Law of Ukraine

"On Amendments to Certain Legislative Acts of Ukraine to Prevent Negative Impact on the Stability of the Banking System"

Date of entry into force:
July 11, 2014

The Law amends Article 166-5, part 1 of the Code on Administrative Offences of Ukraine, increasing the amount of administrative fines for violation of banking legislation, normative legal acts of the National Bank of Ukraine, or for carrying out risky operations that threaten the interests of investors or other creditors of the bank, by heads of banks or other persons who can be subject to inspection by the National Bank of Ukraine according to law.

The Law amends Article 42, part 1, paragraph 2 of the Law of Ukraine "On the National Bank of Ukraine", including provision of loans from the Natural Persons Deposit Insurance Fund on the terms determined by the normative legal acts of the National Bank of Ukraine in the list of operations carried out by the National Bank of Ukraine to ensure fulfillment of its functions.

According to the new version of Article 56, part 4 of the Law of Ukraine "On the National Bank of Ukraine", normative legal acts of the National Bank enter into force on the day of their official publication, unless a later date of entry into force is provided for in such act. Official publication of a normative legal act of the National Bank of Ukraine is the first publication of its full text in one of the periodical print media, such as "Official Bulletin of Ukraine", "Uryadovy Kuryer" or "Golos Ukrainy" newspapers, or its first publication on the Official Website of the National Bank of Ukraine.

According to amendments to Article 2 of the Law of Ukraine "On Banks and Banking", a systemically important bank is a bank that satisfies the criteria established by the National Bank of Ukraine, whose work influences the stability of the banking system.

The Law supplements Article 4 of the Law of Ukraine "On Banks and Banking" with a new part, according to which the National Bank of Ukraine determines systemically important banks according to the following criteria: bank size, degree of financial interrelation, business directions.

Amendments to Article 30 of the Law of Ukraine "On Banks and Banking" make some clarifications to the structure of a bank's regulatory capital.

According to the Law, the minimum amount of authorized capital at the time of state registration of a legal entity that intends to carry out banking activity cannot be less than UAH 500 million (previously, 120 million) (amendments to Article 31, part 1 of the Law of Ukraine "On Banks and Banking"). Banks created before the Law takes effect shall increased their authorized capital to meet the requirements of the law within 10 years after the Law takes effect.

The Law supplements Article 32 of the Law of Ukraine "On Banks and Banking" with new parts, which establish the following:
  • if the total amount of investments (deposits) in the banking system decreases by 5 or more percent over a term of under 6 calendar months, a simplified procedure for share issue registration, approval of changes to the bank's statute by the National Bank of Ukraine, and state registration of changes to the bank's statute shall be instituted (cancelled) by decision of the National Bank of Ukraine. According to the simplified procedure: 1) the date on which the resolution of the bank's capitalization and amendments to the bank's statute is submitted to the National Securities and Stock Market Commission shall be recognized as the date of share issue registration; 2) the date on which the changes to the bank's statute are submitted for approval to the National Bank of Ukraine and for registration to the state registrar shall be recognized as the date of their approval by the National Bank of Ukraine and registration by the state registrar, respectively; 3) the date on which documents are submitted for the bank's share issue registration shall be considered the date of the bank's share issue registration;
  • the date of submission of appropriate documents to the National Bank of Ukraine, the state registrar, or the National Securities and Stock Market Commission is determined based on the document receipt notice (registration index) of the respective state authority;
  • in the above cases, the Antimonopoly Committee of Ukraine shall provide an opinion and/or merger clearance no later than 5 working days after the bank submits appropriate documents.

The National Bank of Ukraine, with regard to the need to provide for the stability of the banking system and the internationally accepted principles and standards, determines the minimum amount of a bank's regulatory capital, the minimum value and calculation procedure of the regulatory capital adequacy ratio, the fixed capital adequacy ratio, the regulatory capital to total assets ratio, and the regulatory capital to liabilities ratio (amended Article 35, part 4 of the Law of Ukraine "On Banks and Banking").

Amendments to Article 73 of the Law of Ukraine "On Banks and Banking" provide some clarifications for the measures of influence that the National Bank of Ukraine has the right to apply in case of violation of banking legislation, normative legal acts of the National Bank of Ukraine, its requirements established according to Article 66 of the Law of Ukraine "On Banks and Banking", or for carrying out risky operations that threaten the interests of investors or other creditors of the bank, by banks or other persons who can be subject to inspection by the National Bank of Ukraine according to law.

