TWINNINGINTERIM QUARTERLY REPORT
TWINNINGINTERIM QUARTERLY REPORT number: 3
EUROPEAN COMMISSION
TWINNING PROJECTS
INTERIM QUARTERLY REPORT
Project Title:
Development and consolidation of the National Commission for Financial Markets’ operational and institutional capacities in the field of prudential regulation and supervision.
Partners:The National Commission for Financial Markets of theRepublic of Moldova (CNPF)
The Polish Financial Supervision Authority(KNF)
Date: June2016
Twinning Contract number: Moldova- ENI/2015/363-321
General instructions
1.Overview
The Interim Quarterly Report/Final Report for the project comprises the following parts:
Section 1Basic data on the project
Section 2Content: progress achieved in the implementation of the Twinning project during the reporting period and schedule for the remaining period
Section 3Expenditure: actual expenditure in relation to budgeted expenditure
2.General guidance
- Throughout the entire Twinning project, at three-monthly intervals starting with the date of notification of endorsement / signature, the Project leaders may prepare Interim Quarterly Reports/Final Reports.
- Interim Quarterly Reports/Final Reports cover both substance and Finances.
- The deadline for submission of the Interim Quarterly Reports/Final Reports cannot be altered – The first interim quarterly report will most often refer to less than three months’ actual project implementation, since the arrival of the RTA in the BC and the beginning of the work schedule rarely coincide with the date of notification.
- The MS Project Leader in co-operation with the BC Project Leader will submit, within the month following each quarter, the interim quarterly reports to the concerned authority (see 6.4 of the Twinning manual).
- One copy of the Report must be sent at the same moment to the relevant Twinning Team in the Commission Headquarters
- The Report must be submitted in one of the following three languages: English, French and/or German.
3.Notice
- The approval of the Report by the relevant authorities is without prejudice to the Commission's right to suspend the activities of a project, terminate an agreement or take any other appropriate step should subsequent verifications reveal problems or significant divergences from the work plan, the budget or the conditions of the Twinning Contract as approved.
- The views expressed in this report do not necessarily reflect the views of the European Commission
Twinning Contract number: Moldova -ENI/2015/363-321
Section 1: Project data
Twinning Contract Number / ENI/2015/363-321Project Title: / Development and consolidation of the National Commission for Financial Markets’ operational and institutional capacities in the field of prudential regulation and supervision.
Twinning Partners (MS and BC) / MS: Polish Financial Supervision Authority (KNF)
BC: National Commission for Financial Markets of the Republic of Moldova (NCFM)
Report Number: / 3
Period covered by the report: / 12February 2016 – 11May 2016
Duration of the project: / 12August 2015 – 11November2017
Rapporteur: / Prepared by:
Joanna Lipowczan, Project Manager from the Polish Financial Supervision Authority
Grzegorz Wąsik, Resident Twinning Adviser from the Polish Financial Supervision Authority
Approved by:
Damian Jaworski, Project Leader from the Polish Financial Supervision Authority
Iurie Filip, Project Leader from the NationalCommission for Financial Markets of the Republic of Moldova
MS signature:
MS signature and date (i.e. MS Project Leader, Mr. Damian Jaworski): ……………………………
MS signature and date (i.e. MS Project Manager, Mrs. Joanna Lipowczan): ......
RTA signature and date (i.e. MS RTA, Mr. Grzegorz Wąsik): ......
BC signature:
BC signature and date (i.e. BC Project Leader, Mr. Iurie Filip): ……......
RTA counterpart and date (i.e. BC RTA counterpart, Mrs. Veronica Cuhal): ......
Twinning Contract number: Moldova -ENI/2015/363-321
Section 2: Content
This section describes the activities of the project. It is divided in five sections.
2A – BACKGROUND
2B – ACHIEVEMENT OF MANDATORY RESULTS
2C – ACTIVITIES IN THE REPORTING PERIOD
2D – TIMING AND DELAYS
2E – ASSESSMENT
1
Twinning Contract number: Moldova -ENI/2015/363-321
2A – BACKGROUND
This report covers the activities that were carried out in the third quarter of the project, in the period of 12 February 2016 until 11 May 2016. This chapter comprises political developments directly linked to the subject of the project, the state of the achievement of project objectives and the state of project assumptions.
Overall objectives
Overall Objective and indicators of achievement (as in Logframe) / State of achievement/ problems encounteredOverall Objective:
Development and implementation of the Risk Based Supervision System for the non-banking financial market participants, including capital market, insurance, pension funds and micro-finance based on the forecasting and evaluation of the risks and preventable consequences of some unfavourable events.
Alignment with EU acquis and implementation of best practices of EU in regard to non-banking financial market supervision.
Development and implementation of the Risk Based Supervision System for the non-banking financial market participants, including capital market, insurance, pension funds and micro-finance based on the forecasting and evaluation of the risks and preventable consequences of some unfavourable events accomplished.
A better methodology and standards of supervision of the non-banking financial market including capital market, insurance, pension funds and micro-finance in Moldova will allow a more efficient and secure application of supervisory system based on the forecasting and evaluation of risks. A well-functioning non-banking financial market in Moldova will contribute to economic growth, poverty reduction and employment as well as overall security and stability of non-banking financial market participants. / All activities performed in the third project quarter were successfully implemented..
