. The NCFM is to stimulate the development of life insurance (only 6% of insurance premiums fall to this type of insurance) and bank insurance.

The micro-financing market expects some small changes regarding mainly bringing into accord with international standards of legislative and normative base on savings and loan associations and micro-financial organizations. Some measures the NCFM is to take in order to stimulate the participants of non-banking financial sector in the activity of the Bureau of Credit Histories.

The scope of work of the NCFM for the next 3 years is determined generally. The toughening of legislative and normative base will hardly gladden the participants of non-banking sector. Especially, if taking into account that yet unknown “borders of permitted” by the NCFM are concealed by document formalities. Besides, there’s no guarantee that such approach of the NCFM will correspond to the Strategy. The impetus and stimuli for development in relation to some players always may run into kick in the other way. The other question is – whether the NCFM team will cope with such difficult tasks? At present, the official staff of the NCFM numbers nearly 120 workers. And the broadening of personnel isn’t stipulated by the Strategy.

As a result of implementation of measures, specified in the Strategy, the volume of investments, attracted by means of issuance of corporate securities will reach 3,4 billion leis. The amount of insurance premiums, received by insurance organizations in 2013 will make up 1,3 billion leis or 1,7% of Moldavian GDP (instead of 0,8 billion leis and, accordingly, 1,36% of GDP – in 2009).

The total volume of insurance reserves and owned capital of insurance organizations by the end of 2013 will amount to 1,5 billion leis (or 2% of GDP) against 1,3 billion leis in 2009. The portfolio of loans, issued to savings and loan associations, as compared to 2009 will double and amount by the end of 2013 to about 600 million leis, and the portfolio of loans, issued to micro-financial organizations, will amount to 1,6 billion leis, increasing as compared to 2009 by 19%.