USAID MOLDOVA FINANCIAL SECTOR TRANSPARENCY ACTIVITY
QUARTERLY PROGRESS REPORT JANUARY 1, 2021 – MARCH 31, 2021 FISCAL YEAR 2021 QUARTER 2
This document was prepared by International Development Group LLC and partner Chemonics International, Inc. for review by the United States Agency for International Development. USAID MOLDOVA FINANCIAL SECTOR TRANSPARENCY ACTIVITY
QUARTERLY PROGRESS REPORT JANUARY 1, 2021 – MARCH 31, 2021
Prepared under USAID Contract Number: 7200AA18D00012 / 72011719F00001
Submitted to USAID/Moldova
April 15, 2021
Submitted by: International Development Group LLC (IDG) 1100 North Glebe Road, Suite 800 Arlington, VA 22201 Phone: +1 (571) 336-7980 Fax: +1 (571) 336-7998
DISCLAIMER
The contents of this report are the sole responsibility of International Development Group LLC and do not necessarily reflect the views of USAID or the United States Government. TABLE OF CONTENTS
EXECUTIVE SUMMARY ...... 1
PROGRESS REPORT ...... 2 Principal Activities and Achievements ...... 2 Component 1: Strengthen the Capacity of the GOM and National Bank of Moldova to Combat Financial Crime ...... 2 Component 2: Capacity Building and Support to the Central Securities Depository of Moldova ...... 5 Component 3: Capacity Building and Support for the National Commission of Financial Markets of Moldova ...... 11 Component 4: Assist the GovernMent of Moldova in Improving its Fiscal/Budgetary Transparency ...... 15
PROBLEMS AND AREAS OF POTENTIAL CONCERN ...... 15
NEXT QUARTER ACTIVITIES ...... 16
FSTA PERFORMANCE INDICATORS ...... 16
SUCCESS STORY ...... 20
LIST OF ACRONYMS
AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism CCN Cooperating Country National COVID-19 Coronavirus Disease 2019 CSD Central Securities Depository eGOV e-Governance Agency EU European Union FATF Financial Action Task Force FIU Financial Intelligence Unit FSTA USAID Moldova Financial Sector Transparency Activity FY Fiscal Year GOM Government of Moldova ICT Information and Communications Technology IDG International Development Group LLC IT Information Technology ML/FT Money Laundering/Financing of Terrorism ML/TF Money Laundering/Terrorism Financing MLA Master License Agreement MOF Ministry of Finance NBFI Non-bank financial institutions NBM National Bank of Moldova NCFM National Commission for Financial Markets PEP Politically Exposed Person RFI Request for Information RFP Request for Proposal SAS SAS Federal LLC SOW Statement of Work STTA Short-Term Technical Assistance TEC Technical Evaluation Committee TOR Terms of Reference
EXECUTIVE SUMMARY
The financial sector in Moldova has been rocked by banking scandals and insurance company insolvency in recent years, creating the need to resolve questions arising from both substantive structural conditions and perception problems. While the banking system reform and rehabilitation after the 2014 banking crisis has made significant progress, further efforts need to be made to strengthen the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) supervision of financial institutions, address vulnerabilities in the bank and non-bank sector, tighten regulatory requirements and increase transparency. The Government of Moldova (GOM) is motivated to strengthen the AML/CFT regime and improve transparency. The USAID Moldova Financial Sector Transparency Activity (FSTA) will support this commitment to enhancing the financial sector.
The goal of FSTA is to support economic growth through improving the financial sector transparency, stability, and soundness, by further strengthening the capacity of the National Bank of Moldova (NBM), the Moldova Central Securities Depository (CSD), and the Moldova National Commission for Financial Markets (NCFM) to combat financial crimes, automate the monitoring of shareholder transparency and fight systemic money laundering in the banking sector, and by enhancing the efficiency and reliability of the securities settlement and registry infrastructure in Moldova. Greater transparency and reform in the banking, insurance, and non-bank lending sector will result in increased public trust in supervision institutions and greater capacity to expose money laundering and fight corruption. FSTA will have four major components:
1. Strengthen the capacity of the GOM and NBM to combat financial crime 2. Capacity Building and support for the CSD of Moldova 3. Capacity Building and support for the NCFM of Moldova 4. Assist the GOM in improving its Fiscal/Budgetary transparency
The FSTA contract was signed on September 5, 2019, with an official start date of September 9, 2019. This quarterly report covers activities that took place during Fiscal Year (FY) 2021 Quarter 2, between January 1, 2021 to March 31, 2021. In February 2021, the contract period of performance was extended changing the end date from September 8, 2022 to May 08, 2023 at no additional cost.
During the reporting period, a major milestone was completed: the contract signing for the implementation of the NBM AML Software Solution. The initial planning meetings took place in late March, while the formal project kick-off involving all stakeholders is scheduled for April 7, 2021. In addition, the following activities supporting NBM or other FSTA beneficiaries took place during the quarter: • Finalized the strategy document containing an AML/CFT roadmap and recommendations for the NBM as it assumes additional supervisory responsibilities from the NCFM, and a penalty schedule, related to the procedure of identifying violations in the ML/TF field and the application of sanctions. • Developed two documents which will support the NBM in the software implementation phase: the NBM Software Solution Project Planning and Project Management Document, and a briefing related to the risk rating methodology. • Organized a two-day AML/CFT workshop for the Moldova Post Office, providers of payment services, e-money issuers, and a few intermediary banks in the area of funds transfers. • Finalized the Concept paper on the retail platform for government securities and other financial instruments and published the paper for public discussion. • Continued to develop the Terms of Reference encompassing technical specifications for the retail market platform for government securities.
1 | FSTA Quarterly Progress Report – FY21 Q2
• Finalized a gap analysis, addressing three components of CSD’s activity: regulatory, legal and tax, and technical infrastructure. The gap analysis will be used to assess CSD’s viability to join European Union (EU) Financial Action Task Force (FATF) depositories. • Researched and formulated proposals regarding relevant associations the CSD could join as an intermediate step before establishing an interconnection with an EU depository. • Drafted a report that presented an Overview of Moldova's microfinance regulatory framework compared to the EU and other emerging markets. • Built capacity of insurance companies through a series of workshops on risk management. • Developed an additional report on the insurance of the Hazardous Industrial Objects, offering specific amendments that should be considered in the new draft law. • Developed a comprehensive communication strategy to raise the visibility of USAID assistance aimed at enhancing the Moldovan financial sector and to support FSTA’s beneficiary institutions to better communicate with their audiences. • Drafted two press releases, three announcements, and three social media posts which were published via FSTA’s counterparts’ channels. The following sections present a summary of activities undertaken during the reporting period. PROGRESS REPORT PRINCIPAL ACTIVITIES AND ACHIEVEMENTS COMPONENT 1: STRENGTHEN THE CAPACITY OF THE GOM AND NATIONAL BANK OF MOLDOVA TO COMBAT FINANCIAL CRIME Under Component 1, FSTA received USAID CO and CIO approval to sign the contract for the implementation of the NBM AML Software Solution. During the quarter, FSTA, IDG, and the NBM thoroughly reviewed the contracts submitted by SAS, including issues surrounding signatory parties, starting dates, licensing arrangements, etc. The review process took longer than anticipated, due to the large number of approvals required on behalf of the NBM. The contract and related supplements were signed in late March and the official planning meetings took place at the end of the quarter. Over the next 25 months, FSTA will oversee all phases of the development, installation, and implementation of the AML Software Solution, including testing and warranty periods. In addition, FSTA will continue to build the capacity of the NBM, provide training on the latest techniques and procedures in line with best practices at other central banks, and support NBM’s units to re-engineer internal processes in line with the functionalities of the new Solution.
