MADISON Wis.–Findings have been released from a survey of Ukrainian credit unions that sought to estimate their costs associated with regulatory compliance and prudential requirements.
The survey was conducted by the USAID/World Council of Credit Unions’ (WOCCU) Credit for Agriculture Producers (CAP) Project in the wake of new laws of Ukraine “On Credit Unions” and “On Financial Services and Financial Companies,” which went into effect on Jan. 1.
WOCCU explained that according to the provisions of these laws, the National Bank of Ukraine (NBU), the country’s credit union regulator, shall supervise the operations of credit unions by applying a risk-based approach and the principle of proportionality, which may either increase or reduce credit unions’ regulatory costs depending on how the new rules are adopted.
The Key Findings
According to the World Council, the survey, which looked at a one-year period from July 2022 to June 2023, produced several key findings, including:
- The regulatory compliance costs of Ukrainian credit unions account for 30% of their total operating expenses and nearly 7% of their total assets.
- Smaller credit unions incur the largest relative costs for regulatory compliance, at 47% versus 30% on average in the sector.
- Almost half of credit union employees’ working hours are spent on fulfilling these regulatory requirements.
- Almost one-third of all regulatory compliance costs account for prudential risk management (compliance with licensing terms, financial ratio calculation, preparation and submission of reports and information per requests from the regulator, internal and external audits).
‘Quite Significant’
WOCCU said the survey results show the costs that Ukrainian credit unions incur for regulatory compliance are “quite significant and often exceed both the capabilities and needs of individual credit unions.”
This may result from a lack of proportionality applied in credit union regulation and supervision, WOCCU added.
"Regulatory requirements for credit unions are constantly changing, so it’s important to assess their impact on day-to-day business. The survey allowed us to see how it affects small and large credit unions and identify the costliest areas," Ivan Vishnevskiy, deputy chief of party for the CAP Project, said in a statement. "Some solutions to reduce compliance costs are proportional and risk-based regulation, as well as the introduction of standardized and automated procedures across the sector."
Moving Forward
According to WOCCU, the CAP Project will leverage the results of the study to continue advocating in front of the Ukrainian Parliament (Verkhovna Rada), NBU and other government authorities in Ukraine, as well as with international partners to implement a more balanced approach for ensuring both effective prudential supervision and compliance cost reduction for credit unions in Ukraine.
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