Law of Ukraine

"On Amendments to the Law of Ukraine "On Banks and Banking" to Determine Specifics of Corporate Governance in Banks"

Date of entry into force:
January 10, 2015

Amendments to Article 2 of the Law of Ukraine "On Banks and Banking" clarify the definition of the term "banking group" and define the term "conflict of interests".

The Law supplements Article 9, part 9 of the Law of Ukraine "On Banks and Banking" with a new provision, according to which, the responsible entity in a banking group that includes a parent bank shall be such parent bank.

The Law presents new versions of Articles 37-40 and 42 of the Law of Ukraine "On Banks and Banking", which provide for the following:
  • management and control bodies of the bank;
  • exclusive competence of the general shareholders meeting of the bank;
  • legal status of the bank council and board;
  • establishing requirements to bank managers.

According to the new version of Article 44 of the Law of Ukraine "On Banks and Banking", a bank shall create a comprehensive and adequate risk management system that must take into consideration the specifics of the bank's operation, and the risk management requirements established by the National Bank of Ukraine. The risk management system must ensure detection, identification, assessment, monitoring, and control of all types of risks on all organizational levels, and assessment of the bank's capital adequacy to cover all types of risks. A systemically important bank, with regard to its business directions and risks inherent to them, must develop a business recovery plan. The bank shall create a permanent risk management division that must be responsible for the implementation of internal risk management provisions and procedures according to the risk management strategy and policy determined by the bank council. The risk management division must be accountable to the bank council and separated from the internal audit division, operations divisions, and operation registration divisions. The bank must create permanent committees for risk management, namely:
  • credit committee;
  • asset and liability committee.
The bank shall create a permanent internal audit division that is a component of the internal control system. The National Bank of Ukraine shall establish requirements to professional training of the internal audit division employees. The internal audit division is accountable before the bank council and reports to it, acting on the basis of the provision approved by the bank council.

Organization and the operation procedure of the internal audit division are established centrally by the parent bank, for its subsidiary companies. In subsidiary companies of the bank, internal audit functions can be carried out by the parent bank's internal audit division (new version of Article 45 of the Law of Ukraine "On Banks and Banking"). The internal audit division carries out the following functions:
  • checks the availability and assesses the efficiency of risk management systems, and their conformance to the types and volumes of operations carried out by the bank, and the bank's internal control;
  • checks the process of assessment of the capital adequacy, with regard to the bank's risks;
  • monitors adherence of the bank's management and employees to the requirements of the legislation and internal bank provisions adopted by the bank council;
  • assesses the informational and technical support for the management and operations;
  • checks correctness and reliability of accounting and financial reporting;
  • checks the financial and economic activity of the bank;
  • checks the conformance of the bank's employees to their qualification requirements, and the performance of their professional duties;
  • discovers and examines cases of abuse of authority by the bank's officials, and cases of conflict of interest in the bank;
  • verifies reliable and timely provision of information to state authorities and governance bodies that supervise the bank's activity within the scope of their competence;
  • other functions related to supervising the bank's activity.

According to amendments to Article 69, part 2 of the Law of Ukraine "On Banks and Banking", the National Bank of Ukraine has the right to demand consolidated and sub-consolidated reporting from a bank or a banking group.

The Law also envisages that the terms "bank supervisory council", "board (board of directors)" and "internal audit service" in the text of the Law of Ukraine shall be replaced by the terms "bank council", "board", and "internal audit division", respectively.
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