The Law amends Article 75, part 1 of the Law of Ukraine "On Banks and Banking", according to which the National Bank of Ukraine must pass a resolution to classify a bank as a problem bank if it meets at least one of the following criteria:
  • during the reporting month, the bank allowed a 5 or more percent decrease in: 1) the daily amount of regulatory capital below the minimum regulatory capital amount established by normative legal acts of the National Bank of Ukraine 5 or more times; and/or 2) the value of the regulatory capital adequacy below the minimum value of that ratio established by normative legal acts of the National Bank of Ukraine 2 or more times;
  • the bank failed to execute the request of an investor or other creditor that became due 5 or more working days previously, and/or documents of the bank's clients that were not executed in time through the bank's fault were not reflected in the accounting reports;
  • the bank systemically violates legislation that regulates the issues of preventing and counteracting legalization (laundering) of criminal incomes or financing of terrorism;
  • during the reporting month, the bank allowed the value of at least one of its liquidity ratios to decrease by 5 or more percent below the minimum ratio values established by normative acts by the National Bank of Ukraine, which are calculated: 1) on a daily basis 5 or more times; 2) on a ten-day basis 2 or more times;
  • the amount of negatively classified assets of the bank (except for a rehabilitation bank) is 40% or more of the total amount of assets used to assess risk and form reserves according to normative legal acts of the National Bank of Ukraine;
  • systemic failure to ensure efficient functioning and/or adequacy of the risk management system, which creates a threat to the interests of investors or other bank creditors.

The National Bank of Ukraine shall also pass a resolution to classify a bank as insolvent in case of a one-time gross violation or systemic violations of the legislation in the sphere of cash flow, preventing and counteracting legalization (laundering) of criminal incomes, or financing of terrorism, which creates a threat to the interests of investors or other bank creditors (amended Article 76, part 1 of the Law of Ukraine "On Banks and Banking").

According to the amended Article 4-1 of the Law of Ukraine "On Circulation of Bills of Exchange in Ukraine", financial bills of exchange include:
  • financial bills of exchange of the Natural Persons Deposits Insurance Fund;
  • financial banking bills of exchange;
  • financial treasury bills of exchange.
A financial bill of exchange of the Natural Persons Deposits Insurance Fund is a security that certifies the unconditional obligation of the Natural Persons Deposits Insurance Fund to pay the specified amount to the bill holder after the payment maturity date. Requirements to financial banking bills of exchange established by the Law of Ukraine "On Circulation of Bills of Exchange in Ukraine" apply to financial bills of exchange of the Natural Persons Deposits Insurance Fund.

The new version of Article 7, part 1, paragraph 17 of the Law of Ukraine "On Insurance" envisages that in Ukraine, there shall be mandatory insurance of financial liability, life, and health of the temporary administrator or liquidator of a financial institution, and employees of the central executive authority that implements state financial policy, which were designated by such authority to address issues related to participation of the state in a bank's capitalization.

According to the Law, the Law of Ukraine "On Principles of the State Regulatory Policy in the Sphere of Economic Activity" does not apply to regulatory activity related to adoption of acts of the Natural Persons Deposits Guarantee Fund in the issues of withdrawing insolvent banks from the market, forecasting potential expenses to be incurred to implement that process, and financing the Natural Persons Deposits Guarantee Fund (amended Article 3, part 2 of the Law of Ukraine "On Principles of the State Regulatory Policy in the Sphere of Economic Activity").

The Law supplements Article 3 of the Law of Ukraine "On Securities and the Stock Market" with a new provision, according to which bonds of the Natural Persons Deposits Guarantee Fund are classified as debt securities permitted for civil circulation in Ukraine.

The Law of Ukraine "On Securities and the Stock Market" is supplemented with a new Article 8-2, which regulates the circulation of bonds of the Natural Persons Deposits Guarantee Fund.

Article 37 of the Law of Ukraine "On Execution Procedure" is amended to exclude the provision that states that the execution procedure is not terminated in cases related to payoff of customer deposits under agreements that expired, and under bank account agreements, within the compensation amount guaranteed by the Natural Persons Deposits Guarantee Fund; to payments related to ensuring the continuing operation of the bank; to payments of wages, author fees, or compensation of damages caused to the life and health of the bank's employees.

Amendments to Article 2 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" provide definition of terms "funds deposited by a person who, on an individual basis, receives interest from the bank on agreement terms that are more favorable than the usual terms" and "specialized institution"; and clarifies definition of terms "withdrawal of an insolvent bank from the market", "deposit inaccessibility", "transitional bank", "assuming bank", and "sale of bank".

