Comisia Națională a Pieței Financiareold.cnpf.md/file/CNPF/Raport_2010_eng.pdf3 CONTENTS Message of the Chairman of National Commission of Financial Market 8 Chapter I. ACTIVITY

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CONTENTS

Message of the Chairman of National Commission of Financial Market

8

Chapter I. ACTIVITY OF THE NATIONAL COMMISSION OF FINANCIAL MARKET

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I. Institutional Development of the National Commission of Financial Market (NCFM)

10

II. Achievement of Activity Objectives of the National Commission of Financial Market

28

2.1. Regulatory activity 28 2.2. Authorization and licensing activity 31 2.3. Monitoring and control activity 35 2.4. Protection of the right of the participants of the non-banking financial market

41

2.5. Legal activity 2.6. Activity of specialists’ certification

43 45

2.7. International cooperation activity 46 2.8. Informational transparency 53 2.9. Activity of preventing and combating the money laundering and terrorism financing on the non-banking financial market

55

Chapter II. ORGANIZATION AND FUNCTIONING OF NON-BANKING FINANCIAL MARKET

57

I. Development of securities market 57 1.1. Primary Securities Market 57 1.2. Secondary Securities Market 59 1.3. Foreign investors participation in transactions on the securities market 63 1.4. Financial results of Joint Stock Companies’ activity 65 1.5. Activity of professional participants on the securities market 66 II. Insurance market development 74 2.1. Insurance companies’ activity 74 2.2. Activity of insurance and/or reinsurance intermediaries 2.3. Street Victims Protection Fund

82 84

III. Development of the Microfinance Sector 85 3.1. Activity of savings and Credit associations 86 3.2. Activity of microfinance organizations 97

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ANNEXES

Annex No. 1 Organizational structure of the National Commission of

Financial Market 102

Annex No. 2 Regulatory decisions of the National Commission of Financial Market approved in 2010

103

Annex No. 3 By-Laws examined by the National Commission of Financial Market at the request of other authorities with corresponding letters of advice

107

Annex No. 4 Recordings made in the State Register of licenses issued, re-issued, suspended and withdrawn in 2010

109

Annex No. 5 Authorizations of reorganization issued to Joint Stock Companies in 2010

119

Annex No. 6 Information on contraventions detected on the non-banking financial market in 2010

120

Annex No. 7 List of Joint Stock Companies which developed constitutive issues in 2010

122

Annex No. 8 List of Joint Stock Companies which developed supplementary issues in 2010

123

Annex No. 9 List of Joint Stock Companies that have made changes in the State Register of Securities in 2010

127

Annex No. 10 Public offers registered and developed on the secondary market in 2010

130

Annex No. 11

Transactions with securities of Joint Stock Companies included in the listing of Moldova Stock Exchange in 2010

138

Annex No. 12 Free float ratio for issuers included in the listing of Moldova Stock Exchange as per 31.12.2010

139

Annex No. 13 List of Joint Stock Companies which registered securities issues with participation of foreign capital in 2010

140

Annex No. 14 Purchases and sales of securities made by foreign investors depending on the home country in 2009-2010

141

Annex No. 15 List of Joint Stock Companies which submitted the annual report on securities for 2009

142

Annex No. 16 Results of economic and financial activity of Moldova Stock Exchange according to the situation at the end of 2010

161

Annex No. 17 Results of economic and financial activity of the National Securities Depository of Moldova according to the situation at the end of 2010

161

Annex No. 18 Results of economic and financial activity of non-banking brokers/dealers according to the situation at the end of 2010

162

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Annex No. 19

Information on the amount of transactions made via non-banking brokers/dealers in 2010

163

Annex No. 20 Amount of transactions with corporate securities made via commercial banks in 2010

164

Annex No. 21 List of independent registrars who worked and provided register of issuers keeping services in 2010

165

Annex No. 22 Results of economic and financial activity of independent registrars according to the situation at the end of 2010

166

Annex No. 23 Economic and financial situation of investment funds in process of forced liquidation at the end of 2010

167

Annex No. 24 Economic and financial situation of investment funds in process of liquidation on own initiative at the end of 2010

168

Annex No. 25 Economic and financial situation of trust managers at the end of 2010

169

Annex No. 26 Contracts of providing services by companies for estimation of securities and assets related to them

170

Annex No. 27 Results of economic and financial activity of companies for estimation of securities and assets related to them at the end of 2010

170

Annex No. 28 Information on services for consulting and investment consulting developed by professional participants of the non-banking financial market in 2010

171

Annex No. 29 Insurance premiums subscribed in 2010 172

Annex No. 30 Compensation and insurance claims paid in 2010 173

Annex No. 31 Balance sheet of insurance companies according to the situation at the end of 2010

174

Annex No. 32 List of insurance companies with foreign capital 175

Annex No. 33 Placing of reserves and insurance funds of insurance companies according to the situation at the end of 2010

176

Annex No. 34 Report on reinsurance operations 178 Annex No. 35 Main activity indicators of insurance companies at the end of

2010 179

Annex No. 36 Financial results of insurance and/or reinsurance brokers 180 Annex No. 37 General information regarding economic and financial situation

of savings and loans associations at the end of 2010 183

Annex No. 38 Key indicators on the activity of microfinance organizations at the end of 2010

200

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Main Acronyms and Abbreviations Used

SCA Savings and Credit Association

TA Trust Administrator

BaFin German Financial Supervisory Authority

IRB Insurance/reinsurance broker

CB Commercial Bank

EBRD European Bank for Reconstruction and Development

WB World Bank

NBMI National Bureau of Motor Insurers

NBM National Bank of Moldova

MSE Moldova Stock Exchange

IC Insurance Company

CCECC Centre for Combating Economic Crimes and Corruption

ICEEC Integration Committee of the Eurasian Economic Community

TC Trust Company

JIC Joint Insurance Company

NCFM National Commission of Financial Market

NSC National Securities Commission

CIS Commonwealth of Independent States

NSD National Securities Depository

CEE Central and Eastern Europe

FATF

NNIF

Financial Action Task Force

Non-mutual Non-specialized Investment Fund

IMF International Monetary Fund

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IAIS International Association of Insurance Supervisors

ICURN

IOSCO

International Credit Union Regulators’ Network

International Organization of Securities Commissions

IOPS

FCC

International Organization of Pension Supervisors

Foreign Capital Company

JV Joint Venture

MMoU

MO

Multilateral Memorandum of Understanding

Microfinance Organization

GDP Gross Domestic Product

RISP Rural Investment and Services Project

RM Republic of Moldova

SSR Securities State Register

JSC Joint Stock Company

SAPI

ML/TF

Automated Interbank Payment System

Money Laundering and Terrorism Financing

CS Commercial Society

IFRS

IMS

International Financial Reporting Standards

Informational Management System

LLC Limited Liability Company

USA United States of America

EU European Union

USAID United States Agency for International Development

WOCCU World Council of Credit Unions

CHAIRMAN’S SPEECH

Republic of Moldova, CHISINAU 2011 National Commission of Financial Market activity8

CHAIRMAN’S SPEECH

The reforms agenda of the National Commission of Financial Market (NCFM) sights out ambitious reforms in the field of adequate regulation of financial non-banking services. On the medium term, the Law for approval of the Development Strategy of non-banking financial market for 2011-2014 and the Plan of actions for its implementation, adopted by the Parliament of the Republic of Moldova represents a key component of this approach, which establish a new vision and clearly determine the trend of its development for medium term. The economic crisis experience stressed on important deficiencies and it is obvious that immediate reforms are necessary, both to finance the economic growth and to ensure non-banking financial system’s stability.

