EUROPEAN PRACTICES FOR ENSURING APPROPRIATE MARKET CONDUCT BY FINANCIAL INSTITUTIONS AND THEIR ADAPTATION IN UKRAINE

Abstract

The current stage of development in the financial sector is characterised by the deepening of globalisation processes and the digitalisation of financial services, which necessitates a rethinking of approaches to the state regulation of financial markets. Following the global financial crisis of 2007–2008, it became clear that traditional prudential supervision mechanisms do not provide an adequate level of consumer protection and do not prevent market abuse. In this regard, a distinct regulatory focus has emerged in leading countries worldwide, particularly within the European Union: the supervision of financial institutions’ market conduct. At the same time, in Ukraine, the process of establishing an effective market conduct regulatory system is still in its formative stages and requires further refinement. Despite the adoption of the Law of Ukraine ‘On Financial Services and Financial Companies’ and the implementation of certain European approaches, in practice there remain issues such as an insufficient level of protection for the rights of financial services consumers, low transparency in the activities of certain financial institutions, imperfect disclosure mechanisms, and the limited effectiveness of supervisory tools. In such circumstances, it is particularly relevant to examine European practices for ensuring appropriate market conduct by financial institutions and to identify opportunities for adapting these practices in Ukraine.

The purpose of the article is a comprehensive study of European practices regarding the regulation of appropriate market conduct by financial institutions, identifying its key principles, institutional models and implementation mechanisms, as well as developing evidence-based proposals for adapting these approaches to the conditions of Ukraine’s legal system, with a view to enhancing the effectiveness of financial market regulation, strengthening consumer protection and bolstering confidence in the financial system.

To achieve the set objective, a comprehensive approach was adopted, involving the use of both general and specialised research methods. In particular, the functional method was used to identify the functions of the bodies responsible for supervising market behaviour in European Union countries. The formal-legal method was used to analyse the provisions of regulatory legal acts. The systemic-structural method was applied to identify the main features of the current state of legal regulation of market behaviour. Methods of analysis, synthesis, induction, deduction and analogy were also used to formulate conclusions and proposals.

This article examines European approaches to regulating the market conduct of financial institutions and identifies their key institutional and legal features. It is established that an effective regulatory model is based on a combination of prudential, macroprudential and market conduct supervision, with a priority on consumer protection. The article analyses the experience of individual European Union countries regarding the organisation of supervisory bodies, mechanisms for ensuring transparency and the development of competition in the financial market. It outlines directions for adapting European practices in Ukraine, in particular through the improvement of legislation, the institutional capacity of regulators and the introduction of modern supervisory mechanisms.

Steps have been proposed to improve the regulation of market conduct by financial institutions in Ukraine: a) to finalise the development of an effective model for a mega-regulator for the non-banking sector, with a clear division of powers between supervisory authorities; b) ensure full harmonisation of legislation with European Union law, particularly in the areas of consumer protection and disclosure of information; c) strengthen the institutional capacity of regulators through the introduction of a risk-based approach and modern supervisory tools; d) develop mechanisms for the out-of-court settlement of disputes, in particular through the establishment or strengthening of the institution of the financial ombudsman; e) raise the level of financial literacy among the population and foster a culture of good faith conduct among financial market participants.