Baltic Journal of Economic Studies

Vol. 8 No. 1, 2022

Corresponding author:
1 Poltava University of Economics and Trade, Ukraine
E-mail: manzhura11@ukr.net
ORCID: https://orcid.org/0000-0003-4840-9238
ResearcherID: S-5958-2017
2 Yuriy Fedkovych Chernivtsi National University, Ukraine
E-mail: g.pochenchyuk@chnu.edu.ua
ORCID: https://orcid.org/0000-0002-9994-636X
ResearcherID: D-1542-2016
3 Borys Grinchenko Kyiv University, Ukraine
E-mail: k2205n@ukr.net
ORCID: https://orcid.org/0000-0001-8610-3980
ResearcherID: W-1814-2017

DOI: https://doi.org/10.30525/2256-0742/2022-8-1-94-102

INNOVATIVE CHANGES IN FINANCIAL AND TAX SYSTEMS
IN THE CONDITIONS OF DIGITAL TRANSFORMATION

Oleksandr Manzhura1, Galyna Pochenchuk2, Nataliia Kraus3

Abstract. The purpose of the research is to present the features of innovative changes in financial and tax
systems in terms of digital transformation as a foundation to build a new quality of economic system in terms
of virtual mobility and financial technologies that change business in the direction of its electronic direction.
The object of the scientific research is the process of digitizing innovative changes in financial and tax systems in
terms of virtual mobility, which has every chance to become a decisive step in implementing digital development
strategy of Ukraine through the development of digital financial instruments, digitized financial development
institutions, smart services and efficient defining a new quality of management of financial and tax systems.
Methodology. By relying on comparative-retrospective analysis, synthesis, and system method, the digitalization
of innovative changes of financial and tax systems is investigated. It determines the new quality and format of
work of financial development institutions in the times of deepening virtual mobility. Comparative analysis was
used to study the content of regulatory and supervisory financial technologies, namely: RegTech, SupTech; the
functions of financial system that reveal its role are indicated. The result of the article. Factors contributing to
the development of financial system are presented; the authors give their vision of the content of non-financial
companies that provide traditional financial services in virtual reality. The content of some innovative and digital
changes in the Ukrainian tax system has been identi-fied and disclosed. Practical implications. It is argued that
key innovative changes that need to be addressed in the context of reforming and digital transformation of
financial system have been revealed. Factors contributing to the development of financial system are presented.
The peculiarities of digital initiatives that take place in the taxation system are indicated. Value/originality.
In order to timely inform taxpayers in the media and on the web portal of the tax service, it is proposed to
systematically covers main issues regarding the procedure for filing tax returns, categories of taxpayers required
to file reports, deadlines for such reporting, list of costs included as part of tax rebate. Payer Service Center should
implement this awareness. Author’s vision of the content of practical work of non-financial companies providing
traditional financial services in the conditions of virtual mobility is presented and thoroughly revealed.

Key words: innovative changes, digital financial technologies, financial system, digital transformation,
digitalization of tax system.

JEL Classification: E44, E62, O31, O38

1. Introduction
The main task of the financial system as

a whole is to ensure the controlled implementation of
economic processes important for the maintenance
of life and development of society. This is due to the

fact that all economic resources are limited, and
therefore, the financial system should promote their
rational use. Institutions of the financial system,
on the one hand, create a restrictive framework for
the functioning of economic entities in terms of

Baltic Journal of Economic Studies

Vol. 8 No. 1, 2022
financial management and, on the other hand –
participate in the allocation of resources,
influencing their efficiency and intensity
(Pochenchuk, 2015a).

Current trends in financial development –
financialization, dissemination of digital technologies,
virtualization of financial resources, development
of financial innovations – cause and necessitate
institutional changes in financial system. The Fourth
Industrial Revolution has several major consequences
for all areas, including financial: changing consumer
expectations and behavior; product quality
improves as data and asset productivity increases;
new partnerships are formed as companies become
aware of new forms of cooperation; operating
models are transformed into digital models.
Institutional transformations of the financial system
of Ukraine concern changes at the level of formal
and informal institutions at the micro and macro
levels: improvement of regulatory and legal support
for the functioning of financial system taking into
account new development trends; re-forming the
system of state regulation of financial system;
formation of a new quality of the country’s tax
system; development of a new infrastructure of the
financial system, comprehensive implementation
of innovative solutions (Pochenchuk, 2016). In the
conditions of innovation of the economy of Ukraine,
there is a significant but unequal tax burden on
business entities, which leads to disproportion at the
stage of formation of digital economy. That is whythe
development of the tax system of Ukraine in the
conditions of formation of digital economy plays an
important role in the formation and distribution of
financial resources of the state. The digital taxation
system has the most effective influence on the
functioning and business activity of digital business
structures.