Task 1.1: Identify the regulatory AML environment affecting the bank and non-bank actors and the regulatory changes needed for the AML Software Solution to be successful
During the quarter, the STTA AML Expert finalized the strategy document containing an AML/CFT roadmap and recommendations for the NBM as it assumes additional supervisory responsibilities from the NCFM. In order to assess NBM’s capacity to assume these additional responsibilities (from the AML/CFT point of view) and their capacity to effectively manage their current responsibilities, a list of questions was put together for the NBM, including some of the following: • What kind of staffing needs have to be met by the NBM to accommodate new supervisory responsibilities for Microfinance and Insurance entities? • In what ways does the NBM engage in domestic cooperation with the Financial Intelligence Unit (FIU), NCFM, CSD?
2 | FSTA Quarterly Progress Report – FY21 Q2
• How does the NBM identify and publish new money laundering trends and typologies?
The AML Expert also drafted a penalty schedule, related to the procedure of identifying violations in the ML/TF field and the application of sanctions. The penalty schedule will become part of NBM’s AML Inspection Manual and will facilitate investigators’ efforts to determine the type and size of sanctions when violations are identified.
The roadmap and the penalty schedule will be discussed and officially accepted by the NBM over the following quarters as the AML Software Solution is being installed.
Task 1.2 Support the introduction and implementation of an AML IT solution at the NBM
Task 1.2.1 Procure the AML software solution for the NBM
The procurement selection process was completed during the previous quarter. Based on a competitive procurement process in line with FAR procedures, SAS was selected to implement the AML Software Solution. On March 3, 2021, official approval was received from USAID to enter a fixed price subcontract with SAS. During the quarter, FSTA facilitated final negotiations and signing of contracts by NBM, IDG, and SAS. Multiple meetings took place between the NBM, FSTA, IDG, and SAS, to review the documents submitted for signature by SAS. The documents include the Fixed Price Professional Services Agreement, Statement of Work (SOW), Special Subcontract Requirements, Subcontract Clauses, Master License Agreement (MLA), and the Supplement to the MLA. The NBM was only a signatory party on the Supplement to the MLA.
The SOW was discussed in detail in numerous working sessions, as it is the document that will govern the implementation process. The SOW provides the following components: • Project scope and objectives; • The principles that parties need to adhere to during the implementation; • A high-level description of the work plan; • The list of deliverables and acceptance criteria for deliverables; • Description of the envisaged training program; • Working assumptions; • High-level responsibilities of each party; and, • Project management and post-implementation services.
It is important to highlight that the SOW will be further refined during the first 30 days of the project as part of the first project milestone – Acceptance of the revised work plan and mobilization.
The review process took longer than anticipated, due to the large number of approvals required on behalf of the NBM, and certain contract provisions that needed further clarifications such as: deliverable acceptance process, termination clause, subcontracting provisions, etc. The final contract and supplements were signed during March, while the project inception date was set for April 1st. The formal project kick- off meeting involving all stakeholders was scheduled to take place on April 7th. The contract will span over 25 months, including 13 months for development, installation, and implementation and 12 months of warranty.
3 | FSTA Quarterly Progress Report – FY21 Q2
Task 1.2.2 Provide support to NBM during the implementation phase of the AML Software Solution
During the quarter, FSTA and the NBM working group – comprised of representatives from relevant departments, continued working on a set of project-related documents which will support the NBM in the implementation phase. These efforts were led by the STTA ICT Expert, and the first output was the NBM Software Solution Project Planning and Project Management Document.
The goal of this document is to provide an overview of the NBM Software Solution Project Planning and Project Management organization and methodology. It is intended as a living document and will be modified throughout the project based on the collaboration of SAS, NBM, and FSTA. The information contained in the document represents the best information available for the start of the project; however, it will evolve based on the inputs from each of the aforementioned parties once SAS has completed the Project Plan and Work Plan.
The two important processes described in the document are the monitoring of deliverables and payments. The primary goal is to ensure phase deadlines are on track and the actual requirements set forth in the deliverable are met. The FSTA Project Manager will work closely with the NBM Project Manager to preliminary review and approve each of the project deliverables. Weekly meetings with SAS will be held, acting as the first level of input for the assessment of progress against the phase deliverable. Additionally, each deliverable or payment milestone will be broken into its component pieces. Assessments will be performed by the NBM Project Management Core Group and the FSTA Project on a periodic basis, evaluating incremental progress on each deliverable. The goal of this process is to minimize the potential for surprises at the end of a phase and to expedite the approval process.
Final acceptance of the deliverable will be determined by the NBM in coordination with FSTA. Once the deliverable is deemed acceptable, the FSTA Project Manager will inform the IDG Director of Operations of the NBM’s acceptance. SAS will be requested to supply an invoice and IDG will initiate the payment process.
Also, during the quarter, the STTA AML Expert started to work on a briefing related to the risk rating methodology – which will be an important component of the AML Software Solution. The main objective of the briefing is to describe the risk rating methodologies currently used by the NBM and identify opportunities to incorporate them into the solution. Currently, the NBM uses two risk ratings, one focused on AML/CFT risk for the entities that it supervises (banks, payment service providers, foreign exchange offices) and the other based on Shareholder Transparency for prudential purposes. The two ratings are under the purview of two different areas of the bank – AML/CFT Division and the Supervision Department, respectively. The briefing will be finalized and shared with the NBM for comments, at the beginning of next quarter, before SAS starts working on this component of the solution.
Over the next 13 months, the FSTA team will support the NBM by (i) monitoring deliverables and milestones agreed to in the contract, (ii) working with the NBM in refining business requirements that will be integrated into the solution, and (iii) assisting with testing the NBM Software Solution. FSTA will be allocating important resources to help the NBM in these activities: an international and a local ICT Expert, an international STTA AML Expert, and a local Regulatory Expert. FSTA is also considering hiring an international Financial Intelligence Analyst, who will support the NBM in fortifying its intelligence capabilities to identify, assess, and monitor potential adverse risks related to money laundering and shareholder transparency in Moldova’s banking sector. A decision regarding this position will be made at the end of the mobilization phase.
4 | FSTA Quarterly Progress Report – FY21 Q2
Task 1.3 Provide capacity building support to NBM staff
During the first quarter of 2021, FSTA organized an online training workshop for examiners and specialists from NBM’s AML/CFT unit. Due to a large number of questions from the participants, the AML Expert did not cover all the contents included in the Agenda. Hence it was agreed to conduct an additional training session at the beginning of the current quarter.
