Approaches to non-bank leasing market regulation published

The National Bank has published a  White Paper “Future regulation of non-bank leasing” . This is the last of six planned sectoral documents in which the National Bank, as the future regulator of non-banking financial services markets, describes the current state of markets, their problems and planned changes in regulation.

In developed countries, financial leasing services are actively used by individuals and businesses as an alternative to bank lending. In Ukraine, the financial leasing market has been growing for the last few years and still remains quite small. 

Therefore, the main purpose of the new regulation proposed in the White Paper will be to promote the development of the financial leasing market on the basis of transparency, respect for the rights and interests of customers. The following key changes are envisaged for this.

First, there will be unified requirements for lessors operating in the form of financial companies or in the form of legal entities licensed for financial leasing. Although they provide the same service, their requirements are different now. The National Bank will establish uniform requirements and will require the lessor to obtain a license to operate a financial company in order to provide a financial leasing service. Landlords that already exist in the market will be re-registered as financial companies with the appropriate type of license automatically. As before, in addition to providing financial services, lessors will be able to engage in other economic activities, including operating leasing. 

Although leasing companies will generally be subject to simplified requirements as a non-risky financial market segment that does not involve retail funds, such companies will retain capital requirements. Leasing companies must maintain equity at UAH 3 million if only financial leasing services are provided or UAH 5 million if the leasing company plans to provide two or more financial services.

Secondly, the sources of financing of financial companies will be clearly regulated and expanded, as limited opportunities to attract financing are one of the key obstacles to market development. Lessors will be able, among others, to raise funds from affiliates and funds on subordinated debt, including from individuals and legal entities that are qualified investors. The possibility of raising funds through the issuance of debt securities will also be more clearly regulated. 

Third, there will be increased requirements for company transparency and the preparation and disclosure of reports. The development of this market is possible only with the trust of creditors and customers, awareness of the public and business and ensuring respect for the rights of all parties. Informative reporting, prepared according to international standards and audited by an independent external audit, should be the main form of confirmation of the company’s financial condition to its counterparties and creditors. It will also help simplify and reduce the cost of attracting financing from leasing companies.

The National Bank is ready to support legislative and governmental initiatives, as well as the initiatives of leasing companies themselves to improve tax regulation, provide tax and other incentives for the development of the leasing market in Ukraine.

The schedules of bringing the activities of leasing companies in line with the new requirements will be determined taking into account the objective deadlines and the ability of leasing market participants to meet these requirements.