Within the reporting periodthe following project activities were implemented in line with the Twinning Work Plan and updated schedule, including:
-the experts’ mission focused on thereview of
on-site inspections methodology in regard to insurance sector (i.e. Activity No 1.11);
-the experts’ mission concerning the review of
on-site and off-site inspections methodology in regard to pension sector(i.e. Activity No 1.12);
-the expert’s mission devoted to thereview of on-site and off-site inspections methodology in regard to Anti-Money Laundering and combating the financing of terrorism (i.e. Activity No 1.13);
-the experts’ missionaimedatthe review and assessment of supervisory powers in the field of non-banking financial market in regard to international cooperation and exchange of information (part 2) (i.e. Activity No 1.14);
-the experts’ mission concerning the support of Internal Audit on IT (i.e. Activity No 1.15);
-the expert’s mission focused on the support for Internal Audit (IA) and potential application of Public Internal Financial Control (PIFC) system (i.e. Activity 1.16);
-the study visit at the KNF for the NCFM employees
(i.e. Activity 1.17);
-the experts’ mission focused on the review ofregulations for capital market licensed entities (part 1) – in regard to investment firms (i.e. Activity 2.11);
-the experts’ mission focused on the review of regulations for capital market licensed entities
(part 2) – in regard to capital market infrastructure: market operators, CSD, clearing and settlement houses, national securities depositary (i.e. Activity 2.12).
The above activities have contributed to achieving the overall project objectives and state a base for further project development.
Project purpose
Project purpose and indicators of achievement (as in Logframe) / State of achievement/ problems encounteredProject purpose:
Development and maintenance of an appropriate and effective regulatory and supervisory framework in accordance with the EU legislation and best practices to enable prudential regulation and supervision on the non-banking financial market.
Strengthening operational and institutional capacities of the NCFMaccomplished.
Development and maintenance of an appropriate and effective regulatory and supervisory framework in accordance with the EU legislation and best practices to enable prudential regulation and supervision in the field of:
- capital market and investment fundssector;
- insurance companies sector;
- savings and credit associations and pension funds sector.
During the third quarterof the project all activities of the Component 1 – Strengthening operational and institutional capacities of the NCFM have been successfully accomplished and the activities scheduled within the Component 2 of the project (Capital market and investment funds) have started. The achievement of project’s goalsin whole is in progress.
The review of existing on–site inspections’ rules and documents in regard to insurance sector and on–site and off–site inspections rules and documents in regard to pension sector as well asanti-money laundering and combating the financing of terrorism (AML/CFT) matterswas carried out. In consequence three Review reports with recommendations regarding the above mentioned subjects were developed. Moreover, presentations on inspection of insurance and pension sector were presented. The relevant Working papers with on-site inspection manual in respect to the AML/CFT were prepared.
As regards the international cooperation and exchange of information with foreign authorities on capital markets, the Guidelines on standards of efficient international cooperation and exchange of information with foreign counterparts were elaborated.
The presentation on the IT internal audit was presented and the Guidelines for conducting IT internal audit were drawn up.
Based on the review of existing Moldovan regulations, internal procedures and methodologies concerning the internal audit, the Review report with guidelines was elaborated. Additionally, the Handbook of the internal audit procedures and the Instruction for the functioning of the internal audit wereprepared for the NCFM use.
The first study visit to Warsaw was organized by the KNF for the NCFM employees and two members of the Parliament of the Republic of Moldova. During the study visit the participants became familiar with the practical aspects of the non-banking financial market supervision in Poland.
The review of the Moldovan legislation with regard to certain aspects of investment firms’ organization and functioning was performed. The Gap analysis report with recommendation was prepared.
The Moldovan legislation concerning capital market infrastructure was reviewed and the relevant Recommendations were drawn up. The workshop on trading venues, depository system and clearing and settlement took place and related Workshop materials were elaborated and presented to the NCFM staff.
The input provided by the MS experts shall contribute to the establishment of a sound base to facilitate further efforts of the NCFM for development and maintenance of an appropriate and effective regulatory and supervisory framework in accordance with the EU legislation and best practices.
Thus, the NCFM capacities to regulate the non-banking financial market and strengthen its supervision functions in line with the EU acquis and best practices have started to increase.
Policy Developments
Based on the proposals and comments provided by the Polish experts on the NCFM supervisory powers in the field of non-banking financial market in regard to international cooperation and exchange of information, it has been amended the draft law on the National Commission for Financial Markets which shall be submitted to stakeholders for examination and public consultations.The amendments refer to legislative provisions in order to enable the NCFM to meet the generally accepted standards of international cooperation and exchange of information and to give the ability to require, to obtain and to provide information and documents from / to foreign authorities in line with legislation on domestic secrecy and confidential information.
During the reporting period by NCFM Decision nr.7/11 of 12.02.2016 and Ministry of Finance Resolution nr.61 of 05.05.2016 has been adopted the Regulation on information disclosure by issuers of securities.