The development of key-segments of the non-banking financial market in the Republic of Moldova, including capital market and pension funds, remains behind the countries from the region and south-eastern European countries. Reduced liquidity and high level of market infrastructure fragmentation caused an imperfect estimation of the cost of financial instruments and their insufficient evaluation. The mentioned weak points limit the activity of institutional investors, causing significant risks for their development.

In order to restore a functional sector of non-banking financial services, NCFM has developed and promoted clear legal actions associated with the regulatory reform. This set of legal actions aims to ensure the development of a transparent and well regulated capital market, the financial stability and the implementation of a new structure of non-banking financial supervision. The approach of each field’s reform highlights the necessity to replace the traditional approach of financial market segments regulation which determines challenges for services providers. The priority of respective initiatives is the implementation of a legislation which will stimulate the long-term development.

Important regulatory measures were undertaken in the field of solvency regime consolidation for insurance companies, being developed and promoted the relevant legislation which determines conditions and requirements for the guarantee of insurance companies’ financial stability, clear rules for insurers’ obligation to establish the necessary solvency margins for cushioning the unflattering economic fluctuations and avoiding the threatening of insurance obligations payment.

In order to assure the financial stability on the non-banking financial market, NCFM became the founding member of the Financial Stability Committee and signatory of the Memorandum of Understanding on maintaining financial stability, which determines the measures to fight the causes of systemic economic crisis, to establish the effective procedures of authorities’ interaction and to realize a coordinative approach to bring full confidence to the financial institutions.

CHAIRMAN’S SPEECH

National Commission of Financial Market activityAnnual Report 2010 9

Informational development represents a priority objective of NCFM, aimed to

ensure the transition towards an activity adapted to the risk based supervisory principles and to guarantee the execution of the functions established by law, being offered electronic services for professional participants and ensured rapid information of the public.

Within the component of institutional and operational consolidation, having the support of development partners, it was performed the modernization of informational technologies equipment and IT infrastructure development being created two modern information products for communication and data processing purposes.

In order to become a strong and independent institution, NCFM shall consolidate its governance structure according to international standards and principles. This objective requires respecting the principles of operational independence, financial autonomy, responsibility and confidentiality in order to implement a supervisory process based on risk evaluation and management, prudential standards, efficient structures and adequate supervisory capacities in accordance with the best international practices.

NCFM supervises diverse non-banking financial institutions, which have different supervisory principles and prudential standards, thus the application of more severe risk based principles developed differently for each kind of institution. In this respect, NCFM has a strong commitment to maintain financial stability on the non-banking financial market through adequate regulations for existing and potential risks, an efficient management of the system of risks, thus ensuring people confidence in the non-banking financial system.

The education process of financial products consumers becomes more important, especially when these products become more available for the consumers and each of them has a decisive role in the decision making process. On this aspect NCFM activity is oriented to promote the informational and legal framework regarding non-banking financial market and adequate protection of consumers’ rights.

The future of non-banking financial market depends on our common capacity to develop modern, efficient and advanced technologies to respond to the increasing society needs. For this reason, NCFM is ready to handle new challenges, to better coordinate its policies and apply solutions for the current problems and to the developing perspectives.

In order to achieve the strategic objective for redefining the non-banking financial market, I wish you success and progresses in development aimed to create new opportunities for market operators and new benefits for consumers of non-banking financial products.

Mihail Cibotaru Chairman of the National Commission on Financial Market

Republic of Moldova, CHISINAU 2011 National Commission of Financial Market activity


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Chapter I. ACTIVITY OF THE NATIONAL COMMISSION OF FINANCIAL MARKET 1. Institutional Development of the National Commission of Financial Market (NCFM)

Having as its primary objective the maintenance of financial stability on the

non-banking financial market, NCFM activity was focused on continuing the process of strengthening its institutional capacity in order to implement:

- principles of supervision based on the system of risk evaluation and management;

- prudential standards based on the best international practices; - efficient and simplified infrastructure for market activity, and; - developing adequate capacities for on-site supervision. Having the support of financial sector reform project "Moldova Dutch TA-TF

Financial Sector Reform ", managed by the World Bank, as administrator of grant funds provided by the Netherlands Ministry of Cooperation Development, it was conducted a comprehensive assessment of NCFM activity oriented to identify areas where consolidation would be appropriate and need further development. NCFM supervises various non-banking financial institutions, for which different principles of complex supervision and prudential standards as implementation of stricter risk-based principles have advanced in a different way for some institutions than others. Applying risk-based supervision and prudential standards require staff to perform complex analysis, which is directly linked to the formation of the professional capacities of NCFM.

The assessment of NCFM included comparative analysis of relevant international best practice in the meaning of governance structure for the non-banking financial sector related to governance of similar financial regulators, and similar basic principles of insurance (ICP) of the International Association of Insurance Supervisors (IAIS, October 2003), Principles of private pension supervision of the International Organization of Pension Supervisors (IOPS, August 2006), the securities regulatory objectives and principles of the International Organization of Securities Commissions (IOSCO, February 2008) and Standards of best practice promoted by the World Council of Credit Unions (WOCCU).

The rigors of governance applied internationally call for the process of accession to international institutions as non-banking financial sector regulator to comply with international best practice standards of independence.

Assessment conclusions on how the governance structure of NCFM should be consolidated according to EU standards and international best practices and how these principles can be implemented further towards a strong and independent institution, established the following:

National Commission of Financial Market activityAnnual Report 2010


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Diagram No.1 Consolidation of NCFM structure according to EU and international standards

Operational independence To ensure the freedom and independence of NCFM activity without

interference, it is unconditionally prohibited to any state institution or private entity to provide guidance or to interfere in any way in the NCFM activity regarding individual cases, general policy or legislative and supervisory initiatives.

This rigor is of significant importance to IOSCO, IAIS and IOPS Principles which requires a non-banking financial regulator like NCFM to have political independence and financial autonomy. The regulator must operate without external interference from the political sector, private or other sectors. The decision-making process will be the exclusive domain of NCFM and never become an object of the consultation or approval from a governmental institution or other authority.

NCFM exclusion from the central public administration system was a first step in complying with the principles of independence. As result of legislative amendments, made by the Law No.144 of 02.07.2010 "For changes and amendments to some legislative acts" (hereinafter - the Law No.144 of 07.02.2010), NCFM is an autonomous public authority, responsible to the Parliament.

To strengthen further the independence, NCFM must have property, wealth and full economic power. NCFM economic power will not include limitations regarding the possibility to improve the living conditions of its employees by offering long-term loans for this purpose.

Current structure •Law on NCFM •Current amendments to the Law on NCFM •NCFM is not part of the system of central public administration •NCFM is not regulated by the legislation on civil servants •Mandate of the members of the Council of Administration states for five years

Best EU and international practices •Independence of the non-banking financial market regulator is a requirement to become an EU member •IAIS Principles for insurance supervision •IOPS Principles for private pensions supervision •IOSCO Principles for securities supervision

Consolidated NCFM governance structure •Operational independence •Financial reporting according to IFRS and international independent audit •Independence guarantees •Protection of intimidations •Responsibility •NCFM objectives and responsibilities •Procedural and regulatory process •Confidentiality •Information exchange •Ethic behaviour



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Financial Autonomy In order to ensure freedom and economic independence of NCFM for

achieving the objectives set by legislation, the sources of funding must include: - annual fees for the supervision of non-banking financial institution

calculated from its net income and other taxes and fees for public services provided, including licensing of institutions;

- grants, technical assistance from individuals, legal entities and international organizations;

- financial support from the state budget for the development of non-banking financial market reforms.

According to the international principles of economic independence, NCFM must have full power and competence to determine the amount of taxes and fees to its annual budget, providing funding for development and operational costs, motivation and social support of the staff. Also, NCFM must have full authority to decide on the allocation of its resources and operational flexibility to allocate a sufficient amount of resources to achieve business objectives.

