Reliability of NDU assessed by an international auditor

Thomas Murray, the international rating company, provided results of the audit on NDU compliance with PFMI IOSCO principles. The assessment of its compliance with PFMI-IOSCO principles was initiated by NDU and backed by EBRD.

It should be noted that the main task of these principles is to standardize the setting and operation of key processes in those organizations that are of paramount importance for the financial infrastructure of the country. First of all, these are the Central Securities Depository, securities settlement systems, payment systems, etc.

Thus, assessment of compliance with PFMI-IOSCO principles in the first turn helps to define risks sources in the organization, and to expose the organization’s facilities to prevent and manage the risks. In practice, such assessment is an acknowledgement of the forecastability of CSD`s operation as an Ukrainian stock market infrastructure element and an indicator of its level of stability. Indeed, in this way NDU demonstrates its development and transparency.

Thomas Murray`s assessment has been carried out in several stages and lasted for half a year. All activities, all documents have been reviewed, and peculiarities of the Ukrainian legislation have been studied. As a result, the National Depository was rather highly assessed – PFMI principles that apply to depositary activity are broadly observed. Among them, there are legal basis, custody and investment risks, FMI links, efficiency and effectiveness, disclosure of rules, key procedures and market data. There are 24 Principles in total. 14 of them apply directly to depositary activity, and they have been assessed.

‘It is a good practice for Central Securities Depositories and other stock market infrastructure representatives to become transparent and disclose their compliance with international standards, especially if they refer to main business activities. Of course, you can do it by yourself. But then the assessment will be somewhat subjective, especially if the market is not very developed. It was important for us to get an objective assessment. That`s why the British company Thomas Murray, which has been in the market for already 25 years and has dealt with post-trade risks assessment, was selected, ’ stated Mindaugas Bakas , Chief Executive Officer of the National Depository of Ukraine. He added that it was an important strategic step to pass such assessment of risks. In the future, after domestic government bonds transfer to NDU for custody, internal business processes of the National Bank and the Central Depository will be interrelated. Therefore, after such step is made, it is important for NDU to ensure confidence in and stability of the infrastructure operation.

Based on Thomas Murray recommendations NDU has already developed an action plan to improve all processes related to risk management. In particular, the action plan covers the risk management system elaboration and further enhancement, review of the legal basis as well as rules and procedures, and the issue of bringing all IT related processes into compliance with the standards etc.

‘It is optimistic that NDU has showed so high assessment results. We are fully ready to further support National Depository’s future actions aimed at improvement of all risk management processes. Having received assessment results, we understand that legal and regulatory acts should also be reviewed. Indeed, it will contribute to setting conditions for further development of NDU and infrastructure of the Ukrainian stock market’, stated Timur Khromaev, Chairman of the National Securities and Stock Market Commission of Ukraine.

It is worth mentioning that if all infrastructure elements of the stock market disclose their risks related activity it will definitely have a positive impact on the market development.

Results please see pdf file here.