The development of financial technologies causes
the emergence of new financial infrastructure;
affects the competition of financial institutions; causes
the blurring of the boundaries of spheres of economic
activity, the emergence of new markets and new
forms of their functioning; promotes the introduction
of new business models (marketplaces, ecosystems),
new forms in which financial products are offered
and sold; allows you to create new channels of
interaction with customers and new models of
accelerated transformation of customer experience
(digital customer experience); provides new
regulatory tools and ways to comply with financial
institutions and companies. Thus, changes
due to the introduction of innovations in the
collaboration of technology-finance-institutions
cover the entire reproduction process and create
opportunities for all countries with timely and
adequate response.

2. Literature review
Modern understanding of the processes of

formation and development of financial
institutions was strongly influenced by the works of
V. Bilotserkivets, S. Golubka, O. Zavgorodnya,
T. Yefimenko. Names of G. Bortis, G. Pochenchuk
(Pochenchuk, 2016), O. Bilorus, V. Geits, K. Klaus,
P. Leonenko, D. North, B. Paton, S. Stepanenko,
O. Stryzhak, V. Tarasevych, A. Tkach and
O. Yaremenko, which study institutional aspects of
the formation of financial institutions. The works
of these scientists, based on the application of an
interdisciplinary approach, deal with the scientific
search for historical, financial and economic, moral
and psychological, political and cultural factors of
institutional transformations of Ukraine’s economy.

Theoretical and practical studies of tax planning of
business entities were covered in the contributions
of domestic and foreign scientists: E. Vylkov,
A. Yelisyeev, A. Zagorodnyi, O. Kirsh, A. Podderogin,
M. Pidluzhnyi, V. Chernenko, etc. Issues of tax
policy and tax burden were dealt with by Z. Varnaliy
(Varnaliy, 2017), L. Dikan, A. Kizyma, D. Melnyk,
Y. Prokopenko, etc.

The consideration of general problems and
ways to improve the system of direct taxation in
Ukraine and the conceptual foundations of tax
planning of enterprises in the context of the Fourth
Industrial Revolution was conducted by V. Isaacson
(Isaacson, 2017), A. Ariyenchuk and M. Sadovenko
(Sadovenko & Ariyenchuk 2019), N. Andrusiak
(Andrusiak & Kraus, 2020), Ya. Glushchenko,
T. Moiseyenko, O. Korogodova and N. Chernenko
(Glushchenko & Korogodova, 2021), Yu. Mosolova,
N. Loboda, O. Chabanyuk (Loboda & Chabanyuk,
2021), K. Kaverina (Kaverina & Sholom, 2021),
O. Kryvoruchko (Kryvoruchko & Kraus, 2018),
N. Kraus (Kraus, 2018), K. Kraus (Kraus & Kraus,
2019), M. Odnorog, V. Osetskyi, and others. However,
a significant number of questions, such as: What
innovative changes did the financial system undergo?
What are the trends in the digitization of the tax
system? In addition, there is a need to study new
features of financial system and clarify the innovative
tools of its development to have an idea of the
peculiarities of working within the existing national
financial and tax systems.

The purpose of the publication is to present the features
of innovative changes in financial and tax systems in
the new virtual reality, which has every chance to be
a decisive step in implementing digital development
strategy of Ukraine through the development of
digital instruments, digitized financial development
institutions, implementation of smart services and
their effective work, which determines the new
quality of financial system management.

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Vol. 8 No. 1, 2022
Among the tasks set in the article are: reveal key

innovative changes that need to be addressed in the
context of reform and digital transformation of finan-
cial system; present the factors that contribute to the
development of financial system; provide an author’s
vision of the content of non-financial companies
that provide traditional financial services in virtual
reality; to reveal the content of regulatory and
supervisory financial technologies, namely: RegTech,
SupTech; indicate the functions of financial system
that reveal its role; identify and disclose the content
of some innovation and digital changes in Ukrainian
tax system; indicate the features of digital initiatives
that take place in tax system.