IOSCO, IAIS and IOPS Principles stipulate that NCFM should have a stable and continuous source of funding sufficient to ensure the fulfillment of its regulatory and operational objectives. Funding should be sufficient to resolve the difficulty of attracting and keeping qualified and experienced staff and to ensure sufficient funds for its ongoing training.

Financial reporting of NCFM must meet IFRS, the institution also being audited by an independent auditing company internationally recognized.

NCFM exclusion from the civil service system as a result of legislative amendments, made by the Law No.144 of 02.07.2010, had a positive effect on dealing with problems of attracting and retaining staff and ensured independence to set wages comparable to the level of salary in the private sector, according to the international principles of economic independence.

Independence guarantees In order to ensure a better NCFM independence it is necessary to provide

protection for the Administrative Council from threats resulting from political decisions.

IOSCO, IAIS and IOPS Principles set out requirements for Council members to follow strictly the independence procedures such as appointment, mandate period and dismissal criteria.

The regulations in force, according to which Council members are appointed by the Parliament, represent a good way to ensure the NCFM independence. Council members should be approved by an open and competitive selection process, and applicants must meet the qualification criteria relevant to the task of NCFM. Dismissal from office is to be limited only in cases determined by law, to provide members with better job security and consequently - independence.



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NCFM personnel must be protected from intimidation NCFM staff must be protected from threats and intimidation in carrying

out any powers or responsibilities established by law. A prior element in strengthening the NCFM independence is to improve

the legal protection of the institution and its staff. The best standards internationally applied ensure adequate legal protection of NCFM Board and staff for the proper performance of its regulatory powers and administrative duties, provided that the person acted in good faith.

NCFM must have full authority to reimburse Council members and staff against any legal costs incurred if legal action is taken against an employee during the performing or intention to perform functions or duties established under law, provided that the person acted in good faith.

NCFM responsibility Increased NCFM independence imposes higher liability related to the

public. Independence provided to NCFM must be correlated with responsibility. It is made through annual reporting to the Parliament on the work of NCFM and non-banking financial market functioning, President of the Republic of Moldova and the Government, as well as to the public in accordance with best international practice standards. The annual report includes the most important activities and achievements during the financial year, work related to supervision, the overall analysis of development institutions and non-banking financial market segments, the priorities for the coming year.

To ensure a more transparent use of resources, the annual report must include a financial statement under IFRS, NCFM being audited by an independent auditing company internationally recognized.

NCFM objectives and responsibilities NCFM objectives and responsibilities on non-banking financial services

supervision should be clearly defined and regulated by law. IOSCO, IAIS and IOPS Principles set out requirements that the

responsibilities, powers and authority of NCFM to be clearly defined and set transparently by law. NCFM objectives for financial services supervision must:

- protect the interests of policyholders and investors; - ensure that markets are fair, efficient and transparent; - ensure financial stability of licensed institutions; - reduce systemic risks. The current regulation on the protection of the rights of financial market

participants creates some uncertainty about NCFM obligation to support and assist individual market participants, so that it is to be specified by promoting the interests of investors in general.



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NCFM should not be responsible or prosecuted for the failure of a supervised institution or any other institution failed to comply with the rigors of the law. Also, NCFM is not representing an adversely affected person against a licensed institution or any other person. Notification by an investor of a possible violation or conduct that is not in accordance with the law can lead to an investigation or inquiry by the NCFM regarding the institution, but not representing those affected against the licensed institution.

Procedural and regulatory process of NCFM NCFM decision process should ensure consistent, comprehensible,

transparent, fair and equitable appliance. NCFM does not take adverse action against a person without giving

reasonable opportunity for the person in the circumstances to present facts and arguments. When circumstances require immediate action, such an opportunity is offered as soon as possible. Decisions taken by NCFM should be made in written form and clearly state the legal reasons and the fact that they are based on law. A person, who has been adversely affected by a decision of NCFM action or failure thereof, may appeal the decision or inaction of the Board and may, after receiving the responses, given to appeal against a court decision.

NCFM must disclose and explain its policies in important operational areas, with the exception of enforcement and surveillance policies, such as the interpretation of regulatory actions, setting standards, or opinions, indicating the reasons for regulatory actions. In formulating policies, NCFM must ensure the estimation of its potential costs.

Before approving, all regulations issued by NCFM are published on the official website or through any other means deemed appropriate, and are available for public comment. NCFM ensures that all rules and regulations to be available publicly.

Confidentiality Council members and NCFM staff must follow rules of confidentiality and

secrecy provisions on personal data protection. Current privacy legislation is too limited and general, and refers only to

requiring that the Council members and employees must ensure confidentiality of information obtained in exercising their duties.

According to the principles applied internationally, NCFM must publicly explain its policy objectives, to report on their implementation, including providing public information on institutions and problematic actions. Any other information in which might be identified natural or legal person, which is obtained in the exercise of its functions, must not be made public by the Board member or employee of NCFM. Information treated as confidential information may be disclosed to the public with the consent of each person and entity that can be identified from this information.



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If NCFM examines the issues, confidential and commercially sensitive information, it must be subject to appropriate safeguards to prevent improper use or disclosure. NCFM personnel should be required to meet appropriate standards of confidentiality and protection of personal data, as well as develop procedures for the publication of investigation reports, which are consistent with the rights of individuals, including privacy and data protection.

NCFM may disclose information without the consent of each person or entity which can be identified from this information, when deemed necessary in the following situations:

- to allow NCFM to perform any of its functions; - the purpose of preventing or detecting crimes; - in connection with the performance of an international obligation, such

as information exchange arrangements with other domestic and foreign supervisory or

- to assist any domestic or foreign supervisory authority exercising functions corresponding to any of the functions of NCFM.

Council members or employees of NCFM cannot use the information obtained as a result of their activity to beneficiate from economic or other advantage for himself or a related party.

Information exchange with other supervisory institutions NCFM must have the authority to exchange public and non-public

information with national and foreign counterparts. A basic requirement applied internationally establishes that NCFM

must have effective arrangements for cooperation and communication of information between domestic and foreign financial supervisory and other responsible authorities.

Current regulations provide NCFM the right to cooperate with specialized international organizations, and relevant to their membership, without detailing the scope of competence. According to international regulations, NCFM must have full power to conclude agreements or arrangements with any other financial sector supervisor, domestic or foreign, or law enforcement agency to prevent and combat money laundering and terrorism financing, or Financial Intelligence Unit to exchange financial information concerning supervision and cooperate in other ways in the field non-banking financial market supervision.

NCFM competence to share experience with another national or external supervisor should establish clear areas regarding:

- relevant supervisory information, including specific information required and gathered from a supervised entity, a listed or a public company;

- investigation and enforcement matters; - determination in relation to permits, licenses and approvals; - market conditions and events; - customer identification, and



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- information on persons with who are in positions of responsibility in a supervised entity, a listed or a public company.

NCFM must take reasonable steps to ensure that any information made available to another supervisor will be treated as confidential by the hosting supervisory institution and will be used only for surveillance purposes. Also, it should be ensured that the supervisory authority receiving the information will consult NCFM before taking action based on evidence or received information.

Ethical behavior requirements Council members and NCFM staff must comply with higher professional

standards and avoid any conflicts of interest. Council members and NCFM staff should be required to fulfill legal

requirements or comply with a Code of Conduct to address the need of avoiding any conflicts of interest. The hardship imposed regulatory requirements and a process for investigating and resolving allegations of violations of ethical and professional behavior and legal or administrative sanctions that did not met standards of professional conduct. A perspective vision on institutional reform of NCFM is presented below in the chart:

Diagram No.2 Perspectives of institutional development

Professional participants on the financial market The authority of the NCFM extends to financial market participants, including

issuers of securities, investors, policyholders, members of savings and loan associations, clients of microfinance organizations and financial market professional participants.

