Ukraine’s fragmented financial regulatory structure is undermining investor confidence, slowing down the country’s reconstruction efforts, and endangering national security amid its ongoing conflict with Russia. Despite ambitious reforms, the lack of coordination between key financial regulators has created serious gaps in governance that threaten the country’s economic future.
In 2019, Ukraine’s Verkhovna Rada (parliament) passed a major reform designed to restructure the financial regulatory landscape. The reform split the responsibilities of the National Commission for Regulation of Financial Services Markets between two agencies: the National Bank of Ukraine (NBU) and the National Securities and Stock Market Commission (NSSMC). The NBU was tasked with oversight of insurance, leasing, finance companies, and credit unions, while the NSSMC was assigned to regulate non-state pension funds and construction financing.
The reform aimed to strengthen Ukraine’s capital markets by empowering the NSSMC, but five years later, the agency has struggled to meet expectations. Its capabilities remain limited, and its inability to align with other key financial authorities has contributed to a series of regulatory failures.
A glaring example of this dysfunction is the case of Freedom Finance Ukraine, one of the country’s largest brokerage firms. In 2021, the firm was sanctioned for actions threatening national security. Despite a law barring sanctioned entities from participating in capital markets, the NSSMC only suspended the firm’s license rather than revoking it. This left thousands of Ukrainian investors—holding approximately 800 million hryvnias ($19.2 million) in government Eurobonds—in a vulnerable position. Without the ability to access or restructure their assets, many lost out when the NSSMC delayed approval for bond restructuring until August 2023, after the opportunity for more favorable terms had passed.
Another significant issue has been the delay in expanding Ukraine’s relationship with the international central securities depository, Clearstream. The NBU moved quickly to update the regulatory framework in early 2023 to facilitate the inclusion of additional financial instruments for reconstruction projects. However, the NSSMC took several months to approve the necessary changes, and only after intervention from the International Monetary Fund (IMF) in June 2024 did the agency act.
Meanwhile, the National Depository of Ukraine (NDU) also poses a potential conflict of interest. The NBU and the NSSMC each control a 25% stake in the NDU, with the NSSMC holding the majority of voting rights at shareholder meetings. This situation, which has been flagged by the IMF since 2018, remains unresolved. Recent amendments to Ukraine’s capital markets law have allowed NSSMC officials to receive compensation for their oversight roles, further deepening concerns about conflicts of interest and undue influence.
Perhaps most concerning is the NSSMC’s handling of currency controls. The IMF has mandated that the NSSMC enforce restrictions on securities accounts to prevent capital flight during the war. However, the agency has failed to implement these restrictions, even as it has been aware of securities transactions being used by licensed firms to facilitate capital outflows. In contrast, the NBU has successfully restricted securities transactions within banks since the start of the full-scale Russian invasion, demonstrating a more proactive stance in managing financial risks.
The current regulatory model—dividing authority between the NBU and NSSMC—has proven ineffective and fragmented. Over the past five years, it has led to investor disenfranchisement, inefficient decision-making, and slow progress on crucial financial reforms. Investors are left exposed, while Ukraine’s broader economic stability is at risk, with higher borrowing costs, diminished international confidence, and potential damage to the country’s reputation.
In light of these challenges, it is crucial that Ukraine consider consolidating its financial oversight under a single, stronger regulatory body—preferably the NBU—if it hopes to stabilize its financial system and attract much-needed investment for post-war reconstruction.
The clock is ticking for Ukraine to address these regulatory shortcomings, which, if left unchecked, could continue to undermine both its economic recovery and national security.
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