The Natural Persons Deposits Guarantee Fund is a property management entity that independently owns, uses and manages appropriate property, and carries out any actions in its respect, provided such actions are not in conflict with the legislation and the objective of the Natural Persons Deposits Guarantee Fund (amended Article 3, part 2 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits").

The Law amends Article 4, part 2 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits", clarifying the functions of the Natural Persons Deposits Guarantee Fund.

The administrative council of the Natural Persons Deposits Guarantee Fund, in particular, approves resolutions of the executive board on the issue of bonds or financial bills of exchange of the Natural Persons Deposits Guarantee Fund, and on the directions of their allocation (amended Article 9, part 1 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits").

Amendments to Article 12 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" clarify the authority of the executive board of the Natural Persons Deposits Guarantee Fund.

The Law presents a new version of Article 16 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits", which determines the legal status of employees of the Natural Persons Deposits Guarantee Fund.

Article 18 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" is supplemented with a new part, according to which the Natural Persons Deposits Guarantee Fund informs the community about its activities by publishing information on the official website of the Natural Persons Deposits Guarantee Fund, by holding press conferences, radio and television presentations, and otherwise. The Natural Persons Deposits Guarantee Fund assesses the level of community awareness, at intervals established by the executive board of the Natural Persons Deposits Guarantee Fund.

The Law amends Article 19 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" to include the following in the sources of funds of the Natural Persons Deposits Guarantee Fund:
  • funds (including domestic government bonds) attracted by the Natural Persons Deposits Guarantee Fund by issuing bonds and/or financial bills of exchange of the Natural Persons Deposits Guarantee Fund;
  • incomes from targeted loans provided to a bank in order for the bank to meet its obligations to pay off customer deposits under agreements that expired and under customer bank account agreements;
  • incomes from targeted loans provided to a bank to cover its expenses related to activities provided for by Article 36, part 6, paragraph 2 (expenses related to ensuring economic activity of the bank), Article 37, part 2, paragraphs 7 and 8 (expenses related to involving other persons under civil agreements in the process of temporary administration of the bank, and expenses to hold audits and due diligence in the issues of the bank's activities), and Article 37, part 4 (the authorized person of the Natural Persons Deposits Guarantee Fund has the right to involve other specialists in their work, whose labor is paid for according to normative legal acts of the Natural Persons Deposits Guarantee Fund, at the expense of the bank being liquidated, within the scope of the cost estimate adopted by the executive board of the Natural Persons Deposits Guarantee Fund) of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits";
  • charitable contributions, grants, technical assistance in monetary and non-monetary form, including from foreign persons;
  • loans attracted from non-banking financial institutions and foreign creditors;
  • incomes received from loans granted as subordinated debt to an assuming bank;
  • guarantee contributions transferred by participants of an open competition in cases provided for by the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits". 

The Law presents a new version of Article 25 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" that determines the procedure for crediting of the Natural Persons Deposits Guarantee Fund and for non-repayable contribution of funds by the state.

The Natural Persons Deposits Guarantee Fund guarantees each bank depositor compensation of funds under their deposits. The Natural Persons Deposits Guarantee Fund compensates funds in the amount of the deposit, including interest accrued as of the day on which the Natural Persons Deposits Guarantee Fund initiates the procedure of withdrawing the bank from the market, but not exceeding the maximum amount of compensation of funds under deposits established as of the date when such resolution is made, irrespective of the number of deposits in one bank. The maximum amount of compensation of funds under deposits may not be less than UAH 200,000. The administrative board of the Natural Persons Deposits Guarantee Fund cannot make a resolution to decrease the maximum amount of compensation of funds under deposits (amendments to Article 26, part 1 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits").

According to amended Article 29, part 1 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits", the Natural Persons Deposits Guarantee Fund assumes the right of the bank's creditor for the entire amount due compensation to such bank's depositors under the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" as of the day on which the Natural Persons Deposits Guarantee Fund initiates the procedure of withdrawing the bank from the market, as well as for the amount of accrued but unpaid regular contribution to the Natural Persons Deposits Guarantee Fund.

The Law supplements Article 31 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" with a new part, according to which, if the National Bank of Ukraine makes a resolution to move the time for submission of bank reporting to the National Bank of Ukraine, the Natural Persons Deposits Guarantee Fund has the right to move the time for submitting reporting to the Natural Persons Deposits Guarantee Fund, by an appropriate resolution of the Natural Persons Deposits Guarantee Fund executive board.