The main objectives of the NCFM are ensuring stability, transparency, security and efficiency on the non-banking financial market, prevention of risk and manipulations on the financial market, protection of financial market participants.

In the context of the reform process, number of professional participants evolved, facing qualitative changes following the development of the regulatory

NCFM undertook numerous significant steps in order to adjust its regulations and legal framework to EU and international standarts

Currently the primary objective of the NCFM is succesful elaboration of the draft law regarding the National Commision on Financial Market

The newly approved corporate structure of the NCFM is in line with the core principles of IAIS, IOSCO, IOPS and WOCCU



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framework to strengthen the insurance market. Evolution of professional participants in the financial market is presented in the table below.

Table No.1 Evolution of the number of professional participants on the non-banking financial market

Nr. Suprvised entities Situation from: 31.12.2009 31.12.2010

1. Professional participants on securities market, including: 62 63

Securities Stock Exchange of Moldova 1 1 Securities National Depository of Moldova 1 1 Independent registrar 10 10 Borers/dealers 21 22 Investment funds in the process of forced liquidation 9 9

Investment funds in the process of voluntary liquidation 9 9 Companies of fiduciary investments administration 7* 7*

Companies for the assessment of the value of securities and assets related to the

4 4

2. Professional participants on the insurance market, including:

791 1048

Insurance companies 24 24 Insurance/reinsurance brokers 45 63 Insurance agents 722 961

3. National Bureau of Motor Insurers 1 1

4. Professional participants in the micro-finance sector, including:

430 442

Savings and loans associations 394 398 Central association 1 1 Micro-finance organizations 35 43

5. Non-state pension funds 1 2 6. Manager of non-state pension funds’ assets 1 1 7. Credit history bureau 0 1 TOTAL 1286 1558

* three companies of investments fiduciary administration are in liquidation process

Strategy for the non-banking financial market development for the years 2011-2014

Law approving the Strategy for the non-banking financial market development for the years 2011-2014 and Action Plan for implementation of the Strategy for the non-banking financial market development for the years 2011-2014, adopted by the Moldovan Parliament, established the non-banking financial market reforms to redefine their role to ensure the transition towards a regulated and efficient market and to restore civil society’s confidence in its operating mechanisms. In the context of the non-banking financial sector reforms, this policy document specifies supervisory and regulatory responsibilities of NCFM over leasing and microfinance organizations.

With that goal the transformation of non-banking financial market in an effective mechanism for attracting investments into the real sector, the Strategy sets out the priority of strengthening regulatory and supervisory regime through implementation of best practice applied internationally. Progress of implementation will result in creating an effective mechanism to protect investors



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and recipients of non-banking financial services and encourage non-banking financial market development in general.

In this context, the vision of the Strategy for the non-banking financial market development for the years 2011-2014 aspires to align national legislation with European standards for non-banking financial market and, consequently, will contribute to European integration and development of priority areas aimed at adjusting national policies national to best practice applied internationally. The key objective of the Strategy is to ensure a better quality of non-banking financial services and sustainable economic growth by strengthening non-banking financial market.

Monitoring of national programs and strategies implementation Monitoring activity of the activities included in the national policy documents

aimed at developing a framework for cooperation with other public authorities on the non-banking financial market reform and development of the national regulatory framework in the field, adjusted to the best practices implemented at the national level. During the reference period NCFM has monitored the implementation of 14 national policy documents, being made 56 actions as executor/co-executor presented in the table below:

Table No. 2. Actions performed under national programs and strategies

Indices 2009 2010 Number of monitored programs and strategies 9 14 Number of activities performed as executor/co-executor 60 56

Fulfilling the actions set out within the different programs and strategies

aimed at consolidating the institutional capacity and ensuring fair and transparent activity of the non-banking financial market, improving the existing infrastructure and creating prerequisites for new investment opportunities.

To ensure the effective implementation of actions proposed in different programs and strategies, NCFM seeks for a better coordination in the development of sectorial policies, comprehensive examination of the social, economic, financial implications over the developed policies, as well as capacity building for strategic planning, analysis, monitoring and policy assessment.

Cooperation with other public authorities In order to accomplish the tasks set by law, on the basis of 7 agreements

concluded before, NCFM has maintained and developed cooperation relations with institutions and public authorities at the national level. In the reference period, the cooperation framework was supplemented by the Cooperation Agreement with the National Bank of Moldova and an agreement on mutual exchange of information with the State Enterprise “Centre for State Information Resources “ Registru “.

Financial stability of the non-banking financial market In order to ensure continuing financial stability of the non-banking financial

market, NCFM is a founding member of the Financial Stability Committee and



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signatory of the Memorandum of Understanding on maintaining financial stability, a document developed with the assistance of IMF experts that determines the measures to combat the causes of systemic financial crisis, establishing an effective framework of interaction between authorities and establishing a coordination approach to ensure full confidence in the banking financial institutions nationwide.

The Memorandum of Understanding on maintaining financial stability has been published on the NCFM official website and reflects the decision making process, the delimitation of supervisory responsibilities and the development of a plan for non-banking financial sector systemic risks. NCFM obligations and responsibilities to ensure the stability of non-banking financial system include the following:

- authorization, supervision and regulation of the non-banking financial market activities;

- monitoring and submission of reports on non-banking financial market participants, including sectors mostly exposed to risks, which may influence the non-banking sector;

- ensuring transparency of financial market; - recommending the guarantee funds for investors; - adopting the measures intended to avoid systemic risk on the non-banking

financial market. Decision-making process With the realization of tasks set by legal framework, according to the

competence established by law, the NCFM Council of administration approves decisions, ordinances and, where appropriate, protocols, the structure of which in the reference period is presented in the table below:

Table No.3. Number of meetings of NCFM Council of administration and the structure of approved decisions Nr. Indices 2009 2010 1. Number of meetings of the Council of Administration 61 58 2. Number of adopted decisions 305 307 3. Number of adopted ordinances 47 58 4. Number of protocol records 166 152

NCFM plan of activity for 2010 has been developed taking into account the

responsibilities stipulated in the Law No. 192-XIV of 12.11.1998 "On the National Commission of Financial Market" (hereinafter - the Law No. 192 of 11.12.1998), under the key national policy documents and was approved by NCFM Ordinance nr. 58/16 of 30.12.2010, being posted on the NCFM official website.

Given the complexity and diversity of the carried out activities and of the strategic objectives of the non-banking financial market development, NCFM set the following priorities in the development and consideration of decisions:

- to improve the quality of approved decisions; - to use the procedures of internal control for the execution of approved

decisions;



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- to increase the employees’ responsibility in developing draft decisions.

Transparency of the decision making process Having as main objective the involving of all relevant stakeholders in the

process of drafting legislation, NCFM has ensured that drafts of the legal acts are always presented in a public consultation forum. By various means NCFM has ensured the participation of the general public, institutions and representatives of the business circles in the process of decision making and law drafting. Using media channels like the official web page, the industry gazette, articles in nation-wide newspapers NCFM has ensured the dissemination of the actions regarding the regulations on the non-banking financial market.

Before the final approval stage, all the regulations drafted by the NCFM are published on the official website or are brought to the attention of the market participants by an array of options considered suitable by the commission, so that the stakeholders would be able to comment on those decisions. NCMF offers all the enforced and existing regulations and by-laws to the interested public.

The existing cooperative relationship between the NCFM and the Experts Council – council whose participants are mostly eminent representatives of the financial and banking industry, professional associations, legal practitioners in the fields of Insurance, microfinance – has ensured a clear and direct communication channel between the industry and consumers on one end and the regulatory agency on the other. In the period covered by the report, the Council of Experts held meetings and presented opinions on five draft laws and by-laws.