The workshop, led by the AML Expert discussed the key preventative measures outlined in the FATF Recommendations including risk assessments, customer due diligence, record keeping, Politically Exposed Persons, new technologies, wire transfers, and reporting of suspicious transactions. The second part of the workshop discussed the issue of sanctions that are articulated by the United Nations Security Council Resolutions, the European Council, and the US Treasury Office of Foreign Asset Control.
Capacity building of the NBM’s staff will be an ongoing activity for FSTA throughout the entire project, specifically as the AML Software Solution is being deployed. Based on the feedback from NBM, FSTA will also assess the possibility to conduct practical working sessions focusing on specific case studies that investigators might face in their day-to-day activity.
The workshops gained media attention and elevated the visibility of the project. Subsequently, multiple market participants expressed interest in the AML/CFT issue, including the Moldova Post Office, which submitted a formal request for an AML/CFT training with regard to their payment services.
To accommodate this request, FSTA organized a two-day AML/CFT workshop for the Moldova Post Office, providers of payment services, e-money issuers, and few intermediary banks in the area of funds transfers. The workshop was held in conjunction with the NBM’s AML/CFT Division. Around 100 participants attended the training, which covered the following topics: FATF standards, Emerging Trends and Pillars of an AML/CFT Compliance Program, Risk Assessments, High-Risk Products, and Financial Crimes Red Flags.
In the following quarters, FSTA will discuss with the NBM, and other counterparts and organizations to analyze the possibility of conducting additional trainings for other types of reporting entities, including a “train the trainer” approach, which can lead to sustainable capacity building in the AML/CFT field.
COMPONENT 2: CAPACITY BUILDING AND SUPPORT TO THE CENTRAL SECURITIES DEPOSITORY OF MOLDOVA FSTA aims to attain several objectives under Component 2, which ultimately seek to enhance CSD’s capacities as a key infrastructure in Moldova’s capital market. These goals include: (i) support the development of the securities markets by building a retail platform for government bonds; (ii) assist the CSD in establishing links with European Union (EU) depositories; (iii) support the CSD in revising its internal rules and regulations for combating money laundering and financing of terrorism, as prescribed by financial sector regulators; and (iv) improve the CSD’s capabilities to collect data, utilizing new technology to better understand the shareholder composition of companies maintained in its registries. The main aim during the second quarter of 2021 was to finalize and share the Retail market concept paper with relevant stakeholders and the public. The IT Expert continued working on developing the underlying business objectives and requirements for the IT system that will support the implementation of the retail market platform. Also, the STTA Regulatory Expert finalized the gap analysis on the CSD regulatory, operational, and financial crime compliance set-up and the research regarding relevant associations the CSD could join as an intermediate step before establishing an interconnection with an EU depository. The resulting recommendations were presented and discussed with the CSD.
5 | FSTA Quarterly Progress Report – FY21 Q2
Task 2.1: Support the development of a secondary securities retail market
During the quarter, FSTA finalized the Concept paper on the retail market for government securities and other financial instruments. The paper discusses the creation of a retail market, which will represent a one-stop-shop for retail investors to conduct operations with financial instruments. The retail market, set up as an online interface with remote access via the internet, will allow the settlement of financial instruments between retail investors. It will facilitate the direct sale of government securities to a broad audience of individual retail investors who will be able to purchase and sell retail government securities, at a low cost.
The creation of the retail market offers several advantages. Retail investors will be offered investment instruments that have previously been rather difficult to reach. They will also get a secure and efficient mechanism for transferring these instruments via an online interface. On the other hand, the GOM will gain access to a new pool of retail capital outside of the traditional wholesale markets. At a time when globally, public debt is growing as resources are raised to alleviate the longer-lasting consequences generated by the Coronavirus Disease 2019 (COVID-19) pandemic, the retail channel can represent a significant boost to the sustainability of public finances. Over time, the development of the retail market will inevitably lead to wider innovation and progress, creating the prerequisites for establishing a stronger capital market as a whole.
To maximize impact and facilitate efficient rollout, FSTA is proposing for the retail market to be a component of an IT solution/interface closely interlinked to the CSD’s systems. Thus, on the one hand, this platform will benefit from the information systems and infrastructure already implemented by the CSD, its internal regulations, and CSD’s organizational framework. On the other hand, this will help to ensure compliance with regulatory requirements including consumer protection safeguards, and required AML/KYC procedures as well as to mitigate key risks and maintain the retail investors’ confidence in the platform and the government securities market.
The Retail market concept paper was published for discussion on CSD’s website, gained significant media attention and positive reactions from the general public. A number of constructive commentaries were received from supervisory authorities, market participants, and other stakeholders. FSTA is currently analyzing each proposal and will be adjusting the concept paper over the following weeks. The main proposals are related to: • eliminating the requirement for confirming each purchase/sale operation initiated on the platform with electronic signature (due to related costs); • adding informational tools on the platform that will help the investors take more informed investment decisions (these tools could refer to interest rates on government securities, the NBM inflation forecast, weighted average interest rate on bank deposits for similar terms, etc.); • enabling the platform to collect fees and commissions for the services provided by the CSD and other stakeholders; • using the platform to directly collect the income tax on interest obtained from government securities; and, • expanding the possibility for the MOF to act as a Designated Primary Dealer, inferring that the MOF should be able to underwrite its own securities to the retail clients directly via the platform.
Unfortunately, the MOF has not provided any substantial input on the Retail market concept, despite repeated requests and invitations for discussion meetings from FSTA. Since the MOF should play a key role in the FSTA’s proposed retail platform, the lack of communication on its behalf has delayed the completion of the Terms of Reference.
6 | FSTA Quarterly Progress Report – FY21 Q2
Despite these difficulties, the IT Expert, with support from the local regulatory experts, continued to develop the Terms of Reference (TOR) document, encompassing technical specifications for the retail market. The TOR will become part of a Request for Proposals which will be used for procuring the necessary services to build the retail market.. The STTA IT Expert reviewed the CSD’s existing IT infrastructure, and the Concept Paper on the retail market. The IT Expert also gathered data on existing government and public administration IT and shared service infrastructure, proposing alternatives to incorporate existing services into the retail market platform. During the quarter, FSTA held multiple discussions with the CSD and with government entities such as eGOV to define functionalities of the platform, and support processes including customer on-boarding (know your customer measures), and payment mechanisms
The TOR, which will be finalized and submitted for public discussion during the next quarter, includes the following components: • System Requirements: o Business objective o Retail platform IT system scope o Account management module o Account opening process description o Order management module • Architecture proposal: o Main functional blocks and their functions o Architecture constraints and assumptions • Functional Requirements: o Account data and portfolio overview o Initial sale of government securities to retail investors o Early redemption of government securities o Sale of government securities based on bilateral agreements o Payment processes o Horizontal functionality available to multiple processes o Supporting the display of informational and educational tools
Additionally, the MOF informed FSTA through a letter that it intends to separately implement a platform that will allow the direct sale of government securities to individuals with the support of the e-Governance Agency (eGOV). Considering both concepts (the one developed by the FSTA and the other – by the MOF/eGOV) have the same objectives, and there is substantial overlap between functionalities, early next quarter, FSTA will attempt once again to discuss the issue with the interim management of the MOF. A proposal for merging the two concepts, and setting up a wide partnership between FSTA, the MOF, and CSD, to implement a retail market platform will be drafted and proposed for discussions. For this purpose, FSTA developed a comparative analysis of the two concepts for the direct sale of government securities to retail investors.
