The Law of Ukraine

On Banks and Banking

Date of Entry into Force:
January 17, 2001

This Law defines banking system structure, economic, organizational, legal principles for establishment, functioning, reorganization and liquidation of banks.

The Law sets forth the structure of Ukraine's banking system; this system includes the National Bank of Ukraine (NBU) and other banks, both universal and specialized. Banks in Ukraine are established in the form of joint stock companies, limited liability companies and cooperative banks. Bank amalgamations (corporations, holdings) and associations function in Ukraine, too. Legal entities, natural persons, residents and non-residents, state, represented by duly authorized bodies, may be bank participants.

Each bank shall have a statute containing the following information:
  • name of the bank;
  • its location;
  • legal organizational form;
  • types of activity the bank intends to carry out.

NBU carries out state registration of banks. The persons authorized by bank founders shall submit for state registration the following documents to NBU:
  • application for bank registration;
  • constituent agreement;
  • bank statute.

NBU may refuse in state registration in case of:
  • violated procedure of bank creation;
  • submitted incomplete set of documents needed for registration;
  • bank constituent documents fail to comply with legislation.

The bank is entitled to carry out banking activities exclusively after obtaining the bank license issued by NBU on the basis of the bank's request. This Law also specifies peculiarities in registration of banks with foreign capitals, procedure of establishing their branches, representative offices and subsidiaries.

The Law envisages the procedure for banks re-organization and liquidation. Reorganization of bank is fulfilled on a voluntary basis pursuant to the decision of its owners, or on a compulsory basis pursuant to the NBU decision.

A bank may be liquidated on the initiative of the bank owners or on the NBU discretion. The bank's creditors and NBU shall have the right to file an appeal with a court relating to recognition of the bank insolvency and its liquidation. The body initiated the decision on liquidation shall assign a liquidating body that will start immediately execution of its authorities.

The Law specifies the structure of the bank funds (since it includes the fixed capital and floating capital), amount of the authorized funds (from EURO 1 mln. to EURO 5 mln.), formation procedure of the authorized fund and bank funds.

The bank administrative bodies are the general participants' assembly, a watchdog council, bank administration. The bank control body is the auditing committee. Banks also set up the service of internal audit being the body of the administrative operational control.

On the basis of the bank license the banks may carry out the following bank transactions:
  • accept deposits from legal entities and natural persons;
  • transactions with foreign currency values;
  • opening and keeping current accounts;
  • leasing.

The Law specifies certain requirements to relationships between banks and their clients (the client's right to information, guaranties for deposits of natural persons), defines the term of the bank confidence and obligations of persons relating its preservation, establishes some mechanisms to avoid legalization of criminal money (obligation to identify person).

State regulation of banking activities is carried out by NBU by means of administrative and indicative regulation. NBU also carries out banks' inspection in order to ensure bank system stability and protect interests of bank depositors and creditors relating to safekeeping of clients' funds in bank accounts.

Banks are bound to organize their accountancy according to internal accounting policy drafted on the basis of rules laid down by NBU. A bank shall submit to the National Bank of Ukraine its finance and statistical reports on bank's activities, transactions, liquidity, and solvency in order to evaluate its financial situation.

Each bank is the object of local control carried out by inspectors or auditors assigned by NBU. Audits are held for the purpose of determining the level of safety and stability of bank transactions, faithfulness of reporting. If banks violate the banking legislation or carry out risky transactions threatening interests of depositors or other bank creditors, the National Bank of Ukraine may exercise the following influence measures:
  • to call general assembly, watchdog council, bank administration to adopt the program of its financial rehabilitation;
  • to issue a directive on imposing penalties, bank reorganization, assigning temporary administration.

NBU shall assign temporary administration in case of available substantial threat to the bank's solvency and the same measure may be taken if:
  • a bank regularly violates NBU requirements;
  • a public conflict arises in bank management;
  • a bank commits actions aimed at hiding accounts.

Persons assigned by NBU shall carry out functions of temporary administration. Official expert (according to the agreement), NBU officials, relative legal entity may be a temporary administrator. On the date the temporary administrator has been assigned authorities of general assembly, watchdog council and bank administration are transferred to temporary administrator supposed to submit to NBU regular reports on its activities within terms determined by it.

The Law sets forth the procedure of appealing the NBU decisions. Bank or any other entities within the NBU authorities shall have the right to appeal in court pursuant to the procedure established by legislation decisions, actions or inaction of NBU or its officials, as well as decisions, action or inaction of temporary administrator of liquidator.
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