Organizational structure and professional development Organizing the responsibilities and activity requirements of the NCFM staff

according to institutional lines, similar to the way activity is organized in the majority of EU states regulators will enhance responsibility of the employees while ensuring an efficient and effective cooperation with colleagues from international supervision and regulation bodies – IPOS, IAIS, IOSCO. The thorough terms resulting from the EU directives and international standards include the following.

According to the international principles, risk based supervision is the method by which a supervisory institution channels the scarce resources to specific measures and areas which are most efficient and effective in realizing the statutory objectives of the particular regulator. Subsequently, the supervisory authority is concentrating its efforts on the most prominent areas possessing the highest threat to the authority’s objectives.

For a more efficient process of achieving its objectives, NCFM continued the transition process of keeping up the procedures and activities in line with the modern principles of risk based supervision and the most relevant international best practices of similar supervisory institutions.

The prospective vision regarding the application of the risk based supervision principles to be applied by NCFM is presented in the following diagram:



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Diagram No.3: The prospective vision of reducing threats to the statutory objectives.

An analysis of the NCFM activity has identified the characteristic threats to

the statutory objectives of the institution in the following areas of interest: Stability and security: Financial failure of a single or multiple non-banking

financial institutions is the most typical threat for the stability and security of the financial market in general. Insolvency or lack of liquidity of an institution will induce losses to the investors or the creditors of the involved institution or a group of institutions. The credit risk that results in a failure will undoubtedly lead to loss of confidence on the market.

Systemic Risk: Systemic risk is defined as the one resulting from the failure of a number of major non-banking financial institutions that are involved in multiple transactions such that the volume and the number of such failed transactions will serve as a threat for the stability of other institutions of the financial system.

Transparency: Lack of transparency on the non-banking financial market poses a real and resinous threat since this vice increases the risk of manipulation on the stock market and cases of mismanagement of the non-banking financial institutions. Encouragement of accurate behaviour of the market participants will prevent wrongdoings and will increase consumer awareness of the benefits and possibilities of the non-banking financial market.

Manipulations: Manipulation of securities selling prices represents a typical risk associated with transactions with securities, especially in the cases of less liquid stock or securities that are subject to infrequent trading.

Efficiency: The risk of non-banking financial market efficiency arises when the costs of conforming to the stipulations of the market regulator are prohibitive – relative to the available financial resources – for the market participants. The limited financial resources are reducing the market efficiency and also hindering the cooperation and competitive possibilities of the non-banking financial institutions.

In order to execute its tasks in an efficient manner, it is crucial for the NCFM staff to be knowledgeable about the probability and significance of potential risks for the entire non-banking financial market. According to the international principles of independence and operational activity, NCFM must be vested with enough powers and authority to make strategic budgetary decisions, including the allocation of financial resources aimed towards the professional development by

NCFM has registered significant accomplishments regarding the process of aligning its activities with EU and international sandards relative to risk based supervision

Current activities include the drafting of Guides on risk based supervision, guides which will offer a detailed contingency plan in case the need arises, with detailed steps for various situations

-bankruptcy, lack of funds in a non-banking financial institution.

Increased requirements regarding the professional level of employees, development of modern IT systems and allocation of sufficient financial resources for various training activities..



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means of workshops and trainings for the understanding and identification of the various risks existing on the market. It is important for the employees to have a sound understanding of the market functioning and the implications and importance of the market mechanisms involved.

The amendments made to the Law No.144 of 02.07.2010 and the exclusion of the NCFM from the central public administration and the Civil Service served as the first step towards institutional independence. The implementation of the suggested changes had a positive influence on solving legal obstacles related to the employment of qualified personnel and establishment of a competitive wage cap, thus allowing NCFM to offer competitive salaries and conforming to the international principles of economic independence. In order to adjust the legal framework to the recent changes operated, by the Decision of the NCFM administrative council nr 36/10 of 26.08.2010 a new organizational structure has been adopted, according to Annex No.1.

According to international practice, the organizational and operational principles must ensure that NCFM shall not represent any adversely affected person against a licensed institution or any other person. The report by an investor of a possible breach or conduct not in conformity with the law may initiate an investigation or inquiry by the NCFM towards the institution, but the NCFM shall not represent a person against the institution.

In order to help the NCFM staff to develop the skills needed to properly supervision of the non-banking financial institutions in accordance with the internationally best practice standards for risk based supervision the NCFM should look at strengthening training that presently is being provided and other available possibilities to provide training to its staff. The recent initiatives to implement international and EU standards in the non-banking financial market will be helpful in modernizing the market and aligning it with EU markets. It is however important to recognize that these changes will be demanding for the NCFM’s staff and extensive training is required. The following table shows the evolution of the professional development activities undertaken.

Table No.4 Evolution of the professional development activities undertaken

Types of training Year 2009 Year 2010

Activities Number of

employees trained Activities Number of

employees trained National Level 17 22 21 26 International Level 14 29 26 48 In-house training 46 79 30 78

In order to ensure the efficiency of supervisory activity, NCFM should aim to

provide its staff with external training on a regular basis. With the increased independence the NCFM is better able to send off its staff to training provided by international organizations that work on developing these international best practice standards for supervision such as IAIS, IOSCO, and IOPS, so the NCFM should make use of this opportunity to provide its staff with training. The employees must develop aptitudes required for the adequate monitoring of the non-



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banking financial institutions in the area of risk based and prudential supervision according to the internationally acclaimed institutional best practices.

The following diagram shows the prospective vision on the necessary reforms to ensure the best practices for professional development plan for NCFM employees.

Diagram No.4 Actions proposed for institutional development

Information Technology evolutions An important element of the institutional and operational consolidation

component was the upgrading of the IT equipment, with the assistance of the foreign partners, appropriate software for management and control of documents and for book keeping has been developed. Additionally, two new products have been created with the scope of facilitating and improving the information processing and dissemination. Availability of on time and accurate information will serve as the basis for the new paradigm of risk based supervision that NCFM is migrating towards, thus the functions of protecting the general public and monitoring the activities of professional participants according to the principles stated by the law will be more easily and accurately performed.

Once the Information Management System will be operating at full capacity – collecting and processing information from the market – it is expected to serve as a booster for the evolution of the whole non-banking financial market. Also, the use of the State Automated Informational System in Motor Third Liabilities Parties Insurance establishes the insurer obligations to communicate and to provide the information of this type of insurance.

The prospective vision to ensure the development of informational technologies is presented in the diagram below.

Planning:

•The number of employees does not change •All personnel will undergo trainings •Increased requirements for the level of expertise of the personnel •Recruiting independent critical thinkers, highly intelligent, knowledgeable of the non-banking financial

Training needs

•Risk based supervision •Prudential standards and other supervisory principles •Proper application of the new legislative initiatives and principles

Instruiri:

•Seminars organized by international institutions •Trainings based on on-site visits and inspections •Trainings by international experts •Institutional cooperation projects (twinning)



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Diagram No.5 Steps for informational technologies development

Financing requirements and the operational budget According to the existing procedures, by the Parliament Decision No.77-

XVIII of 27.11.2009 “Regarding to the approval of the National Commission of Financial Market budget for the year 2010”, the NCFM budget revenues were set at 11014.8 thousand MDL and budget expenses at 14523.0 thousand MDL, thus registering a budget deficit of 3508.2 thousand MDL.