In the next quarters, FSTA intends to conduct the following activities related to this task: • Finalize the Concept paper on the retail market based on inputs from relevant stakeholders (CSD, MOF, eGOV, NBM, etc.); • Conduct working discussions with the NBM, MOF, CSD, and eGOV to determine the path forward for the implementation of the retail market; • Develop a Roadmap for the establishment of the retail platform, including roles and responsibilities for relevant stakeholders; • Conduct a comprehensive review of the regulatory framework and draft amendments to relevant laws, NBM and MoF regulations, and CSD internal rules;
7 | FSTA Quarterly Progress Report – FY21 Q2
• Finalize the TOR for the retail platform and validate the requirements with relevant stakeholders; • Develop the Request for Proposals and launch the procurement if all approvals are obtained; and • Set up a task force to drive implementation of needed reforms to make the platform a success.
Task 2.2: Support and strengthen the CSD framework
During the quarter, the STTA Regulatory Expert continued with the assessment of CSD’s viability to join EU depositories and provide necessary support in this process. The Regulatory Expert finalized a gap analysis, addressing three components: regulatory, legal and tax, and technical infrastructure. The analysis relied on a three-part due-diligence questionnaire, commonly used when evaluating the opportunity for establishing a new interconnection. The due-diligence process is fundamental for custodian transparency and for determining if a depository can perform its responsibilities effectively so that risks associated with custody are minimized. The purpose of the document is to present the main gaps that have been identified in the course of the analysis, assess their level of criticality, and make recommendations in order to address them in an efficient and timely manner.
Some of the recommendations include: • Develop a methodology for client risk-rating; • Ensure that its AML/CFT policy is reviewed and approved once a year by its Board of Directors; • Work towards incorporating sanctions screening into CSD’s AML/CFT compliance program; • Include a tax procedure applicable to non-residents or at least make a reference to the applicable provisions of the Moldova Fiscal Code – in English; and • Develop legal or/and a tax incentive to reduce the number of non-viable joint-stock companies as deemed appropriate and to ensure the remaining ones have their shares transferred to the CSD.
Furthermore, the Regulatory Expert finalized the research regarding relevant associations the CSD could join as an intermediate step before establishing an interconnection with an EU depository. The purpose of this document is to identify the main organizations, associations, or events from the international capital markets, briefly describe their respective scope and missions and assess the opportunity for the Moldovan CSD or other Moldovan bodies involved in the capital market to interact with such organizations.
The two most relevant associations for this purpose are the European Central Securities Depositories Association (ECSDA) and the Association of National Numbering Agencies (ANNA). ECSDA represents 40 national and international CSDs across 36 European countries, while ANNA’s role is to ensure its members meet strict and detailed standards in how they register the securities and keep the data current. Both of these platforms can provide important educational, technical, and operational insight for developing the securities markets.
The stated scope and mission of each association are assessed against the expected benefits for the CSD. The key targeted benefits are listed below: • providing networking opportunities for Moldovan stakeholders through conferences, seminars, roundtables, and other events; • promoting high professional standards for financial market participants by providing training and education opportunities; • building trust in the market by promoting internationally accepted standards of best practice through the development of appropriate, broadly accepted guidelines, rules, recommendations, and standard documentation, aimed at maintaining and enhancing the framework of cross-border issuing, trading, and investing in debt securities;
8 | FSTA Quarterly Progress Report – FY21 Q2
• encouraging information flows and dialogue between all participants in the international capital markets: borrowers, intermediaries and investors, and service providers, including trading platforms, clearinghouses, and law firms; and • engaging with international and national regulators and policymakers, to provide market expertise and technical knowledge to assist in ensuring that financial regulation promotes the resilience, efficiency, and cost-effectiveness of international capital markets.
FSTA presented the conclusions of this report to the CSD. In a follow-up discussion, the CSD communicated that the issue of joining ECSDA and ANNA has been discussed with the Board of Directors, and funds were allocated in the CSD budgets for 2021 and 2022 to join both associations.
The Regulatory Expert is currently working on a Roadmap on opening up the Moldovan securities market. The Roadmap is meant as a comprehensive overview of the objectives, tasks, resources, costs, and deadlines set to facilitate access to the Moldovan securities market for foreign investors and vice-versa.
The Roadmap will build on three major components: 1. Confidence building measures: The objective is to ensure that the CSD´s regulatory and operational setup is aligned with international standards and good practice, which will help to improve the confidence of external stakeholders (ICSDs, global custodians, investors, etc.).
2. Increase the visibility and attractiveness of the securities market: Aside from creating a sound infrastructure enabling investors to safely invest in the Moldovan securities market, it is also necessary to make the local securities market both more visible and more attractive to foreign investors. This can be accomplished by (i) resuming the issuance of government bonds on the Eurobond market, (ii) reviewing and possibly improving the tax structure as it applies in particular to capital gains, and (iii) developing or adapting the country branding.
3. Define the access strategy to international securities markets: There are a number of options that can be considered in order to access the international securities market: as a link between the Moldovan CSD and an ICSD (Clearstream or/and Euroclear), a link to the Romanian CSD, a link to one or more Global Custodian, etc. The options will be discussed, including the political, legal, commercial, and technical pros and cons of each option.
The Roadmap will allow all involved parties to assess the soundness and feasibility of the proposed objectives, raise issues and reveal gaps, correctly prioritize resource allocation and set realistic targets. It will be finalized and discussed over the next quarters of Year 2021.
Task 2.3: Support and strengthen the CSD AML knowledge and capabilities
In the previous quarter, the STTA AML Expert reviewed CSD’s internal regulation combating ML/TF and proposed a number of amendments that would bring it in line with best international practice. The AML Expert also analyzed and evaluated ML/TF risks characteristic to CSD’s activity, offering recommendations to update the ML/TF risk assessment previously developed by the CSD.
During the following quarters, as FSTA proceeds with implementation of the retail market, the AML Expert will focus on enhancements to internal control measures as well as training CSD’s staff regarding the newest ML/TF trends and techniques, explaining and debating the various relevant examples.
9 | FSTA Quarterly Progress Report – FY21 Q2
Task 2.4: Support CSD implement a system to identify the ultimate beneficiary
In 2020, the CSD has collected shareholder data from 122 more companies, while the data and information from the 11 banks are verifiable, data from the other 181 companies and 11 insurance companies needs to be reviewed and verified against other databases and sources. This work is time-consuming and difficult but is critical to clearly identify the shareholders and UBOs of these companies. Without this step, the implementation of a comprehensive AML framework is difficult.
The Local Regulatory Expert will work with the CSD to develop a methodology and procedures, including possible IT solutions, to simplify the work and ensure compliance to AML and KYC standards. This task along with the anticipated purchase of a database solution for a PEP and sanctions screening solutions to support Moldovan institutions including the CSD should assist the CSD in fulfilling anti-money laundering responsibilities.
