Expansion of the Powers of the National Securities and Stock Market Commission

Ukraine’s legislature has increased and strengthened the oversight and investigative powers of the National Securities and Stock Market Commission ("Commission") with respect to capital markets and organized commodity markets. It took approximately nine years to consider the Bill on harmonizing the regulator's competence in capital markets with European Union law. The EU has since paced ahead; nonetheless, the Law of Ukraine "On Amendments to the Law of Ukraine 'On State Regulation of Capital Markets and Organized Commodity Markets' and Some Other Legislative Acts of Ukraine on Improving State Regulation and Supervision in Capital Markets and Organized Commodity Markets" No. 3585-IX dated February 22, 2024 (hereinafter referred to as the "Law") is a leap forward for Ukraine's legal system.

Within Ukraine’s EU integration framework, it is important to highlight the new capabilities for international cooperation. The Commission is now authorized to conclude interagency international agreements on behalf of Ukraine. Additionally, under the "Multilateral Memorandum of Understanding concerning Consultation and Cooperation and the Exchange of Information" of the International Organization of Securities Commissions (IOSCO), the Commission has the right to exchange information on violations of legislation. Furthermore, the Commission maintains cooperation on state regulation and supervision with the European Securities and Markets Authority (ESMA), other relevant EU institutions, national regulatory bodies of other countries, and other foreign and international organizations.

It is worth noting that, for many years, a lack of independence has been a greater barrier to the Commission’s international cooperation than the statutory express mandate to work with specific international organizations. Therefore, the changes introduced by the Law will enable an effective independence and institutional capacity for the regulator. The appointment to the position of Chair or member of the Commission will now be made based on the results of an open competitive selection process. The composition of the Nomination board, consisting of at least five members, will be approved by the President of Ukraine. Furthermore, the meetings of the Nomination board will be held in the form of public hearings, ensuring transparency in the candidate review process.

These changes primarily concern the new powers of the Commission to investigate, counteract, and, if necessary, hold accountable those responsible for abuses and manipulations in the capital markets.

Overall, the list of the Commission's powers has doubled. From now on, the regulator will be able to, among other things:

• conduct inspections;
• continue to review cases of violations of capital market legislation;
• take enforcement actions: corrective, early intervention, and impact measures; and
• as of January 2026, conduct investigations, including within the framework of international cooperation, or if it independently reveals violations of legislation.

As a result of 2019 Law No. 735-IX on the capital and organized commodity markets, the Commission can exercise prudential supervision and oversight of the conduct of market participants. Now, the Commission will also conduct inspections to ensure compliance with relevant legislation. Furthermore, the Commission can inspect another regulator, the National Bank of Ukraine (NBU), regarding its activities in managing institutional investors' assets and the depository activities of depository institutions, as well as the custody of pension funds' assets.

Within an investigation, the Commission can: access premises; collect evidence; request information; conduct audio, photo, and/or video recordings; demand access to telephone and video conversations as well as to the communications' billing data.

A noteworthy new development is that the regulator can now classify financial instruments and objects of civil rights as securities, which is expected to enhance the counteraction against investor fraud and further develop the regulation of virtual assets.

To improve market participants' understanding of regulatory requirements and the application of legal provisions, the Commission, following the example of ESMA, is now authorized to issue advisory opinions in the form of clarifications and Q&As. Previously, the Commission was entitled to clarify the provisions of capital market laws but has been restraining itself based on the advice of the Ministry of Justice of Ukraine.

To expand on the previously adopted secondary regulations, Law No. 3585-IX mandated that the Commission must, following review of a violation:

• settle the consequences of the violation with the market participant;
• forward materials to the relevant state or law enforcement authorities, with criminal investigations potentially proceeding concurrently with the Commission's review of the violation;
• submit materials to foreign authorities in capital markets and/or organized commodity markets, for instance, if such an investigation was a part of international cooperation framework;
• apply intervention measures: impose fines, revoke licenses, prohibit operations, etc., or instruct to remedy violations;
• take corrective action: make a recommendation, based on an inspection's result and/or prudential supervision, regarding actions to be made or abstained from in order to mitigate risks.

Starting as of January 2026, significant fines imposed by the Commission will be introduced. For example, non-compliance with the Commission’s instruction to eliminate violations may cost capital market participants and professional participants in organized commodity markets, in fines, up to 81 million Hryvnias but up to 10 percent of the total annual turnover in any case. A similar fine may apply for obstructing investigations. However, from 2026 to 2029, the maximum fines will be applied with a decreasing coefficient, increasing by 0.2 each year: from 0.2 in 2026 to 0.8 in 2029, respectively.

Soon, we expect adoption of new regulatory acts by the Commission, as the regulator is required to align its regulatory acts with the provisions of the new law within nine months. However, considering that the term of office for Commission members is limited and there is rotation among the members, there is a risk of delays in adopting these additional regulatory acts.