3. Conditions and factors of the development
of financial and tax systems

Given the understanding of the financial system
and development, financial development can be
defined as a multidimensional process of qualitative
and quantitative changes in the financial system
characterized by increasing its complexity, dynamics
of functions, status, structure, organizational forms
and tools.

Key advantage of the digital economy over the
traditional one is the implementation of the ability
to automatically manage the entire tax system (or
individual components), as well as its virtually
unlimited scaling without loss of efficiency, which
allows significantly increasing the efficiency of tax
management of the economy (economic activity
and resources of the country in various industries)
at the micro and macro levels (Markevych, 2021).
We are convinced that the economic effect of the
digitalization of industry can be multifaceted:
digitalization of technological processes, ways
of organizing production; digitization of means
of labor (equipment, devices, machines) with the
best quality characteristics. But it will be high
quality and effective if there is a reasonable transfor-
mation of tax policy in digital age.

Taxation is the collection in favor of the state of a
fixed part of the income of economic entities and
is designed to perform two main functions – fiscal
and incentive. In the latter case, the state by changing
tax rates and providing (cancellation) of tax benefits
creates favorable or unfavorable conditions for
producers, stimulating or limiting their activities.
The tax system performs an incentive function in
the case when the total amount of all tax payments
does not exceed the threshold value of profit incentives
for enterprises and organizations, equal to 35%.

The current system in Ukraine is quite cumbersome.
Great importance is attached to the implementation
of fiscal function, the essence of which is to form
the revenue side of the state budget at all levels. The

imperfection of the current tax system, which delays
the formation of civilized industrial entrepreneurship
and promotes the growth of shadow sector of the
economy, should include the irrational ratio of direct
and indirect taxes. The allocation of two subsystems
in the tax system (direct and indirect taxes) helps
to achieve a relative balance between two different
functions of taxes: fiscal and regulatory.

The development of the financial sector is important
not only to stimulate economic growth but also
to reduce its volatility. Financial systems can ease
liquidity constraints for firms and facilitate long-term
investment, which ultimately reduces investment
volatility and growth (Aghion & George-Marios,
2010). In addition, well-developed financial markets
and institutions can help mitigate the negative impact
of volatility on the exchange rate and thus investment
potential (Aghion & Ranciere, 2009). It should be
noted that the difference between financial and real
shocks is important, as a result of which the latter can
be strengthened by financial systems with significant
financial depth. Financial development also increases
the effectiveness of monetary policy, expands the
space of fiscal policy and provides a wider choice of
exchange rate regimes (Board Paper, 2012). The rapid
development of financial systems is due to several
factors, which are presented in Figure 1.

4. Transformational changes in taxation
in the context of digitalization

Transformational changes in tax policy in the
conditions of virtual reality and digitization of
economic relations are evidenced by the large-scale
reform of the international tax system, which ended
on August 10, 2021 OECP. It is expected that from
2023, multinational companies will be taxed at the
minimum corporate tax rate, which is 15%. According
to Yevgen Kurilov, Chief State Auditor-Inspector
at the Controlled Operations Monitoring Division
of the Transfer Pricing Department of Tax Audit
Department of State Tax Service of Ukraine, "the
agreement was concluded between 136 countries
and jurisdictions multinationals to countries around
the world, ensuring that these firms pay a fair
share of taxes wherever they operate and make
a profit. Ukraine has also joined the Statement on the
Establishment of a New Basis for the Implementation
of Inter-national Tax Reform on a Two-Component
Solution to Tax Problems Arising in Digitization
of the Economy " (Kurilov, 2021). Table 1 presents
some innovative and digital changes that are already
taking place in Ukrainian tax system today.

At present, national legislation does not clearly
define e-commerce, Internet commerce, and other
relevant definitions, although the terms themselves
are widely used in official documents, including

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Transition to the post-industrial type of economic system development, which determines
the development of services. A new type of management requires a transition to intangible
production, which leads to the expansion of financial innovation.

