USAID Financial Sector Reform (FSR) Activity — Year 1 Updated Work Plan

The program began on January 1, 2023, and will conclude on September 30, 2023. The FSR Activity has undergone significant changes in its work plan, primarily due to the ongoing war with Russia and its impact on Ukraine's economy. The war has led to a significant increase in the risk premium for doing business in Ukraine, making it essential to increase access to finance for small and medium-sized enterprises (SMEs). As a result, the FSR Activity has shifted its emphasis to stabilization activities in Component 3, financial intermediation. The program will focus on providing relief measures for borrowers, developing mortgage lending, and implementing the Split Law and Financial Services Law. In Component 1, Market Regulation and Supervision, the FSR Activity has made several changes to its work plan. The program will shift its focus from commenting on the law allowing borrowers to apply for debt write-off to finding compensation mechanisms for banks and minimizing the negative impact. Additionally, the FSR Activity will scale back its mortgage financing activity due to the current state of the real estate market and the lack of potential for mortgage finance in the near term. The program will also expand its implementation of the Split Law and Financial Services Law, which has been significantly updated and expanded based on the work plan of the National Bank of Ukraine (NBU). The FSR Activity will intensify its legal and regulatory work and supplement the efforts of other donors in factoring and financial leasing. New activities have been added to the work plan, including the development of a framework for non-performing loan (NPL) resolution and the alignment of the Ukrainian deposit guarantee system legislation with EU Acquis requirements. The program will also postpone its review of the experience with the digitalization of warehouse receipts until progress is made on the draft law. In Component 2, Capital and Commodity Markets, the FSR Activity has shifted its focus from the IOSCO Draft Law to the Law on Virtual Assets. The program will support the preparation of a new Draft Law on Virtual Assets implementing the EU Market in Crypto-assets (MiCA) Regulation. A new activity has also been added to deal with the legacy issue of pseudo or non-functional joint-stock companies. The FSR Activity has removed several activities from its work plan, including the implementation of the Law on Capital and Commodity Markets and the alignment of Ukrainian capital markets legislation with EU Acquis requirements. This decision was made due to the current state of the capital markets, the lack of priority from the National Securities and Stock Market Commission (NSSMC), and the upcoming EBRD project devoted to the alignment of Ukrainian capital and securities markets with EU and regulations development for the NSSMC. The FSR Activity will prioritize financing instruments for SMEs, developing access to various trade-finance instruments, and risk-insurance mechanisms, which are more urgent needs for current stabilization and rebuilding the infrastructure and economy of Ukraine.