In line with the requirements of the Law No.192 of 12.11.1998, the external public audit of NCFM economic and financial activity is made by the Court of Accounts. According to the audit report regarding the handling of the public resources, following observations were made:

Table nr 5 Budget execution for the year 2010

Indicators Annual provisions, thousand MDL

Executed, thousand MDL

Level of execution, %

Initially approved

Adjusted Treasury Actually Compared to initially

approved

Compared to adjusted

Revenues 10155,3 11014,8 11740,2 12380,3 121,9 112,4 Expenses 13663,5 14523,0 12791,4 12495,4 93,6 91,5 Deficit (3508,2) (3508,2) (1178,4) (152,9) x x

Balance as of 01.01.2010

3508,2 3508,2 14662,0 12628,7 x x

Balance as of 01.01.2011

x x 13614,7 12517,5 x x

The level of execution of total incomes in NCFM budget for 2010 was 112, 4

percent and for the expenses - 91, 5 percent. The structure and the volume of the revenues approved and effectively realized are presented in the table below:

The present situation •The NCFM has is own IT unit and the general IT status of the NCFM is very satisfactory

•All staff has a computer, access to internet and e-mail

•NCFM has an on-line document management sistem and IT-based accounting system

•The NCFM has its own website and has established usefull connections with other computer registries

IT components that presently are being strengthened •The IT system will be developed to conduct rsk based supervision

•The establishment of the online mandatory vehicle insurance system

The training of the IT staff •The NCFM staff need to be trained in relation to the new IT functions

•The IT staff need to be trained in non-banking supervision so they can help take the performance of the NCFM to higher level

•Adapting the new IT system and the Information Management System to the new necesities of NCFM divisions.



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Table No.6 Structure and volume of the revenues approved and effectively realized in 2010 Revenue indicators (fee/payment) Approved,

thousand MDL

Actually executed, thousand

MDL

Degree of realization

%

Fees received from transactions with securities 4200.0 4879.0 116.2 Payments of the insurance companies and insurance brokers 4187.0 4776.6 114.1 Licensing fees 50.0 107.3 2.1 times Amounts of sanctions and penalties for administrative contraventions applied in accordance with legislation

250.0 491.7 196.7

Revenues from the interest earned on depository and current accounts 1600.0 1413.0 88.3 Revenues from the leasing of the publicly owned real estate 251.1 227.7 90.7 Other legal revenue sources 476.7 485.0 101.7

Total revenues 11014.8 12380.3 112.4 In order to maintain providing support for the development of some non-

banking financial market segments and continue promoting investments in the segment, NCFM has maintained in 2010 the amounts of the fees and payments applied in 2009 and have not pursued taxes and licensing fees from the savings and loan associations and private pension funds.

The structure and volumes of expenses approved and effectively executed in 2010 are presented in the table below:

Table No.7 Structure and volume of fees approved and effectively executed in 2010

Expenses indicators Approved, thousand MDL

Executed, thousand MDL

Degree of realization %

Share, %

Salaries 8291,7 7311,0 88,2 58,5 Compulsory state social insurance contributions 1573,3 1604,5 102,0 12,8 Payments for goods and services 2448,2 1910,2 78,0 15,3 Business trips 145,0 118,9 82,0 1,0 Compulsory medical insurance contributions 250,3 236,7 94,6 1,9 Foreign transfers 164,5 142,8 86,8 1,1 Procurement of fixed assets 150,0 64,2 42,8 0,5 Capitalization of fixed assets repairs 1500,0 1107,1 73,8 8,9

Total Expenses 14523,0 12495,4 86,0 100,0 Overall expenses were executed in 2010 at 86.0 percent as compared to the

budget provision approved for the year, the resulting savings were achieved due to proper financial management procedures and efficient savings regime.

In the structure of the total amount of expenses incurred, the greatest share corresponds to salary related expenses, compulsory state social insurance contributions, compulsory medical insurance contributions encompassing 73.2 percent of the total expenses for 2010. Current maintenance expenses (electrical energy, gas heating, tap water, wastewater and telecommunication) amounted to 15.3 percent, business trips - 1.0 percent, capital repair and maintenance of the administrative building – 8.9 percent and expenses related to general asset base enhancement – 0,5 percent.

By the Decision of the Court of Accounts nr.18 of 19.04.2011, ”Regarding the Report on the audit of management by the National Commission of Financial Market of public financial resources in the year 2010” the financial management capacity of the NCFM was deemed appropriate as per 31.12.2010 and budget



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administration was performed in a legal and regulated manner, without any remarks or cautioning.

NCFM budget policy for 2010 was drafted so as to maintain a minimum level of expenses in order to achieve savings that would compensate the planned budget deficit and also provide financing for the viable current activity. This savings process implied a drastic reduction of all of the expenses items relative to the budget indicators approved for 2010.

In order to sponsor new initiatives aimed at the realization of the tasks derived from the legal provisions, NCFM attracted technical assistance financing. The intense cooperation with international financing institutions in the process of technical assistance allocation is directed towards the development of the regulatory and institutional development framework, including the professional development of the employees and increasing the efficiency of their work.

The changes to legislation implemented by the Law No.144 of 02.07.2010 will have significant influence over the NCFM budget. According to the international economic independence principles, NCFM should be vested with full power and set of competences which will allow it to set up the amount of fees and payments that will be payable in its budget, a fact that will permit financing the necessary development, functioning, motivation and personnel social security projects.

Additionally, NCFM must have full authority over the process of resources allocation for operational needs and be flexible in allocating an adequate amount of resources for its priority projects in the process of achieving its objectives. The financing requirements must be adequate and sufficient in order to assure that competent and experienced skilled personnel is attracted and retained by the NCFM while also having enough resources for the continuous professional development of its employees.

In order to achieve the objectives set forth in the NCFM Decision No.39/1 of 13.09.2010 “On the approval of the regulation on the manner, conditions and the system of remuneration of the NCFM employees” and the negotiation of the Collective employees contract nr. 238/10 of 17.11.2010 registered at Chisinau Employment Inspectorate, NCFM has rolled out a new performance based remuneration procedure with the aim of stimulating employees’ performance and promoting high achievements and also collaborative, team based products. The NCFM independence regarding the establishment of wages comparable to the ones earned by the private sector had a positive influence on employees and served as a tool for employing qualified personnel in line with the best international practices of economic independence.

The prospective vision for NCFM economic independence and freedom to achieve the objectives set by strategies and legislation is presented in the diagram below:



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Diagram No.6 Steps of conforming to the principles of financial independence

The expenses for setting up and maintaining competitive salaries for the employees is a top priority for the NCFM. This priority will be achieved by keeping the current staff and identifying internal sources for the salaries increase, as well as the use of available alternatives for maintaining qualified personnel.

The NCFM independence must be correlated with the responsibility towards the general public. NCFM is in compliance with this obligation by submitting the Annual Report regarding its activity and the functioning of the non-banking financial market to the Parliament, President of the Republic of Moldova, Government as well as to the general public, according to the best international standards and practices.

