Financial Sector Reform Activity FY 2023 Q3 PROGRESS REPORT

The Activity emphasizes four thematic areas: Improved Market Regulation and Supervision, More Efficient Financial Infrastructure, Financial Intermediation and Facilitation of Private Sector Services, and Financial Inclusion. Improved Market Regulation and Supervision is a key area of focus for FSR. The IOSCO Law, which enhances regulatory powers and independence for the Securities Commission, was adopted in First Reading in June and is scheduled for Second Reading and adoption in July/August 2026. FSR will provide assistance to the NSSMC with reorganization and implementation of the law once it is adopted. FSR also completed legal work on the Draft Law on Virtual Assets in May and posted the legislation for public comment in June. The legislation incorporates European standards and requirements for digital assets (cryptocurrency). A revised bill will be completed in July/August and submitted to the Parliament. More Efficient Financial Infrastructure is another key area of focus for FSR. The Activity completed an IT and information security audit of the Settlement Center and provided recommendations to the Supervisory Board. FSR also initiated a tender to procure a generator and UPS to provide an emergency power center for the NBU. Financial Intermediation and Facilitation of Private Sector Services is a key area of focus for FSR. The Activity launched a major conference on Political Risk Insurance for Ukrainian government officials, insurance companies, and insurance companies. FSR also supported the submission of applications for loan guarantees to finance MSMEs. Financial Inclusion is a key area of focus for FSR. The Activity continued efforts to advance factoring as a financial instrument for SMEs and to facilitate private sector services. FSR also supported the procurement of an information software for the National Depository of Ukraine to provide increased data privacy. The economic situation in Ukraine improved during the quarter. GDP estimates for the year were revised upward to 3%, and inflation dropped from 20% to 15% on a yearly basis. Unemployment remains high at an estimated 25%. Surveys of business confidence also improved. The National Bank of Ukraine achieved record foreign exchange reserves of over $38 billion, and the currency was stable at UAH 28 to the dollar. To promote investment and activity, the NBU is liberalizing its policies on convertibility and exchange. In the banking system, banks are profitable, although non-performing loans are high at 38%. Most private and foreign banks have stopped providing additional loans to small businesses, while the state-owned banks continue to serve this segment mainly through the government's 5-7-9 compensation program and state loan guarantee facilities. The Ukrainian government continues to receive massive amounts of financial support from the United States and the European Union to stabilize the economy and provide for the needs of the people. Direct budgetary support alone to the government totals almost $3 billion per month. Other economic support programs provide funding for small businesses, infrastructure, energy, and the agricultural sector. The Ukrainian economy is expected to continue to improve in the coming months. The government's efforts to implement financial sector reforms and promote investment and activity are expected to have a positive impact on the economy. However, the country still faces significant challenges, including high unemployment and a high level of non-performing loans in the banking system. The Activity's efforts to promote financial inclusion and facilitate private sector services are expected to have a positive impact on the economy. The Activity's focus on improving market regulation and supervision, more efficient financial infrastructure, and financial intermediation and facilitation of private sector services is expected to contribute to the country's economic growth and stability. The Activity's efforts to promote investment and activity in the country are expected to have a positive impact on the economy. The Activity's focus on promoting financial inclusion and facilitating private sector services is expected to contribute to the country's economic growth and stability. The Activity's efforts to promote financial inclusion and