Furthermore, based on the Polish experts proposals and comments received during public consultations, NCFM is finishing the draft Regulation on market abuse and draft Instruction on direct and indirect affiliation.
Project Assumptions
In the reporting quarter the Twinning Project has provided the input for the use of the NCFM to fulfillthe commitments of the Republic of Moldova stipulated in the former Partnership and Cooperation Agreement between the European Union and the Republic of Moldova, repealed and replaced by the Association Agreementbetween the European Union and the European Atomic Energy Community and their Member States, of the one part, and the Republic of Moldova, which is currentlyin force.
In particular, the Twinning Project has as main objective to contribute to the process of transition of the NCFM from compliance-based supervision to the establishment by the NCFM of the risk-based supervision for the three sectors of the non-banking financial market.
The undertaken activities will be subsequently continued and developed within the relevant project activities in line with the agreed in the Twinning Contract Work Plan.
2B - ACHIEVEMENT OF MANDATORY RESULTS
Results and indicators of achievement (as in Logframe) / State of achievement/ problems encounteredComponent 1 – Strengthening operational and institutional capacities of the NCFM.
Indicator of achievement (copied from logframe)
- Strengthening operational and institutional capacities of the NCFM accomplished.
- Internal procedures/manuals/rules developed in line with the EU best practice.
Activity 1.11Review of on-site inspections methodology in regard to insurance sector.
Benchmarks:
Review of existing on-site inspections rules and documents in regard to insurance sector was performed.
State of achievement:
Activity successfully completed and the result achieved.
During this Activity, the STEs presented the Polish approach to on–site inspections of insurance companies. The experts explained how the inspection is conducted by the KNF employees, what evidence they gather before and during the inspection and how the final inspection report is elaborated.
The STEs also reviewed the current binding Moldovan on–site inspection methodology in regard to insurance sector and held consultations with the relevant NCFM staff about the current practice used by the NCFM.
With regard to the assessed inspection methodology the STEs noted that the respective provisions of the Moldovan lawlargely appear to grant to the NCFM sufficient powers to conduct on-site inspections towards insurance sector participants.
In the experts’ opinion the NCFM appears to be granted with adequate and proportionate range of on-site inspection powers in order to perform its activity in a proper way.
However, the STEs suggested to grant the NCFM an additionalpower to conduct on-site inspections towards external entities performing insurance operations and activities for and on behalf of insurance undertakings (outsourcing providers).It was emphasized by the STEs that the abovementioned power for the insurance sector supervision authority is required by the Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).The STEs also advised the NCFM to establish a formal procedure regarding preparation of the on-site inspection plan. Both aspects are not formally regulated at present.
Detailed assessment and recommendations are provided in the Review report with recommendations prepared by the STEs.
Activity 1.12Review of on-site and off-site inspections methodology in regard to pension sector.
Benchmarks:
Review of existing on-site and off-site inspections rules and documents in regard to pension sector was performed.
State of achievement:
Activity successfully completed and the result achieved.
During this mission the STEs delivered several detailed presentations on the pension sector in Poland, on-site and off-site inspection of pension funds, complaints handling, investment funds accounting and their asset valuation.
As a result of the review of the existing and planned (draft) legal acts concerning on-site and off-site inspections in the field of pension sector, the STEs elaborated the Review report with recommendations.
In drawing conclusions and drafting recommendations referring to inspection of the pension sector the STEs took into account the fact that an important legal act for the pension 3rd pillar of the pension sector in Moldova - the Law on voluntary pension funds, had been not approved by the Parliament at the given time and the fact that the pension funds’ market is not yet operational in practice.
The STEs’ review and assessment were performed with the consideration of the relevant provision of the EU legislation on the activity of the pension sector.
In particular, the experts took into consideration the Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision.
In the STEs’ opinion, the binding legal acts and drafted Law on voluntary pension fundsgive sufficient powers to theNCFM to perform supervisory duties towards pension funds. The STEs also emphasized that the first stage of implementation of the supervision process of the pension funds should be based on a compliance approach. In the next stage of market development the gradual move to the risk-based approach should be considered.
Assuming further market development, the STEs presented the possible phases of the supervisory process to be considered by the NCFM in the future, e.g.: a development of a reporting system, a risk based approach and an adjustment of the IT tools.
Finally, the STEs also provided certain suggestions and comments regarding the pension funds’ reporting duties, handling of complaints, verification of the pension fund’s members register during aninspection and verification of the pension funds’ investment process.
Activity 1.13 Review of on-site and off-site inspections methodology in regard to Anti-Money Laundering and combating the financing of terrorism.
Benchmarks:
Assessment of procedures and methodology used by the NCFM in regard to Anti-Money Laundering and combating the financing of terrorism was performed.
State of achievement:
Activity successfully completed and the result achieved.
During the five-day mission of the STE, the review and assessment of procedures and methodology used by the NCFM in regard to Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) were performed.
The STE also presented the assumptions for the risk assessment in regard to Anti-Money Laundering and Combating the Financing of Terrorism within the requirements of the Recommendation 1 FATF (Financial Action Task Force).