The procurement of the PEP solution including the RFP process will be supported by a dedicated STTA Expert knowledgeable of this type of software and FIUs. The expert together with the FSTA team will write the RFP, oversee the launch of the RFP, and monitor the responses. Interviews have been conducted during the quarter to identify the relevant candidate.
Task 2.5: Support CSD and other government institutions through outreach and public forums and events
One of FSTA's main objectives is to strengthen the financial sector and increase the public's awareness and understanding of the banking and NBFI sectors. The public is often unaware of how FSTA’s stakeholders – the NBM, CSD, and NCFM – work and interact with international and government organizations to strengthen and modernize the market. With that objective in mind, FSTA conducted a thorough assessment of its stakeholders' communications potential, possible areas of improvement, and assistance needs, and developed a comprehensive communication strategy to support these institutions to better communicate with their audiences.
The STTA Communication Expert with support from the local Communications Specialist drafted a project Communications strategy, which outlines the strategic communications approach, the general and specific objectives, the target audiences, communications tools and channels to be used, key messages, and specific actions to be implemented. It will target financial community stakeholders, economic- interested communities, mass media, and, most importantly, the general public. Thus, milestones regarding implementation of FSTA-supported reforms, including press releases, social media posts, success stories, press conferences, etc., will be publicized. All outreach materials and events will be subject to USAID approval.
Given the current political developments and other related risks, crisis communication guidelines were also included in the strategy. In addition, the context of the ongoing COVID-19 pandemic was taken into account. FSTA will comply with relevant authorities' safety measures and plan its activities via online channels mainly. When possible, hybrid events will be considered.
It is worth noting that the Communications strategy is viewed as a living document that will be adjusted in response to changing circumstances such as a new legislative framework and the target audiences' information needs. FSTA will continually monitor and integrate feedback from the target groups to ensure that informational materials and outreach activities effectively gauge improvements in the public's perception and understanding of the financial sector's functioning.
10 | FSTA Quarterly Progress Report – FY21 Q2
In addition, during the quarter, FSTA continued to inform the public about the assistance provided to strengthen and modernize Moldova’s financial sector. FSTA produced two press releases, three announcements, and three social media posts, that were published via the counterparts’ communications channels.
The AML/CFT trainings conducted by FSTA were the topic of one press release, one announcement, and two social media posts promoted via NBM’s platforms. The first social media post informing about the training held for the NBM’s representatives was published on January 21, 2021, on NBM’s Facebook, LinkedIn, and Instagram accounts. By March 31, 2021, the post reached a total of 3.205 users on these three social media pages combined, according to NBM’s data.
Subsequently, on March 10, 2020, FSTA prepared an announcement about the training intended for the non-bank payment service providers and electronic money issuers during 16-17 March 2021. The announcement was published on NBM’s website and shared on its Facebook, LinkedIn, and Instagram profiles, garnering 1.527 views overall. It aimed to ensure higher visibility on the efforts made to prevent and combat ML/TF risks and ensure broader participation.
In addition, on March 16th, FSTA produced a “Happening Now” social media post about the AML/CFT training held for the non-bank payment service providers and electronic money issuers. It was published on NBM’s Facebook page, LinkedIn, and Instagram pages, thus obtaining 1.188 unique impressions (the number of individual users who have seen the posts). The outreach activities dedicated to the training included also a post-event press release that was published on the NBM’s website on March 19, 2021, where it was viewed 98 times. It was also distributed on NBM’s Facebook and LinkedIn pages, totaling a number of 688 views.
Besides posts on AML/CFT assistance, FSTA sought to inform the public on other major areas of support. In the context of the training sessions on prudential supervision, held during March 29-30, 2021 for the local insurers, FSTA produced an announcement to promote higher participation, in addition to the email invitations sent. As a result, the training event was attended by representatives from all local insurance companies in Moldova. The announcement was published on the NCFM’s website and Facebook page (378 impressions), and distributed by two thematic portals – xprimm.md and 1asig.ro. FSTA produced as well a Facebook post that was published on the first day of the workshop, which obtained 221 impressions. In addition, FSTA prepared a press release that was published on the NCFM’s webpage and Facebook profile (223 impressions), and was picked up by Moldpres, 1asig.ro, and xprimm.md portals.
The highest media interest was recorded following the FSTA’s announcement regarding the launch of a public consultation on the concept of the securities retail platform. The announcement was published on the CSD’s website and was also distributed on NBM’s website, Facebook, and LinkedIn pages, reaching a total of 1,614 users. It was also shared with the media, generating 23 pickups, including by Bizlaw, IPN and InfoMarket news portals.
Through these outreach activities, FSTA intended to raise public awareness on the importance and impact of the financial reforms it supports, and as well to increase the visibility of the American people’s generous support, provided through USAID. Also, during the next quarter, FSTA will support the CSD in developing its communication tools and capacities.
COMPONENT 3: CAPACITY BUILDING AND SUPPORT FOR THE NATIONAL COMMISSION OF FINANCIAL MARKETS OF MOLDOVA Activities under this component are geared towards developing a consolidated approach to supervision of the entire non-banking financial institutions (NBFI). In this context, it is important to highlight GOM’s
11 | FSTA Quarterly Progress Report – FY21 Q2
decision to overhaul the supervisory architecture, transferring supervision of non-bank credit and insurance markets from the NCFM to the NBM, starting in 2023. This development had an impact on the project, as the NBM stands to become the ultimate beneficiary for most deliverables. Since no clear path for the transition has been established yet, targeted discussions with the NBM on NBFI and insurance- related issues have not started, which delayed the submission of certain deliverables. Despite this fact, FSTA finalized a number of activities aimed at supporting the NCFM’s move towards risk-based supervision of insurance companies.
Task 3.1: Review the regulatory framework for the NBFI sector and draft appropriate legislation
In the summer of 2020, GOM decided to overhaul the supervision of Moldova’s non-bank financial sector, by bringing NBFIs under NBM’s supervision. This is the concluding step in GOM’s efforts to establish consistent supervision and regulatory standards across all market segments. The World Bank is setting up a working group that will provide support for the NBM during the transition while also helping to coordinate donor agencies’ assistance.
In an attempt to support this effort, FSTA continued to work on the report containing an Overview of Moldova's microfinance regulatory framework compared to the EU and other emerging markets. This report was initiated after discussions with the NCFM, but it will ultimately become a guideline for the NBM as it prepares to take over the supervision of microfinance institutions.
The current policy framework for NBFIs operating in the EU can be summarized into: 1) member states that have dedicated microfinance legislation, 2) those that have no specific microfinance legislation but nothing precludes NBFIs from operating and advancing credit, and 3) countries where there is a monopoly on lending by registered banks. The report analyzes microfinance regulatory frameworks and functions in those EU member states and candidates states that have dedicated legislation. It also highlights how countries apply specific legal requirements, such as capital adequacy requirements, interest rate caps, types of loans NBFIs can issue, etc.
A risk regarding the supervisory transition from NCFM to NBM is that the NBM might tend to impose tough regulatory standards on non-bank lenders (comparable to banks) which will pose a threat to otherwise a thriving industry. The report thus makes a case for maintaining distinct regulatory approaches between banking and non-banking sectors.
