CERTIFICATION OF STOCK MARKET PROFESSIONALS: reform plan to ensure efficiency and transparency

Prepared in cooperation between the NSSMC and CFA Institute Ukraine

PROJECT HISTORY

February 2, 2017 - Memorandum between the NCSSMF and CFA Society Ukraine on reforming the stock market certification system

July 14, 2017 - Professional Association of Capital Markets and Derivatives Participants joined the Memorandum August 2017 - Project start (preparing the White Paper)

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PROJECT GOAL

Creation of a transparent system of training and certification of stock market specialists, which will

guarantee an independent assessment of professional competencies and professional ethics and will be based

on the best international practices.

PREPARATION OF THE WHITE PAPER

7 interviews with representatives of the NSSMC, the market and educational institutions; study of the international experience, based on open sources; analysis of the regulations on certification;

PREPARATION OF THE FIRST DRAFT (AUGUST-SEPTEMBER 2017): 1

2 DISCUSSION OF THE FINAL DRAFT (OCTOBER 2017)

meeting of the representatives of the NSSMC and CFA Project to discuss main ideas; preparing final draft of the document.

1358

1434

704

1380

1453

725

NUMBER OF PEOPLE TAKING QUALIFICATION EXAMS IN 2015-2017.

2015

2016

2017 (as of Sep 2017)

YEAR NUMBER OF PEOPLE TAKING THE EXAM

PASS RATE

98,4%

98,7%

97,1%

NUMBER %

QUALIFICATIONS EXAMS PASS RATE: INTERNATIONAL COMPARISONS

FRANCE

FINLAND

USA

CFA (I LEVEL)

ACIIA (I LEVEL)

66%

70%

86%

42%

46%

Ukrainian Institute for Stock Market Development of Kyiv National

Economic University (KYIV)

ADS "Ukrainian International Cultural Center” (KYIV)

Kharkiv Center for Scientific, Technical and Economic Information (KHARKIV)

ALFRED NOBEL UNIVERSITY (DNIPRO)

Odessa National Economic University (ODESSA)

TRAINING TUITION AND EXAMINATION FEES

5580

5580

5340 - 5475

6500

6500

Full program tuition (UAH)

Specialized program tuition (UAH) Exam fee (UAH)

2940

2940

2460 - 2835

3800

4100

1245

1350

1200

1200

Educational Institution

!

! provides methodological support to the NSSMC

MAIN PROBLEMS OF THE EXISTING SYSTEM OF CERTIFICATION

SROs ARE NOT INVOLVED IN THE CERTIFICATION PROCESS

International experience: there are different certification models in different countries:

Some market representatives believe that the certification of specialists should done by the SROs; they question the effectiveness of state regulation in this area.

SRO (Financial Industry Regulatory Authority, FINRA);

Poland

Turkey

France

USA

Finland SRO (Finnish Financial Services, FFI).

regulator (Polish Financial Supervision Authority, KNF);

regulator (Capital Markets Board of Turkey, CMB);

regulator (Autorité des Marchés Financiers, AMF);

MANDATORY TRAINING IN CERTAIN INSTITUTIONS DOES NOT PROVIDE FOR PROFESSIONAL DEVELOPMENT OF PROFESSIONALS

Legal requirement to take mandatory courses in specific universities, which often do not provide high-quality training, makes professional development a formality. At the same type, representatives of the market are very little involved in the development of the training curricula.

continuous professional development (CPD) of professionals working in the stock market, regular improvement of their and skills; they have the right to choose institutions, courses and programs;

SRO representatives, universities and training centers are involved in updating the training curricula and preparing test items for examinations;

monitoring and analysis of the results of the national exams, including those exams specific for different specializations, as well as the presentation of these analysis in open access.