The Law supplements Article 21 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" with a new part, according to which, if a bank is included in the category of problem banks, the Natural Persons Deposits Guarantee Fund has the right to carry out non-scheduled inspection of such bank, in respect of issues other than those provided for by Article 32, part 1 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits", the list of which is adopted by the executive board of the Natural Persons Deposits Guarantee Fund, in order to collect information required to prepare a draft settlement plan for the problem bank in case it is classified as insolvent.

Amendments to Article 33 of the envisage that in case banks violate the legislation on the system of guaranteeing natural person deposits, the Natural Persons Deposits Guarantee Fund shall apply administrative and economic sanctions against such banks, appropriate to the violation committed, in the form of written warning, fine, or instruction to eliminate violations of the legislation on the system of guaranteeing natural person deposits. If the Natural Persons Deposits Guarantee Fund uses administrative and economic sanctions in form of a fine against a bank, the following sanction amounts shall apply:
  • the bank's failure to submit, late submission, or submission of unreliable data to the Natural Persons Deposits Guarantee Fund, if submission of such data is regulated by the law of Ukraine "On the System of Guaranteeing Natural Person Deposits" and/or normative legal acts of the Natural Persons Deposits Guarantee Fund shall result in a fine of up to 0.1% of the registered statutory capital of the bank;
  • the bank's violation of the procedure for keeping a database of depositors shall result in a fine of up to 0.1% of the registered statutory capital of the bank;
  • the bank's failure to fulfill or late fulfillment of resolutions and/or normative legal acts of the Natural Persons Deposits Guarantee Fund, or of instructions to eliminate violations shall result in a fine of up to 0.1% of the registered statutory capital of the bank.
Administrative and economic sanctions in form of a fine imposed on a bank by the Natural Persons Deposits Guarantee Fund shall not relieve the bank of its obligation to eliminate the violation. For the above violations, the Natural Persons Deposits Guarantee Fund can use an administrative and economic sanction in the form of an instruction to eliminate violations of the legislation on the system of guaranteeing natural person deposits. Normative legal acts of the Natural Persons Deposits Guarantee Fund establish materiality criteria for violations of the legislation on the system of guaranteeing natural person deposits, to differentiate between different administrative and economic sanctions, and their amounts.

The life and health of the authorized person of the Natural Persons Deposits Guarantee Fund shall be insured at the expense of the Natural Persons Deposits Guarantee Fund, for the benefit of such authorized person (new version of Article 35, part 7 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits").

Amendments to Article 36 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" provide some clarifications of the consequences of instituting temporary administration in a bank.

The Law presents a new version of Article 38 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits", which defines measures to ensure preservation of a bank's assets and prevent losses and loss of a bank's property.

The Law supplements Article 39 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" with two new parts, according to which:
  • in order to prepare a plan for settling an insolvent bank, including for the purposes of calculation of potentially available monetary funds that can be received from sale of property of an insolvent bank, the Natural Persons Deposits Guarantee Fund and/or the authorized person of the Natural Persons Deposits Guarantee Fund have the right to involve assessment entities, auditors, and other persons, at the expense of the Natural Persons Deposits Guarantee Fund;
  • in case of implementing a settlement plan that provides for withdrawing an insolvent bank from the market in a way envisaged by Article 39, part 2, paragraph 4 and 5 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" (creation of a transitional bank and sale of it to an investor, with transfer of assets and liabilities of the insolvent bank to such investor, and subsequent liquidation of the insolvent bank; sale of the insolvent bank to an investor), the executive board of the Natural Persons Deposits Guarantee Fund can pass a resolution to transfer remaining marketable assets and liabilities to a specialized institution. The remaining assets are written off by the authorized person of the Natural Persons Deposits Guarantee Fund, or transferred to other organizations under a charity procedure. In this case, temporary administration shall be ceased, and the liquidation procedure of the insolvent bank shall last no more than 3 months. During liquidation of the bank, the authorized person of the Natural Persons Deposits Guarantee Fund shall take measures exclusively to preserve the bank's documents and terminate its legal entity. The authorized person of the Natural Persons Deposits Guarantee Fund is not charged with performing inventory or other activities. The specialized institution shall take measures to continue repayment of liabilities before the insolvent bank's creditors, at the expense of the assets received. If such assets are not marketed within 3 years after the assets and liabilities were transferred, they are written off and/or transferred by the specialized institution to other person as charity, while liabilities not satisfied due to the insufficiency of the insolvent bank's assets are considered discharged, of which the Natural Persons Deposits Guarantee Fund is informed accordingly.

The Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" is supplemented with new Articles 39-1 and 41-1, which determine the specifics of:
  • an open competition held by the Natural Persons Deposits Guarantee Fund in order to withdraw an insolvent bank from the market;
  • withdrawal of an insolvent bank from the market with participation of the state.