Next quarter, the STTA Insurance Expert will start working on a corresponding report which will cover the insurance sector. The report will highlight the optimal supervisory model, including internal organization, once the NBM takes over supervision of insurance. Both reports (on microfinance and insurance) will be finalized as discussions with the NBM on this topic are initiated.
FSTA will continue to monitor developments related to NBM's takeover of new market segments. FSTA stands ready to provide additional support to the NBM in the following areas: (i) consolidated supervision (strategy, management and organizational structure, planning, roadmap and timeline, transitional issues); (ii) supervision and regulation; (iii) training and capacity building; and (iv) reporting.
Task 3.2: Review and address insurance sector risks and introduce a risk management framework for solvency practices
A new insurance draft law has been adopted in the first reading in December 2020. It aims to strengthen the insurance sector and prepare the market for Solvency II, through the implementation of internal
12 | FSTA Quarterly Progress Report – FY21 Q2
governance and risk management requirements by insurance companies, increasing the capacity of NCFM to assess governance and risks, etc.
Although it is not yet certain when the draft law will be adopted in the final reading, during the quarter, FSTA focused on building the capacity of insurance companies through a series of workshops on risk management. About 40 participants (executives, risk managers, underwriters, and actuaries) representing all insurance companies participated in the trainings led by the STTA Insurance Expert in cooperation with NCFM, during March.
The training’s objective was to prepare insurers for the transition to risk-based supervision, directed by the new draft law on insurance activity. At the same time, the implementation of risk-based supervision in the insurance field is also a requirement of the European Union’s Solvency II Directive. The Insurance Expert presented best practices in the field, highlighting what the insurance companies should implement to bring their activity in line with the new risk-based supervision requirements. The Insurance Expert outlined to the participants the importance of starting to make changes inside the companies as soon as possible since the transition to the new law will require time, costs, and acquiring expertise for the staff.
In preparation for the training program, the Insurance Expert developed supporting documentation which was shared with the NCFM, including: • Stress testing guidelines: the purposes of these guidelines are to discuss the role stress tests should play in an insurer’s overall risk management framework, how such tests may assist the insurer to maintain sufficient capital adequacy and solvency; and to provide an overview of the various factors that need to be considered in designing and undertaking stress tests, including a discussion of possible modeling techniques that can be used. • Risk management and control guidelines: This guideline is to ensure that insurers are managed in a sound and prudent manner by having in place systems for identifying, assessing, monitoring, and mitigating the risks that affect their ability to meet their obligations to policyholders. These systems, together with the structures, processes, and policies supporting them, are referred to in this guideline as the insurer’s risk management framework. • Own solvency and risk assessment (ORSA) guide for insurers: ORSA serves as a tool to enhance an insurer’s understanding of the interrelationships between its risk profile and capital needs. It is an internal assessment process, tailored to an insurer’s own view of its risk profile and appetite, and reflective of the nature, scale, and complexity of the insurer. • Corporate governance guidelines: These guidelines set forth corporate governance standards for insurers, as good governance is essential to maintaining the confidence of policyholders as well as overall market confidence. They describe the practices to be employed by Moldova’s insurance companies. The Guidelines will also be used by the NCFM, in both on and off-site supervision, to assess insurance company compliance with relevant governance laws and directives.
An efficient risk management system gives certainty to the supervisor that insurers maintain high and stable solvency ratios, making the sector sustainable and more attractive for new investment. In this sense, FSTA is analyzing options to develop a full-fledged program for risk management certification once the new insurance law is adopted. Such a program could be hosted by the insurance association or a local university.
Task 3.3: Review and amend legislation related to hazard insurance of dangerous industrial objects
Based on a request received from the Economic Council to the Prime Minister, the STTA Insurance Expert conducted a review of the law on hazard insurance of dangerous industrial objects. The purpose of the
13 | FSTA Quarterly Progress Report – FY21 Q2
review was to determine the best mechanism for setting liability limits for insurance of hazardous industrial objects (HIO) in accordance with best European practices. During the previous quarter, the Insurance Expert drafted a memo, which included recommendations on establishing liability limits to assure the coverage is both affordable for business owners while providing sufficient third-party liability coverage for all Moldovans. The recommendations were based on the information provided by insurers, actuaries, and underwriters on Moldova’s hazardous industrial objects experience as well as on the Russian law on which Moldova’s legal framework is based.
The memo was discussed with the most relevant counterparts (Economic Council to the Prime-minister, Ministry of Economy, and Infrastructure and NCFM). Based on the feedback received, FSTA drafted an additional report, narrowing the recommendations provided in the previous memo, offering very specific amendments that should be considered in the new law. The following recommendations, which include the statutory guidance requested by the Ministry of Economy and Infrastructure, were presented for consideration: • Exclude the four categories of hazard from the law, because there is no data supporting this classification; • Set third-party liability limits based on HIO risk and exposure, not by unsupported hazard classifications; • Determine liability coverage requirements for all mandatory insurance under the HIO law based on the risk and exposure presented by an object or inspection bodies; • Establish reasonable limits on compensation for damages to third parties; • Set a deadline for the filing of HIO claims; • Establish a statutory deadline for the HIO Operator notification to the State Register of compliance with the Law’s mandatory insurance requirement; • Continue HIO premium oversight by the NCFM as required by the solvency law and regulation. If an HIO insurer is determined to be in financial difficulty, the NCFM should respond proactively, to prevent insolvency; and • Establish a Moldova-specific HIO database through the implementation of the Data Registry required under HIO law.
The final report was submitted, receiving positive feedback from the counterparts. An additional request was received as a result, namely to provide support with evaluating a few case studies regarding insuring HIOs. The results of the assessment would help the policymakers to quantify the impact of the amendments on the insurance premium and the overall process from insuring the object to paying liabilities stemming from an HIO risk event. The Insurance Expert will provide support for this activity during the following quarter.
Task 3.4: Work with the NCFM to identify and oversee the procurement of a database system to identify shareholders and shareholders of companies to ensure AML regulations are maintained by the NCFM
According to Moldovan legislation, the NCFM has AML/CFT supervisory responsibilities. The new Moldovan AML/CFT Law, adopted in 2017, extended the NCFM’s powers in this regard to “collect beneficial ownership data on investment firms’ founders, as well as customers and their beneficial ownership”. Based on the FSTA team’s assessment, the NCFM had not begun collecting this information in all the sectors it currently supervises.
FSTA successfully launched an RFI for PEP and sanctions screening solutions to support the FIU, the NBM, and NCFM in their AML/CFT activities. The goal of the RFI was to gather information about existing
14 | FSTA Quarterly Progress Report – FY21 Q2
database solutions, understand the profile of vendors and licensing models, obtain cost information, and review maintenance requirements. In total, 8 responses were received to the RFI. However, the process was put on hold once the decision regarding the transfer of supervisory powers from the NCFM to the NBM was published. The NCFM was intended to be one of the primary beneficiaries of the database solution. As the NBM takes over the supervision of non-bank credit and insurance markets, discussions will take place this year to decide where the solution will be located: NBM or FIU.