The prospective vision to ensure a more transparent way of using the NCFM available resources in order to achieve the objectives set by strategies and legislative acts and the reporting method is presented in the following diagram:

Diagram No.7 Steps necessary to improve the reporting mechanism

The Budget for previous years •Income based on fees •Expenses regulated by laws and regulations applicable to the Government entities

Changes to the Budget following from changes to the law •The NCFM is no longer a government entity •It has freedom to set its own salaries, training and travel costs •Income from fees from the securities sector will decline

Budget Consequenses •Assumption: no increase in staff number •Increases in salaries to keep up with private sector •Increases in training and traveling expenses •Explore other ways to retain staff by supporting housing needs

The present form of the

Annual Report

•The Annual Report has found a form that is known and generally accepted

Changes as result of the new NCFM framework

•The impoved independece increases the requirements to the Annual Report

Suggestions

•Reporting method according to IFRS •Auditing by an international independent audit company



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2. Achievement of activity objectives of the National Commission of Financial Market

2.1 Regulatory activity

The NCFM reform agenda for developing of the non-banking financial

market contains numerous ambitious engagements regarding the appropriate supervision and enforcement of the non-banking financial services. Activities relating to the regulation reform encourage the convergence of the enforcing and regulation components being harmonized with the EU norms and procedures regarding the non-banking financial services that aims to ensure the development of efficient instruments of prudential supervision, financial stability of the market participants and the creation of an adequate mechanism for protecting the rights of the investors and users of non-banking financial services. Regulatory initiatives drafted and implemented in 2010 aimed towards directing the future development of the non-banking financial market and are presented in the table below:

Table No.8 Regulation initiatives

Indicators Time period 2009 2010 Legislative acts, total: 0 1 Approved by-laws, total, of which: 14 8 - regulations on the organization and operation of the NCFM internal activity 2 3 - regulations on the general activity principles of the non-banking financial market 1 1 - in the field of securities market 1 1 - in the field of insurance market 4 - - in the field of savings and loans associations 2 2 - in the filed of credit history bureau 4 1 Decisions on changes and amendments of the by-laws, including requirements to the auditors 4 3

Abrogated by-laws, total 3 6 During the mentioned period, NCFM drafted and endorsed 8 decisions

required for the enforcement of the legal acts as well as adjusted the existing by-laws by improving and describing them in detail.

The regulatory activity was directed towards the development of the secondary regulatory framework, providing solutions to the market participants confronted with problems as well as providing information to all the interested parties regarding the provisions of the draft normative and legislative acts and their application area. (Annex No.2).

In order to ensure an open and transparent consultation process with the interested participants, all the drafted by-laws were placed on the NCFM official website for public consultations. The drafted by-laws were submitted for consultations to the members of the Expert Council of the NCFM, being improved with the relevant suggestions.



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Regulations regarding NCFM organization and functioning The legislative changes operated by the Law No.144 of 02.07.2010, have

significantly changed the employees structure, the NCFM budget and the remuneration procedures. To enforce the provisions of the above mentioned Law, there were approved the following regulations:

the NCFM employees structure, approved by NCFM Decision No.36/10 of 26.08.2010;

changes and amendments to the Regulation on organization and operation of NCFM, approved by NCFM Decision No.38/10 of 10.09.2010;

Regulation regarding the means, conditions and procedures of NCFM employees’ remuneration, approved by the NCFM Decision No.39/1 of 13.09.2010.

Regulations in the field of securities market Accomplishing and implementing the practices and regulations of the states

with a high level of investors protection and introduction of similar levels of protection into the national legislation will ensure the adjustment of the country legislation in this field to the best international practices. The development of the Guidelines regarding the content, formulation procedures, way of presentation and publication of the annual report in the field of securities and joint stock companies, approved by the NCFM Decision No.18/10 of 14.05.2010 has created the regulatory framework for joint stock companies as securities market participants to ensure a more transparent information disclosure and to improve corporate government procedures.

Regulations in the field of insurance In order to assure an uniform and acceptable professional development of

actuaries institute and to improve the qualitative impact of the actuaries activity, NCFM operated a set of amendments and changes to the Regulation on certification of specialists of professional participants on the non-banking financial market, approved by NCFM Decision No.44/5 of 18.09.2008.

Regulations in the field of savings and loan associations In order to implement the legislation in the field of savings and loans

associations, NCFM created and enforced the following regulations: Regulation on stabilization fund of the savings and loans associations,

approved by the NCFM Decision No.24/16 of 25.06.2010, which stipulates the procedures for constituting the fund, managing and operating the available resources of the savings and loans associations, this regulation being applicable to the savings and loans associations operating under B and C license category. The stabilization fund has as its main objective to support savings and loans to diminish financial instability risk by applying stabilization measures;

Regulations regarding liquidity fund of savings and loans associations, approved by NCFM Decision No.13/11 of 01.04.2010 which stipulates the



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procedures for constituting the fund, managing and operating the resources of the liquidity fund created for the purpose to ensure centralized money supply for the associations.

Based on the approved regulations, the savings and loans associations operating under B and C license category have to maintain a minimum level of resources in the liquidity fund, according to the Financial prudential requirements of the savings and loans associations, approved by the NCFM Decision No.17/8 of 30.04.2008 and can invest the prudential institutional reserve into the liquidity fund.

Regulations in the field of credit history bureau According to legal provisions, NCFM developed and promoted the draft

Regulation on the organization of sales tenders for credit histories, approved by the Government Decision No.445 of 28.05.2010, which establishes the way of organization of sales tenders for credit histories held by the liquidated credit bureau or the credit bureau which license was withdrawn.

Developed and approved regulations by the non-banking financial institutions and further endorsed by NCFM under the law By Decision No.11/10 of 19.03.2010N, NCFM approved the Moldovan

National Securities Depository Rules, previously developed and approved by the NSD Council according to the law provisions.

Regulation activity carried out by NCFM in cooperation with other central public authorities

NCFM examined 26 legislative and normative draft acts, jointly with other central public authorities – Ministry of Economy, Ministry of Finance, NBM, CCECC etc, formulating proposals for amendment and completion of the promoted regulatory initiatives regarding regulation and supervision of the non-banking financial market (Annex No.3).

The convergence of national legislation with the main provisions and

concepts of EU legislation creates multiple opportunities and exerts a major pressure on NCFM in order to improve the legal framework and build the institutional capacity. On the medium term, harmonization of legislation is a complex process that involves the alignment of policies, relevant and correct transposition of legislation, establishment and allocation of resources needed to implement institutional solutions of best practices applied at international level in the field. This future vision seeks full implementation of the Law for approval of the Strategy for the non-banking financial market development for the years 2011-2014 and Action Plan for implementation of the Strategy for the non-banking financial market development for the years 2011-2014, approved by the Parliament of the Republic of Moldova, which is the main strategic planning document on the medium term that defines the development goals of the non-banking financial market until 2014 and identifies priority measures and actions to achieve these goals.



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Given the importance of international standards transposition in the field of non-banking financial services, this effort, without reference to international principles applicable to institutional development of regulatory and supervisory authority, is not enough. A strong commitment for institutional development in accordance with the IOPS, IAIS and IOSCO principles will be achieved by promoting the draft Law on National Commission of Financial Market, designed to ensure operational, financial and decision-making independence.

Prospective vision on non-banking financial services regulation is presented in the diagram below:

Diagram No.8 Initiatives for medium term regulation

2.2. Authorization and licensing activity In accordance with the provisions of laws and regulations, in the mentioned

period, authorization and licensing activity included: - registration of the securities issues made by issuers from the Republic of

Moldova and granting of the authorizations for their reorganization ; - granting, withdrawal, suspension, re-issuance of the licenses and

authorizations to professional participants (Annex No.4), granting authorizations for their reorganization;

- issuing of the approvals, in cases set by the legislation, on the acquirement of qualified shares in the capital of professional participants regarding changes and amendments to the founding documents (state registration of the professional participant and its subsidiaries and representatives) and in other cases;

- registration of public offers on the secondary market of securities, and their results.

Securities market

•promotion of the draft Law on capital market, adjusted to applied international standards •development of the secondary regulatory framework to implement the legislation in the field of securities market

Insurance

market

•promotion of the dral Law on amendments and changes to the Law on insurance and the Law on compulsory insurance for civil liability for damage caused by vehicles •development of the secondary framework for implementing the insurance legiislation

collective placements and

microfinance sector

•development and promotion of the draft Law on facultative pension funds •development and promotion of the draft law on microfinancing organizations •promotion of the drafts on amendments and changes to the Law on savings and loans associations and Law on credit history bureau •development of the secundary regulatory framework to implement the legislation in the field



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Authorization activity on the securities market According to the provisions of legislation of securities markets during 2010,

the NCFM has been registered: - shares placed at the establishment of 7 joint stock companies; - shares placed within 77 supplementary issues; - authorizations for the reorganization by merger, dismemberment or

transformation of 21 joint stock companies (Annex no.5). As result of examination of applications submitted by 13 JSC regarding

amendments to the share capital, conversion of securities, and 20 applications regarding changes to the names and addresses of the securities issuers there were made changes in the SSR. Securities of 40 JSC were deleted from the SSR.