The Law presents new versions of Article 41 and 42 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits", which determine the specifics of:
  • sale of an insolvent bank;
  • creation and sale of a transitional bank.

Article 43 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" is supplemented with a new part, which establishes the following:
  • if an insolvent bank is being withdrawn from the market by way of transferring some or all of its assets and liabilities to an assuming bank or a transitional bank, the Natural Persons Deposits Guarantee Fund may provide such bank with financial support in form of a loan, on subordinate debt terms. A loan on subordinate debt terms is granted with interest (at a rate no lower than the discounting rate of the National Bank of Ukraine) and for a fixed term;
  • the amount of loan provided by the Natural Persons Deposits Guarantee Fund to an assuming or transitional bank on subordinate debt terms shall not exceed the total amount of deposits that are guaranteed by the Natural Persons Deposits Guarantee Fund and have been transferred to such assuming bank by the insolvent bank.

The liquidation estate of a bank includes any immovable and movable property, funds, property rights, and other assets of the bank. The liquidation estate of the bank does not include property in cases explicitly provided for by law, and individually specified property and property rights owned by the bank on the basis of corporeal rights (licenses, goodwill, etc.). Funds remaining after satisfying secured claims and covering expenses related to keeping, storing and selling (executing legal relations with the bank's participation) the collateral shall be excluded from the liquidation estate. If the bank's property contains property excluded from circulation, the authorized person of the Natural Persons Deposits Guarantee Fund must transfer such property to appropriate persons according to the established procedure. In case of discovering a share owned by the bank in joint property, the authorized person of the Natural Persons Deposits Guarantee Fund shall raise the issue of separating this share in order to satisfy the creditor claims according to the established procedure. Property which is held by the bank as its user or keeper, is returned to the owner, according to law or to the agreement (new version of Article 50, part 2 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits").

The Law amends Article 51 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits", which establishes the procedure for selling property of a bank being liquidated.

If at the end of the liquidation period, some of a bank's assets remain unsold, and their sale is not considered possible, the authorized person of the Natural Persons Deposits Guarantee Fund (even if unsatisfied creditor claims remain) writes off such assets or transfers them to charity organizations under a charity procedure (new version of Article 52, part 2 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits").

The new Article 51-2 of the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" establishes the following:
  • the authorized person of the Natural Persons Deposits Guarantee Fund ensures appropriate recording, organization and storage of all, including financial and economic, documents of an insolvent bank during the liquidation procedure;
  • before the end of the liquidation of an insolvent bank, the authorized person of the Natural Persons Deposits Guarantee Fund shall provide for preservation of archive documents of the Natural Persons Deposits Guarantee Fund and transfer them to the National Bank of Ukraine for storage;
  • the National Bank of Ukraine must accept documents of an insolvent bank for storage as they are being transferred by the authorized person of the Natural Persons Deposits Guarantee Fund.

The Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" is supplemented with a new Article 52-2, which establishes the legal status of the specialized institution created by the Natural Persons Deposits Guarantee Fund in order to take measures to settle the claims of creditors of an insolvent bank at the expense of the assets (property) of such bank, transferred to such institution according to the procedure established by the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits".

According to the Law, the Law of Ukraine "On Government Procurement" does not apply to cases where the subject of procurement is goods, works, and services required by the Natural Persons Deposits Guarantee Fund to exercise its functions and authority determined by the Law of Ukraine "On the System of Guaranteeing Natural Person Deposits" related to withdrawal of insolvent banks from the market (amendments to Article 2, part 3 of the Law of Ukraine "On Government Procurement").

Amendments to Article 4 of the Decree of the Cabinet of Ministers of Ukraine "On State Duty" exempt the following from state duty:
  • the Natural Persons Deposits Guarantee Fund for activities related to creation of a transitional bank;
  • an assuming bank, during receipt of assets and liabilities for entering changes into state registers, and for services provided by state authorities in relation to such receipt;
  • a transitional bank, during receipt of assets and liabilities for entering changes into state registers, and for services provided by state authorities in relation to such receipt.

The Law supplements Article 5 of the Decree of the Cabinet of Ministers of Ukraine "On the Currency Regulation and Currency Control System" with a new provision, according to which insolvent commercial banks being liquidated by the Natural Persons Deposits Guarantee Fund have the right to carry out currency operations without a license of the National Bank of Ukraine, with the purpose of carrying out the procedure of withdrawing the insolvent bank from the market, subject to adherence to the legislation of Ukraine on the currency regulation and currency control system.
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