The disproportionate development of financial sector, which is manifested in the gap
between the real and financial sectors, leads to the dominance of financial sector over the
real, which causes a paradigm shift between causation in modern socio-economic
systems. Financial relations, which shape financial economy, are beginning to play a
primary role, and financial innovations are becoming one of main factors in the
dominance of financial sector over the real sector by creating new financial products and
services.

The globalization of world economic relations leads to the formation and active
development of a system of world finance (geofinance), which is becoming global. The
consequence of this is the spread of the latest financial and credit technologies as a result
of the application of financial innovations.

There is an active formation and spread of virtualization technologies that allow you to
create financial products that contain a virtual component through the use of financial
engineering.

Changing approaches to corporate governance, focusing on maximizing the value of
assets rather than profits, resulting in a change in the structure of financing of firms and
the convergence of different types of structures of financial systems.

Figure 1. Factors determining the rapid development
of the financial system in the context of digital transformation

Sources: author’s development

Table 1
Innovative and digital changes in Ukrainian taxation system

Digital initiatives in
tax system

Characteristic features Changes

Payer service center

Created at each state tax inspection on the ground. Main task of
the CPC is to organize the provision of administrative services
and additional services during the performance of taxpayers’
obligations to the state. In their activities, CPCs use foreign
experience of "service supermarkets" and "single offices", aimed at
maximizing the use of modern information technology, including
elec-tronic queue management system, the formation of unified
databases, remote access to tax information.

In order to timely inform taxpayers in the media
and on the web portal of the tax service on the
Internet, main issues of the procedure for filing
tax returns, categories of taxpayers required to
file reports, deadlines for such reporting, the
list of costs included in the composition are
constantly covered. tax rebate.

Service "Electronic
office of the taxpayer
of the State Fiscal
Service"

Since 2015, electronic administration of value added tax has
been introduced at all levels. Citizens can submit a tax return on
property and income to the SFS of Ukraine in electronic form.

Submission of electronic reporting significantly
simplifies the work and has many benefits for
taxpayers, including savings in working time,
financial costs, efficiency of processing and
confidentiality of information, notification of
existing budget and tax arrears.

Sources: summarized by the authors based on sources (State Fiscal Service of Ukraine, 2022; Bodrov, 2018)

the Concept. There is no classification of digital
products in the legislation, i.e., it is not defined to
refer them to goods or services. In order to regulate
the taxation of digital goods, it is necessary to amend
the relevant articles of Tax Code, which concern the
objects of taxation in general and the objects of VAT

collection in particular. E-commerce is difficult to
control – the identity and location of the buyer
can now be established only by bank card, and if
payment is made through an electronic payment
system such as Web-money, it is impossible. The
problem of the inability of tax authorities to trace

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electronic transactions in this case remains unresolved
for all states. Lack of proper technology creates
a situation where the possibilities for tax evasion
seem endless. Therefore, without the development
of new technologies that would allow tax authorities
to identify and track transactions in cyberspace,
cannot do (Bodrov, 2018).

5. Problematic aspects of financial
and tax policy in Ukraine

The tax system’s imperfection is complemented
by shortcomings of the mechanism for implementing
tax reforms, which is manifested in the imperfect
system of control over taxpayers, reinforcing the
repressive nature of tax legislation. Therefore, we
believe that the interaction between the payer and
the tax authorities should be carried out according
to the following rules:
– Firstly, all differences in the texts of tax laws are
interpreted only in favor of the payer;
– Secondly, equal responsibility of the state and the
payer in their financial and tax interactions.
The role of the financial system is revealed in its
functions:
– Consolidation of capital, transfer of financial
resources from those who save, to those who need
them, which allows to expand the economic opportuni-
ties of the real sector;
– Selection of effective projects in the economy;
– Corporate control;
– Risk management, pooling and diversification, which
encourages investment in more profitable projects;
– Reduction of circulation costs (Pochenchuk, 2015b).

However, if institutions of the financial sector
perform their functions poorly, they tend to hamper
economic growth, reduce economic opportunities,
and destabilize the economy. The financial system is
a reflection of socio-economic processes in the state. It
should ensure their positive dynamics and demonstrate
the ability to reduce the impact of numerous
challenges and risks that are exacerbated at the stage
of transformational changes (Varnalii, 2017).

