Regulatory Compliance Accounts for One-Third of Ukrainian Credit Unions’ Operating Expenses

Ivan Vishnevskiy

The USAID/World Council of Credit Unions’ (WOCCU) Credit for Agriculture Producers (CAP) Project in February presented the findings of its survey that asked Ukrainian credit unions to estimate their costs associated with regulatory compliance and prudential requirements. 

The CAP Project initiated the study in light of the new Laws of Ukraine “On Credit Unions” and “On Financial Services and Financial Companies” that went into effect on January 1, 2024.

According to the provisions of these laws, the National Bank of Ukraine (NBU), the country’s credit union regulator, shall supervise the operations of credit unions by applying a risk-based approach and the principle of proportionality, which may either increase or reduce credit unions’ regulatory costs depending on how the new rules are adopted. 

The survey, which looked at a one-year period from July 2022 to June 2023, produced several key findings, including that: 

• The regulatory compliance costs of Ukrainian credit unions account for 30% of their total operating expenses and nearly 7% of their total assets. 
• Smaller credit unions incur the largest relative costs for regulatory compliance, at 47% versus 30% on average in the sector. 
• Almost half of credit union employees’ working hours are spent on fulfilling these regulatory requirements. 
• Almost one-third of all regulatory compliance costs account for prudential risk management (compliance with licensing terms, financial ratio calculation, preparation and submission of reports and information per requests from the regulator, internal and external audits). 

The survey results show the costs that Ukrainian credit unions incur for regulatory compliance are quite significant and often exceed both the capabilities and needs of individual credit unions. This may result from a lack of proportionality applied in credit union regulation and supervision. 

"Regulatory requirements for credit unions are constantly changing, so it‘s important to assess their impact on day-to-day business. The survey allowed us to see how it affects small and large credit unions and identify the costliest areas," said Ivan Vishnevskiy, Deputy Chief of Party for the CAP Project. "Some solutions to reduce compliance costs are proportional and risk-based regulation, as well as the introduction of standardized and automated procedures across the sector."

The CAP Project will leverage the results of the study to continue advocating in front of the Ukrainian Parliament (Verkhovna Rada), NBU and other government authorities in Ukraine, as well as with international partners to implement a more balanced approach for ensuring both effective prudential supervision and compliance cost reduction for credit unions in Ukraine. 

For more updates on credit unions in wartime Ukraine, visit WOCCU's Ukrainian Crisis Response Blog.

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