International experience

LOW QUALITY OF MANDATORY TRAINING PROGRAMS AND OF

THE EXAMS

The quality of the programs at the educational institutions that have

the right to conduct mandatory trainings is poor. There is a growing need to update the programs and

give the right to study in different institutions and formats.

best practices used to ensure high-quality of training and certification:

International experience

specific standards and requirements for different professional tracks;

the right to choose educational institutions / business schools / on-line programs to train for examination;

the right to use certificates of established international professional organizations and associations (CFA, CIIA, SFDR, and others) as substitute for national examination;

professional ethics component is included in the qualifications exam.

NEED TO IMPROVE THE PROCEDURES OF EXAMS PREPARATION AND ADMINISTRATION

Existing examination procedure creates conflict of interest (direct contact with the NSSMC representatives in the process of a personal interview); no procedures for ensuring quality of the test items.

ensuring the integrity of the exam by fully separating the preparation and administration of the exam;

making sample exam questions available online;

cooperation with international professional organizations and associations (ACIIA, CFA, CISI and others) regarding the use of training programs, the transfer of knowledge in organizing the exams and adding practical questions to

the exams.

International best practices for test development and administration:

NO ETHICS COMPONENT IN QUALIFICATION EXAM

At the moment, during the certification process professional

ethics is not tests, though this is becoming an increasingly relevant

issue for ensuring the effective functioning of the stock market.

Prerequisite for the inclusion of issues of professional ethics in exam

programs is the formation, discussion and adoption Code of Ethics by the

market.

separate training programs cover the issues of market abuse, money laundering and avoiding conflicts of interest.

"Ethics and good advisory practice" component is mandatory; imitational ethical test aimed at test candidate’s understanding of the basic norms and principles of ethical behavior in the securities market.

compulsory training modules include Ethics and Business Conduct; Complaints and Investigation; Prohibited, and Fraudulent Behavior.

part of the qualification exam is the issue of professional ethical standards.

DENMARK

NORWAY

USA

POLAND

all capital market professionals have to study ethical rules of professional conduct. Basic requirement is knowledge of the rules developed by self-regulatory organization - the Association of Institutions of Intermediary Activities in the Capital Market of Turkey.

TURKEY

the module "Ethics and regulation" is a compulsory part of the exam, and it covers about 15-25% of the test for investment consultants and 20-30% for professionals who provide information on investment services. At the same time, if the questions on national regulation vary according to each country, the question of knowledge and application of the Ethics Code of the Baltic Financial Advisers Association is common to all.

BALTIC STATES

CFA CODE OF ETHICS & PROFESSIONAL STANDARDS

PROFESSIONALISM, which includes knowledge of the law, independence and objectivity, misrepresentation (one must not knowingly make any misrepresentations), misconduct (one must not engage in any professional conduct involving dishonesty, fraud, or deceit);

INTEGRITY OF CAPITAL MARKETS, which covers issues of material nonpublic information and market manipulation;

DUTIES TO CLIENTS, which include loyalty, prudence and care; fair dealing; suitability; performance presentation; preservation of confidentiality;

DUTIES TO EMPLOYERS, which include loyalty; additional compensation arrangements; responsibilities of supervisors;

INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS which include diligence and reasonable basis; communication with clients and prospective clients; record retention; CONFLICT OF INTEREST which include disclosure of conflicts; priority of transactions; referral fees.

RECOMMENDATIONS

INITIAL CERTIFICATION RE-CERTIFICATION

FIRST LEVEL for those who want to obtain the certificate for the first time

SECOND LEVEL, conducted after 3 years (+3 months) after the initial (previous)

certification; includes continuous professional development

I II no testing of basic economics and finance,

only legislation, practical cases, professional ethics

if the person has international professional certificate, he/she has the right not to take certain components of the test, which are covered by the certificate;

mandatory training on such topics: - legislation,

- ethics; - basic economics and finance (if not

confirmed by university diploma). This can be done in any institutions and formats (including

ONLINE)

Person has to obtain minimal number of continuous professional development points, which can be done in different

institutions and formats

4 components basic economics and finance; legislation;

practical cases; professional ethics

During three years after the initial (previous) certification person has to - CONSTANTLY IMPROVE HI/HER PROFESSIONAL LEVEL. This can be done in different institutions and formats (INCLUDING ONLINE): • educational programs in universities and other institutions; • trainings; • research publications; • participation in conferences • participation in working groups on the development of regulations and legislation etc.