Public confidence in financial institutions depends
on the functioning (economic potential, stability,
quality of corporate governance) and regulation (con-
trol of compliance, prevention of abuse, prudential
supervision) of financial corporation’s sector. The level
of savings is determined by general macroeconomic
dynamics and propensity to save. Thus, the
development of financial system and the efficiency
of its functioning should take into account both
the characteristics of demand (the availability of
effective demand for financial services) and the
characteristics of supply.

Virtualization of value and change of essential
characteristics of capital. In terms of financing there

is a radical shift from real to virtual value. Inertial
finance and traditional financing based on own and
borrowed sources with investments in classic assets
mean in practice relatively slow growth.

Irrationality and subjectivity in the actions of
economic agents underlie financial pyramids and
financial bubbles, which show that value can be
generated even at the stage of future ruin. Financial
pyramids and financial bubbles are the result of
speculative logic, which is able to create virtual value
in the short term (Chernykova, 2009). Also, the
virtual value is formed on the stock market in the
form of the exchange rate value of securities. This
confirms the dependence of quotations on political
statements, loud declarations, dubious rumors,
economic disagreements, litigation and other non-
economic relations, which in the meantime often
provoke not only adjustments in the share price of
individual issuers but also the market as a whole.

Developing in non-financial areas, financial
institutions not only invade other segments of the
economy but also implement their "rules of the game".
As a result, the real economy becomes a participant
in stock speculation, transforming productive and
trade capital into financial, and producers (sellers),
who are not banking organizations, traditionally
take over banking functions and lend to customers
in B2C (consumer business) and B2B (business to
business). In addition, due to the rapid development of
technological and financial innovations, non-financial
companies are emerging that provide traditional
financial services – industry "FinTech" (short for
financial technology, i.e., "financial technology ").
In a broad sense, this concept means the sphere of
financial system of the economy, which unites
companies that use the latest developments to provide
better financial services (Pochenchuk, 2018). In
a narrower sense, FinTech is the name of the
companies that belong to this industry.

6. FinTech- decisions in the financial sector
The founder and permanent president of the

World Economic Forum K. Schwab, in his book
"The Fourth Industrial Revolution" notes: " We are
at the very origins of the Fourth Industrial
Revolution, and the perception of its full significance
requires the existence of fundamentally new
economic and organizational structures… the rules
of competition in the economy of the Fourth
Industrial Revolution are different from those of
previous periods. To be competitive, companies and
countries must innovate in all their forms, which
means that strategies, mainly aimed at reducing costs,
will be less effective than strategies based on more
innovative ways of offering products and services"
(Shvab, 2017).

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Vol. 8 No. 1, 2022
In Ukraine, FinTech is developing electronic

payments and payment systems, alternative financing –
crowdfunding (sometimes translated into Ukrainian
as a common cost) and direct P2P lending.

Analysis of the current state and prospects of the
FinTech sector showed that in Ukraine, as well as
around the world, the evolution of FinTech took
place first in response to the banking crisis of
2008–2009, and then as a result of the crisis of
2013–2014. FinTech is in its infancy: there are about
80 companies with varying degrees of maturity, most
of which appeared in 2015–2017. The regulatory
operation of many new financial services remains
unregulated. In Ukraine, there are virtually no neo-
banks (with the exception of Monobank) within
which FinTech solutions could exist. All non-
banking institutions are forced to open accounts
that does not give financial companies autonomy
from banks.

Financial development through innovation
necessitates changes in the regulatory infrastructure
of financial markets and types of economic activity,
due to the emergence of new activities, complicating
economic relations, the emergence of financial
instability and crises. An effective accelerator of
institutional change is the collapse and recession in
financial sphere, when the government must pursue
policies aimed at easing economic cycles.

Financial innovations involve the creation and
dissemination of new financial products, services,
processes, methods and organizational forms. From
the standpoint of institutional theory, financial
innovation is a process of change, change in the type
and variety of available financial products, changes
in financial intermediaries (types, activities), as well
as markets in general. That is, financial innovation
is main force in the transformation of not only
financial system but also the economic structure.
As in many economic processes, the process of
creating and implementing financial innovations is
characterized by dualism: on the one hand, financial
innovations are created to reduce uncertainty and
reduce its negative effects, and on the other hand
the functioning of financial innovation causes or
deepens uncertainty (Pochenchuk, 2013).