Task 3.5: Enhance NCFM’s Risk-Based Supervision System
A number of other projects are currently supporting or have supported the NCFM in the past to develop an early warning system and implement risk-based supervision. Further activity under this task currently on hold until there is clarity regarding the overhaul of the supervisory framework. Support in this context might need to be redirected to the NBM, conditional on USAID’s approval.
COMPONENT 4: ASSIST THE GOVERNMENT OF MOLDOVA IN IMPROVING ITS FISCAL/BUDGETARY TRANSPARENCY The previous USAID-funded financial sector project implemented by FSVC supported the launch of a budget transparency web portal hosted at the MOF. The web portal allows the MOF to make fiscal data (national and local budget creation and execution information) available to the public in a user-friendly manner. Due to repeated changes within the MOF and the government overall, the FSTA team hold off reaching out to MOF representatives to understand whether they need further support regarding this activity.
PROBLEMS AND AREAS OF POTENTIAL CONCERN
Political instability, a divided parliament, and lack of a fully functioning government, significantly affected all FSTA beneficiaries, both directly and indirectly: • The appointment of deputy governors to the NBM’s executive council was delayed multiple times. Currently, only 2 out of 5 members have full powers, which puts significant pressure on the NBM’s decision-making process. • Since the resignation of the GOM, an interim minister has been appointed at the top of the MOF, which has a limited decision-making mandate. The MOF is playing a key role in finalizing the architecture of the retail market platform. • NCFM driven reforms in the insurance sector, and FSTA’s support for this effort, are contingent upon the approval of the second reading of the new insurance law. • The Economic Council to the Prime Minister and the Ministry of Economy and Infrastructure received and approved the HIO recommendations, but cannot move forward with the implementation of the amendments without parliamentary support.
Lack of a functioning majority (coalition) in the Parliament will most likely continue to put pressure on FSTA counterparts and delay some of the project deliverables.
GOM’s decision to transfer supervision of insurance and microfinance sectors from the NCFM to the NBM required FSTA to put on hold certain deliverables until a transition plan is put in place. From the available information, a working group backed by donor agencies was put in place to support the NBM in this transition. No meetings took place yet. FSTA is looking to engage in discussions with the working group to coordinate the scope of assistance that will be provided for the NBM.
15 | FSTA Quarterly Progress Report – FY21 Q2
The shift to an all-online environment due to the COVID-19 pandemic, at a relatively early stage of the project, required the FSTA team to adopt a very flexible mindset for the project objectives to be achieved. FSTA successfully revised most project components, starting from office administration, daily interactions with project beneficiaries, the format of training programs, and so on. However, challenges remain, especially with our counterparts. While the FSTA local team has adopted a virtual office, many of our counterparts are basically only maintaining an online presence. Communication is often impacted by network quality. Moreover, with the inception of the NBM AML Software Solution implementation, the impossibility to travel on-site for kick-off, planning, and working sessions, will significantly limit the time window during which all parties can discuss, as people involved with the solution are scattered throughout at least five countries and two continents.
NEXT QUARTER ACTIVITIES
Below we summarize the major activities planned for the next quarter: • Oversee all phases of the development, installation, and implementation of the NBM AML Software Solution, including testing and warranty periods. • Continue to build the capacity of the NBM, provide training on the latest techniques and procedures in line with best practices at other central banks. • Support the NBM in re-engineering its internal processes in line with the functionalities of the AML Software Solution. • Discuss the penalty schedule as the AML Software Solution is being installed. • Define the term of the technical assistance FSTA will provide to the NBM in the process of upgrading the payments infrastructure. • Finalize the TOR for the retail platform and validate the requirements with relevant stakeholders. • Conduct working discussions with the NBM, MOF, CSD, and eGOV to determine the path forward regarding the implementation of the retail market. • Develop a Roadmap for the establishment of the retail platform, including roles and responsibilities for relevant stakeholders. • Work on a Roadmap to open up the Moldovan securities market for international investors. • Recruit a PEP consultant to work with various government agencies to determine the business and technical requirements for a PEP database. • Draft documentation for procuring the PEP solution. • Develop a report on the supervisory transition of the insurance sector to the NBM, including risks and mitigation strategies. • Start implementation of the Action plan attached to the Communications strategy. • Support the Economic Council to the Prime-minister to assess and quantify the impact of the HIO related amendments on the insurance premium.
FSTA PERFORMANCE INDICATORS
Performance Y1 Y1 Y2 FY Y2, Baseline Progress Indicator Target Result Target Q2 Component 1: Strengthen the capacity of the Government of Moldova and National Bank of Moldova to combat financial crime The solution was 1.1 AML IT No Y N Y N procured and the System contract was signed
16 | FSTA Quarterly Progress Report – FY21 Q2
procured and during the quarter. fully-functional Implementation starts on April 1st. Component 2: Capacity Building and support for the Central Securities Depository of Moldova 2.1 Concept The concept paper was note on the finalized and published development of for public consultations. No Yes Partial Yes Yes retail secondary market conducted CSD’s internal ML/FT regulation, and the ML/TF risk assessment have been reviewed. Recommendations in line 2.2 Number of with best international harmonized and practices were implemented submitted. CSD 0 5 0 15 1 regulations and The gap analysis was practices with completed. It addresses EU directives three components of and standards CSD’s activity: regulatory, legal and tax, and technical infrastructure. Relevant recommendations were submitted. Component 3: Capacity Building and support for the National Commission of Financial Markets of Moldova 3.1a Number of The following have been insurance submitted for review and sector laws, counted towards the regulations, and indicator: administrative procedures • Amendments to the 0 4 3 9 1 drafted and Law on Hazardous submitted to Industrial Objects public have been submitted consultation as to the Ministry of a result of USG Economy and assistance. Infrastructure. 3.1b Number of Official approvals for the insurance amendments are pending. sector laws, regulations, and 0 4 0 0 0 administrative procedures approved and implemented as
17 | FSTA Quarterly Progress Report – FY21 Q2
a result of USG assistance. The report on Pawn Broking recommends the NCFM to take over 3.2a Number of regulation of this market NBFIs laws, segment. If NCFM’s regulations, and Executive Council agrees administrative to implement this and procedures other recommendations drafted and 0 3 0 0 0 included in the report, submitted to the FSTA team might public start drafting the rules consultation as and procedures a result of USG necessary for a transition assistance. to the new regulatory regime, conditional on USAID approval. 3.2b Number of Please refer to indicator NBFIs laws, 3.2a. regulations, and administrative procedures 0 3 0 0 0 adopted and implemented as a result of USG assistance. 3.4 Average Trainings were percentage conducted. An evaluation point change in questionnaire will be pre and post- shared with the training test participants to assess 0 0 0 0 0 scores about their understanding of AML AML two months after supervision in the trainings were held. the non-banking sector Cross-Component Indicators The following have been 4.1a Number of submitted for review and AML counted towards the regulations and indicator administrative • A risk rating procedures methodology for drafted and 0 5 2 10 2 evaluating entity and submitted to shareholder risk was public drafted. consultation as • Penalty schedule for a result of USG AML sanctions was assistance. drafted. It will be
18 | FSTA Quarterly Progress Report – FY21 Q2
shared with the NBM next quarter. 4.1b Number of The following has been AML approved as a result of regulations and USG assistance: administrative procedures 0 5 0 10 1 The Guide to risk-based approved or surveillance in the field of implemented as AML/CFT at NCFM has a result of USG been updated based on assistance. FSTA recommendations. The participants trained per module by gender:
4.2 Number of AML Training March 16, persons that 229 2021 – Module 1 (64F, received USG- persons 27M, 1 not listed) sponsored trained: AML Training March 17, training in 0 200 0 400 160 2021 – Module 2 (50F, financial sector Female; 21M) transparency 68 Male; 1 ORSA Training March 29, (disaggregated Not listed 2021 – Module 1 (24F, by gender). 14M) ORSA Training March 30, 2021 – Module 2 (22F, 6M)
19 | FSTA Quarterly Progress Report – FY21 Q2
SUCCESS STORY
INCREASED INTEREST IN AML/CFT TRAININGS. OVER 100 PARTICIPANTS AT THE LATEST WORKSHOP
The AML/CFT trainings are of increasing interest to reporting entities. The proof of this is the latest training workshop that brought together over 100 participants, interested in best practices in this field, but also in the measures they should take to comply with AML/CFT requirements.