RE- CERTIFICATION II Complete the training course

HOW DOES THIS WORK? Submit information about it into the online system (administered by the SROs) which will automatically calculated how many points you receive.

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SROs functions • administering the points system; • dissemination of information about available opportunities for professional development

FIRMS, where candidates work, ARE INTERESTED IN HAVING CERTIFIED STAFF and thus will support their professional development: • pay tuitions for the trainings; • organize their own trainings.

IMPORTANT

Those who have acting certificate by the time of the launch of the new certification system will have to go through initial certification

!

• Written or computer-based test

• Exams take place twice a year

• Only multiple-choice test. Potentially there can be typical test item with several options (different basic indicators for the calculations).

• In order to pass the exam, candidate has to obtain minimal score in each of the test components.

• Only a person who failed the exam has the right to appeal against the results.

QUALIFICATION EXAM: FORMAT

INTERNATIONAL PROFESSIONAL CERTIFICATES

• International professional certificate can cover a certain component of the test;

• NSSMC and SROs will develop guidelines on which specific test components are covered by different certificates;

• test centre administers the process of recognition of certificates for individual candidates.

Conduct PRACTICE ANALYSIS in order to collect and analyze comments from practitioners on the specifics of the functioning of the stock market in Ukraine. This will serve as the basis for the development of case-studies for the trainings and practical test item for the exam.

Development of the training curriculum should be the result of JOINT WORK of the regulator, SROs / market participants and educational institutions.

Test items should go through proper quality assurance process - editing, reviewing, pre-testing etc.

IMPROVING THE QUALITY OF TRAINING PROGRAMS AND TEST ITEMS

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• Adding components on professional ethics to training curriculum and qualification exams;

• In order to do this, it is important that market participants, SROs, professional associations DEVELOP CODES OF ETHICS that will be recognized and understandable to the market.

PROFESSIONAL ETHICS

INDEPENDENCE AND OBJECTIVITY OF THE ASSESSMENT

• ensuring the INTEGRITY OF THE EXAM by fully separating the exams preparation and administration;

• ONLY PROCTORS WHO ARE NOT SPECIALISTS IN STOCK MARKET OR RELATED ISSUED SHOULD BE ALLOWED TO ADMINISTER THE EXAMS убезпечення to ensure un-authorized help to the candidates;

• PERSON’S IDENTIFICATION in the test centre; no cheating, use of additional materials during the exam;

• NO MORE INDIVIDUAL INTERVIEWS

NEXT STEPS

Discussion and adoption of a new model of the certification system

Regulatory framework changes

Conducting practice analysis

Development and adoption of norms and principles of ethical behavior of stock market participants and asset managers

Nov-Dec 2017

Developing the continuous professional development points system

Preparation of a training program describing the expected learning outcomes for the stock market professionals

Writing test items according to the new standards

Editing, reviewing, pretesting the test items

Conducting first exam according to the new rules and procedures

2018

Jan-Feb 2018

Mar-Apr 2018

May-Jun 2018

Jul-Aug 2018

Sep-Oct 2018

Nov-Dec 2018

Jan-Feb 2019

NSSMC, SROs, professional associations

NSSMC

SROs, professional associations

NSSMC, SROs, professional associations, individual experts

NSSMC, SROs, professional associations, individual experts

NSSMC training centre, SROs, professional associations,

academics

NSSMC training centre

NSSMC, SROs, professional associations, individual experts

NSSMC training centre, SROs, professional associations,

academics

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THANK YOU FOR ATTENTION