The study of the fintech sector of Ukraine conducted
in the framework of the USAID Financial Sector
Transformation Project provided an opportunity to
notice the following trends:
– 40% of FinTech companies that participated
in the study were founded by 2015, while 60%
appeared in the last three years. About 84% of
FinTech companies have already started offering
products and services; funding is a major issue.
45% of FinTech companies use equity to finance
operating activities (without attracting foreign
investment);

– 49% of companies have financing from outside
investors or are looking for it; the investment
needs of Ukrainian FinTech sector are estimated by
market players at $ 40-75 million USA;
– Areas of specialization of Ukrainian FinTech
companies are payments and remittances (31.6% of
all companies), investment in technology and infra-
structure (19.3%), lending (14%), marketing (7%),
other (5.3%), digital banks (Data.unit.city, 2018).

The development of the FinTech industry as
a global trend in financial sector necessitates the
cooperation of financial regulators with financial
companies and traditional financial institutions.
In Ukraine, in 2017, with the support of National
Bank of Ukraine, FINTECH MASTER program was
launched – an incubation program for technology
startups to develop financial and socio-economic
innovation services based on open data from financial
institutions, including available NBU data and
Mastercard technology solutions. FinTech startups
around the world are creating a digital future. They
offer different approaches to improve user choice
and experience. Working with these startups helps to
combine new technology with reliable, secure
financial networks and processes to create an even
more productive and seamless shopping experience.

Financial innovations, on the one hand, improve
the risk management of financial market participants,
contribute to the redistribution of risks from issuers
or investors to other parties who have the opportunity
and 193 willingness to accept them; creation of new
sources of financing, reduction of cost of financing;
reduction of transaction costs; reducing the tax
burden, on the other hand, contribute to the
redistribution of business in favor of speculative
financial transactions, the creation of "financial
bubbles", little related to real production. The use
of innovations by financial institutions for rapid
growth of profits through speculative activities gives
grounds to classify them as innovations in rent-seeking
procedures. Innovations destabilize the economic
system, intensify competition, change the structure
of financial flows and the economy. Financial
innovation can cause financial instability.

7. Use of information technologies
in the field of finance: RegTech, SupTech

A separate area of use of financial technologies
is the emergence of specialized regulatory and
supervisory technologies – RegTech, SupTech.
RegTech technologies are information technologies
in the field of finance, as they ensure compliance
with regulatory requirements for financial market
participants. Such technologies help financial
institutions meet the requirements of regulatory
authorities by providing verification and protection

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of data, automation of reporting, risk management,
customer identification. RegTech companies help
customers meet standards, ensure proper management
of risk protocols and implement controls that actively
mitigate risks. The emergence of RegTech is due to:
post-crisis changes in regulation that require mass
disclosure; development of technological solutions
in the field of informatics, which allow structuring
unstructured data; economic incentives for participants
to minimize rapidly growing compliance costs; the
efforts of regulators to increase the effectiveness of
supervisory instruments to increase competition and
maintain financial stability (both macro and micro)
and market integrity. RegTech technology helps
meet regulatory requirements by bringing together
all fiscal, financial and trade regulations. In fact, these
technologies are a mechanism for informing the
formal institutions of financial system.

Advantages of using RegTech technology: control
of payments (financial institutions receive and
process huge amounts of payments every day,
control of these transactions will help to obtain
information that will reduce costs, strengthen fight
against money laundering and terrorist financing);
systematization of risk data (financial institutions
are constantly dealing with increasing requirements
for reporting, capital, liquidity, including stress
test scenarios, and RegTech may offer solutions to
integrate internal reporting systems, clean data
collection from incompatible and/or outdated
systems); identification and implementation of new
requirements (RegTech can offer tools to assess the
consequences of changes in regulatory requirements,
compare the applied control measures, analyze data
requirements and identify areas of increased risk);
modeling, forecasting and analysis of specific scenarios
(the use of risk management methods requires
modeling and detailed risk analysis – RegTech offers
a wider choice of tools for analyzing scenarios, risks
and projected changes); KYC (know your client);
cybersecurity (multi-factor customer identification,
data transfer control, analysis of employee behavior,
test-driven cyber-attacks).