In the last few years in Moldova, the AML/CFT field has been subject to increased attention. The authorities adjusted the legislation in this area, establishing rules and requirements for both supervisory institutions and reporting entities. The new provisions, however, came along with a series of uncertainties and question marks from both sides. What do prudential measures entail? What are the criteria for identifying suspicious transactions? When and how should they be reported to avoid overzealousness? These are just some of the questions that employees with AML/CFT responsibilities frequently ask.
While other countries seem to have reached an advanced level of understanding and application of AML/CFT standards, Moldova continues to face a lack of expertise in this field. Considerable capacity- building support came with the trainings organized by the USAID Financial Sector Transparency Activity (FSTA). The international AML expert spoke to the attendees regarding best global practices, but also provided a series of guidelines on each of the topics presented.
The AML/CFT trainings events are of great interest among those concerned. The latest workshop – intended for reporting entities, namely non-bank payment service providers and electronic money issuers – attracted more than 100 participants.
20 | FSTA Quarterly Progress Report – FY21 Q2
For two days, they had the opportunity to recap the most relevant provisions of the AML/CFT legislation in force, but also to find out what are the recommendations of international organizations such as MONEYVAL or FATF. At the same time, the workshop provided an efficient platform for debate and exchange of views, during which those present were able to share their experience and find answers to their questions.
A snapshot from the online AML/CFT training
Denis Morari works as a compliance officer within a payment service provider. Although he has more than two years of experience in this field, he admits that he has encountered some difficulties in the practical applicability of the AML/CFT provisions. "I was very happy when I saw the agenda of the training workshop, as I saw that it addresses new issues such as risk analysis in transactional processes, Know Your Customer, or identifying actual beneficiaries. But most importantly, we had the opportunity to analyze concrete situations that may arise in our activity", Mr. Morari says.
In addition to the simulation exercises, the FSTA expert also prepared several form templates that participants could use in their daily activities. "The forms made available to us are extremely useful, especially the risk reassessment form that will allow us to improve our Internal Compliance Program and thus become more efficient in managing and reporting potential risks", added Denis Morari.
Ana Brinzila, head of the Office for Preventing and Combating Money Laundering within the State Enterprise "Posta Moldovei" (the national postal operator), is of the same opinion. "The guidelines provided by the FSTA expert will guide us in our efforts to improve our internal policies. And presented forms will help us to align to the good practices and international standards in this field.", Ms. Ana Brinzila underlined.
The evaluation carried out after the training showed that most of the participants would like to participate in other AML/CFT trainings as well, and also indicated the topics of interest. In 2021, the FSTA will organize several training sessions in the field of AML/CFT, which will allow the participation of representatives from other reporting entities.
21 | FSTA Quarterly Progress Report – FY21 Q2
SUCCESS STORY
LOCAL INSURERS ARE HELPED TO SHIFT TO PRUDENTIAL SUPERVISION
The transition to prudential supervision is no longer a prospect that confuses local insurers. Thanks to the trainings organized by FSTA, insurance companies have gained a much clearer understanding of what this concept entails, but also of the steps they should follow to comply with the new provisions.
The Association Agreement with the European Union requires Moldova to meet several conditions, including alignment with international standards in the field of insurance. The transposition of the EU’s “Solvency II” Directive into the new draft law on insurance and reinsurance activity has led the sector players to start preparations for compliance with the new regulatory framework. The new provisions, however, have created a certain state of confusion, since prudential supervision is a novel field for all parties.
The solution was to turn to international expertise. As of fall 2020, the USAID Financial Sector Transparency Activity (FSTA) is supporting several activities aimed at aligning Moldova’s insurance sector with international norms. With a proactive approach in its activities, FSTA has developed a holistic training program that meets all sector’s needs. And one of the objectives is to support Moldovan insurance companies in the transition to prudential supervision, by conducting the necessary trainings involving international experts.
The subject of prudential supervision sparked enormous interest among local insurers. The latest training workshop for executive directors, actuaries, underwriters, and risk managers brought together representatives from all local insurance companies. The training event provided a great opportunity for them to learn more about the elements of prudential supervision such as risk management, corporate governance, and ORSA (own risk and solvency assessment).
22 | FSTA Quarterly Progress Report – FY21 Q2
At the same time, the theoretical presentations were alternated with interactive discussions, during which the participants had the possibility to debate the measures they would take in different hypothetical situations. "The practical exercises allowed us to exchange views on the challenges we anticipate in the implementation of prudential supervision and, at the same time, to find out what are the recommendations of an international expert with extensive experience in this field", said Cristina Mardari, Head of Internal Control and Risk Manager at a Moldovan insurance company.
Another novelty of the training workshop was the Instruction for preparing the ORSA Report, developed by FSTA experts. The document includes a series of guidelines that will help both the regulator and the insurance companies to ensure the correctness and completeness of the data contained in the report. "Both, the materials presented on each of the prudential supervision’s elements and the separate Instruction for preparing the ORSA Report will serve as a guide in the complex process of implementing the new regulatory framework", Cristina Mardari pointed out.
A screenshot of the online training session on prudential supervision
The helpfulness of the presented materials was also noticed by other participants, who considered it necessary to share them with other colleagues. "These guidelines answer many of the questions we had about prudential supervision, especially with reference to the ORSA Report, which is a first for our country. I have shared these materials with my colleagues as well, as they would help them significantly raise the efficiency of their activity and be better prepared for the coming changes”, mentioned Lilian Barbier, Head of Insurance and Underwriting Department at a local insurance company.
The requirement to prepare reports on own risk and solvency assessment is set out by the new draft law on insurance and reinsurance activity. The deadline for starting the presentation of this report by insurance market participants is 12 months from the entry into force of the new regulatory framework. In the future, FSTA experts will also support NCFM in developing an ORSA reporting template, which could be used by reporting entities.
23 | FSTA Quarterly Progress Report – FY21 Q2