As of 31.12.2010, 44 entities held licenses for professional activity on securities market, including MSE, NSD, 10 independent registrars, 4 broker companies, 18 dealer companies, 4 securities and assets value assessment companies, 4 fiduciary investments administration, 2 JSC who held register of securities by their own. There were made changes and amendments to the data of the Register of issued licenses, as follows:

Table No.9. Information on the changes and amendments to the data of the Register of issued licenses

Indicators Activity period 2009 2010 Licenses granted 14 26 Licenses reissued 5 2 Licenses suspended 1 - Licenses withdrawn 7 - Licenses expired 14 25 Licenses at the end of the year 43* 44

* in the mentioned number there are included 2 licenses of the joint stock companies who held register of securities by their own

In the mentioned period were granted 26 licenses for the right to perform the

activity on the securities market, from which one new license at request, 25 licenses as result of expired term of the licenses previously issued, including 23 to the professional participants on the securities market and 2 to the joint stock companies that held register of securities by their own.

On request of one broker company, in 2010, NCFM issued a permission for holding a substantial share from shares issued by JSC „Moldova Stock Exchange”.

The level of implementation of the provisions of Instruction on the public offer of securities on the secondary market, approved by NCFM Decision No. 64/4 of 31.12.2008,

36 34 40 42

0

10

20

30

40

50

2007 2008 2009 2010

Diagram No. 9 Evolution of the number of public offers on the secondary market of securities in 2007-2010



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conditioned an increase of the public offers, being registered 42 public offers (Diagram No. 9).

The structure of the public offers on the secondary market of securities registered in the period 2009-2010 is presented in the table below:

Table No. 10 Structure of registered public offers on the secondary market of securities

Type of public offer 2009 2010 2010 as compared

to 2009, thousand MDL units

thousand MDL units

thousand MDL

Total: 40 92650,8 42 131790,4 +39139,6 Voluntary/compulsory criteria voluntary public offers 17 11309,2 10 41979,3 +30670,1 compulsory public offers 23 81341,6 32 89811,1 +8469,5 Sale/purchase/competitive criteria public sale offers 4 452,0 5 176,0 -276,0 public purchase offers 35 92135,4 37 131614,4 +39479,0 competitive public offers 1 63,4 0 0 -63,4

* No purchase offers were registered According to data presented in the table, the volume of transactions in 2010

included 6 public offers registered in 2009 and finalized in 2010, and the volume of transactions performed as result of 32 public offers registered and finalized in 2010.

The division of the public offers in voluntary and compulsory shows an increase of the number of compulsory public offers, including those made in context of the Law No. 1134-XIII of 02.04.1997 “On joint stock companies”, which registered a higher level of responsibility from main shareholders in respecting the legislation provisions and offering to minor shareholders the possibility to sell shares.

Authorization activity on the insurance market Under Law No. 407-XVI of 21.12.2006 ”On insurance” , in order to exercise a

professional activity on the insurance market, the insurance/reinsurance companies get activity licenses for unlimited period, while the insurance intermediaries - for a period of 5 years. As of 31.12.2010, 87 entities held licenses for the professional activity on the insurance market, including 24 insurance companies, 63 insurance and/or reinsurance brokers.

In accordance with data from the State Register of issued, suspended and withdrawn licenses within the authorization activity on the insurance market there were made changes and amendments, as follows:



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Table No.11. Information on the amendments and changes to the data of the Register of issued, suspended and withdrawn licenses

Indicators

2009

2010

Licenses granted 21 25 Licenses reissued 19 57 Licenses withdrawn 4 2 Licenses excluded 1 0 Duplicate of licenses issued 1 0 Licenses considered invalid 0 3 Licenses expired 5 2 Entities which held licenses at the end of the year 69 87

In the mentioned period, NCFM granted 3 licenses for the right to exercise

activity on the insurance market in the category of general insurance, 22 licenses for the intermediation activity in the area of insurance/reinsurance, and withdrew the licenses for the intermediation activity in the area of insurance/reinsurance of the insurance broker ”ARIS BROKER” Ltd. based on its request and of the broker “ASIGCAMPION-GRUP” Ltd.

In the cases set by law, NCFM issued 46 prior approvals under the provisions of Law No. 407-XVI of 21.12.2006, including 39 approvals for the state registration of amendments made to the founding documents and to data recorded in State Register of legal entities and 7 approvals for acquiring, decrease or increase of qualified shares in the share capital of issuers.

Authorization activity in the area of microfinancing As a result of enforcing the provisions of Law on savings and loans

associations no. 139-XVI of 21.06.2007, NCFM issued 4 approvals for state registration of documents for setting up of savings and loans associations in new version and 2 approvals for the state registration of amendments and changes to documents. As result of liquidation, 4 savings and loans associations obtained NCFM approval regarding exclusion from State Register of legal entities.

As of 31.12.2010, 399 entities held license for the activity of savings and loans associations, of which: 329 associations - of A category, 69 associations – of B category and one central association.

According to data of the Register of issued, suspended and withdrawn licenses, the following amendments and changes were made:

Table No. 11. Information on the amendments and changes to the data of the Register of issued, suspended and

withdrawn licenses Indicators Activity period

2009 2010 Licenses granted 357 4 Licenses reissued 1 2 Licenses suspended 2 1 Licenses withdrawn 1 0 Duplicates of licenses issued 1 0 Licenses at the end of the year 395 399



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In accordance with provisions of Regulation on the requirements for the savings and loans associations administrators, approved by NCFM Decision No. 63/6 of 25.12.2007, NCFM examined requests from 33 savings and loans associations holding licenses of B category, from which 23 savings and loans associations got the approval of administrators to their positions, in accordance with the legal provisions.

Licensing activity of credit history bureau NCFM has granted to JC "CREDIT BUREAU" LTD the license for the right

activity of the credit history bureau, providing the right to provide services, processing and storage of credit histories and providing of credit reports and the provision of related services.

Under the terms of legislation, the license gives the right to grant related consulting services to ensure users of credit history with the information and activity of the credit history subjects, statistical services on the information contained in credit histories, to solve other tasks of common interest of credit history bureaus and other rights.

Authorization activity in the area of non-state pension funds According to legal provisions, NCFM issued the approval for state

registration of non-state pension fund „Asigurarea Socială Privată”.

Prospective vision: Convergence of the national legislation with the main concepts and provisions of the EU legislation sets a target for NCFM:

- to improve the organization and functioning of non-banking financial institutions and the quality of documents drafted within the authorization activity;

- to simplify and streamline the licensing procedures; - to adjust the authorization procedures on the non-banking financial market

with the EU regulatory framework and relevant practices. 2.3. Monitoring and control activity Supervisory activity carried out by NCFM aims to ensure the investors

protection, consistent application of law, prevent abuses and frauds, compliance with prudential norms, apply sanctions for violation of legislation and promote confidence in the non-banking financial market. In order to ensure compliance of legislation by non-banking financial market participants, NCFM developed the following activities:

- analysis and evaluation of data and information from the supervised entities reports submitted under the legislation;

- on-site controls of the professional participants; - verifying the complianc

Documents

Comisia Națională a Pieței Financiareold.cnpf.md/file/CNPF/Raport_2010_eng.pdf3 CONTENTS Message of the Chairman of National Commission of Financial Market 8 Chapter I. ACTIVITY