SupTech Supervisory Technologies are technologies
for financial regulators, they automate and optimize
administrative and operational procedures, digitize
data and working tools, improve data analytics,
especially in real time, improve the reliability and quality
of reporting information, and improve the system
decision support. Technological change is forcing
regulators to reconsider their supervisory approach
to avoid falling behind those they oversee and the
approach to creating and implementing regulatory
frameworks, as regulation must be flexible, innovative,
and collaborative.

Further development of financial technologies can
potentially affect insurance, payments, investment,

capital raising, deposits and lending. Already today,
InsurTech (insurance technology) has ceased
to be just part of FinTech and stood out in an
independent direction. InsurTech is a segment of
FinTech that provides tools and mechanisms to solve
existing problems and implement new insurance
opportunities. Social and technological trends that
shift customer needs and expectations are a source
of opportunity for technology-savvy insurers. Those
market participants who make decisions and adapt
their proposals to change customer requirements
will be able to maintain their position in the market.
InsurTech has a key influence on responding to the
challenges of matching new insurance companies'
offerings to changing service needs and expectations.
Technological solutions in insurance provide an
opportunity to identify new needs and expectations
of consumers and develop appropriate product
offerings, develop businesses with complex operational
capabilities; provide new approaches to risk
prevention and loss forecasting, increase interactions
and build lifelong relationships; contribute through
the introduction of new insurance practices to ex-
pand the insurance market and increase the number
of insured. Thus, the potential of InsurTech can be
realized in such forms as reviewing the categories
and management of insurance products, rethinking
and transforming a holistic model of insurance
business. There are platforms aimed directly at the
development of technology in insurance: Startup-
bootcamp in London, Global Insurance Accelerator
in the USA and Mundi Lab in Madrid. Venture
investment in InsurTech has exceeded $2.5 billion in
2015, in 2014 – only $700 million. USA. Thus, main
areas of insurance optimization include: automation
of administration, new channels and methods of
sales, reducing the risk of underwriting through the use
of big data and machine learning (Finvizor.com, 2021).

Ukraine has a sectoral, three-tier model of financial
sector regulation – three main institutions regulate:
1) National Bank of Ukraine – the functions of
banking regulation and supervision; 2) National
Commission on Securities and Stock Market –
controls and regulates the activities of stock market
participants; 3) National Commission for Regulation
of Financial Services Markets – Regulation and
Supervision of Non-Bank Financial Institutions.

8. Conclusions
In conclusion, it is worth noting that financial

development can increase the benefits and reduce the
cost of ensuring the quality of property institutions
and thus stimulate demand for these institutions:
there are significant fixed costs in establishing
property rights and institutions and developing
mechanisms for their implementation. The level of

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financial development can provide a turning point
in which the benefits only outweigh these
fixed costs.

In the context of the digital transformation of
economic systems, relevant technological advances
implemented by the rapid leaps in the financial
sector, modifying the composition, structure and
principles of financial institutions, and through
changes in financial system affect structural
components of the economic system as a whole.
Amidst global challenges, digitalization dictates
new challeng-es and opportunities for fiscalization
and, at the same time, aggressively generates risks and
potential threats. Summing up the research, we see
that in the very the context of new opportunities for
the development of the theory of optimal taxation
and improvement of existing tax systems, the issue of
digitization of fiscal policy and space arises.

Digitization facilitates the work of fiscal institutions
in terms of systematization of available information
in different parts of the tax system and hence better
detection of tax evasion and avoidance. In this

context, digitalization can be seen as an improvement
in tax regulation and control technologies. The
digitalization of tax system forms the technological
basis, lays the groundwork for the legislative
introduction of a new quality tax policy. In addition,
we are convinced that the reform of the fiscal
space in the framework of innovative tax planning
will contribute to the stable filling of local and
state budgets, increase the efficiency of funds in
enterprises and focus on the priorities of financial
stabilization and economic growth of Ukraine.

A stable financial system can limit and eliminate
imbalances through self-adjustment mechanisms
before they lead to a crisis. This is clearly due to
supervision, as financial innovation is somewhat
opportunistic. They are part of a more open financial
system, which gives possibly greater instability
and allows more immediate opportunities to take
аdvantage of the results. Accordingly, it is necessary
to learn to adapt to instability, taking into account
the latest trends, and it is the institutional structure
that must adapt to this new reality.

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