Legal Hotline | Digest of the main legislative changes in Ukraine 19.11.2020

A draft law was registered to stiffen the requirements for the organization of corporate governance in banks

On November 12, 2020, the Draft Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine to Improve the Organization of Corporate Governance in Banks and Other Issues of Operation of the Banking System” (hereinafter – the “Draft Law“) was registered in the Verkhovna Rada of Ukraine. Among other things, the main purpose of the Draft Law is to bring the legislation of Ukraine in line with the EU standards on the organization of corporate governance and the risk management system in banks, to improve the regulation of activities of banks and banking groups, and to strengthen the banking system of Ukraine.

The Draft Law provides for amendments, in particular, to the following legislative acts: the Law of Ukraine “On Banks and Banking Activities”, the Laws of Ukraine “On the National Bank of Ukraine”, “On the Deposit Guarantee System”, “On the Antimonopoly Committee of Ukraine”, “On the National Agency of Ukraine for Finding, Tracing and Management of Assets Derived from Corruption and Other Crimes”, ” On Prevention and Counteraction to Legalization (Laundering) of Criminal Proceeds, Terrorist Financing, Financing of Proliferation of Weapons of Mass Destruction”, “On the National Anti-Corruption Bureau of Ukraine”. Thus, the Draft Law provides for the following changes:

1. Changes in the powers of the National Bank of Ukraine:
   1. the powers in terms of identification of a banking group, which was not identified by a controller or which was identified by a controller not in full, were detailed;
   2. the function of determining the procedure for calculation of the regulatory capital of a banking group and subgroups of a banking group, and the requirements for assessment of the equity and liquidity was provided;
   3. the right to set requirements for a banking group and/or subgroups of banking groups regarding the capital adequacy and liquidity adequacy was granted;
   4. powers to require the authorized representative of a banking group to expand the scope of an audit was established.
2. Changes in terms of the procedures for establishment and licensing of banks:
   1. the requirement to confirm the adequate financial/property status of not only the founders of the bank but also of indirect major shareholders of the bank was introduced;
   2. the principle according to which the founders of the bank and its major shareholders are required to prove to the National Bank that their financial/property status and business reputation meet the requirements of the legislation was established;
   3. the list of grounds for the National Bank to refuse to issue a banking license and to accredit a branch of a foreign bank was elaborated;
3. Changes in terms of corporate governance in banks:
   1. the list of issues falling in the exclusive competence of the council of the bank in terms of corporate governance was extended;
   2. preconditions for improvement of efficiency and quality of work of the council of the bank were created through the introduction of the obligation to form committees for systemically important banks;
   3. the role of control units of the bank (risk management and compliance) was strengthened, and the requirements for the chief risk manager and chief compliance manager were stiffened;
4. Changes in the terms of purchase by the bank of its shares:
   1. cases when the bank does not have the right to purchase its own shares were identified, in particular, if it may result in a violation of any of the capital adequacy ratios or inadequacy of the combined capital buffer.

The Draft Law also provides for a number of changes in respect of the acquisition of a major shareholding in banks and requirements for the ownership structure of banks; internal control and risk management systems in banks; requirements for capital and liquidity of the bank (in order to bring them in line with the provisions of EU legislation (CRD IV/CRR)).

A draft law to improve payment services was registered

On November 12, 2020, the Draft Law “On Payment Services” (hereinafter – the “Draft Law“) was registered in the Verkhovna Rada of Ukraine. The main purpose of the Draft Law is to update the national payment service system and to bring the national legislation in line with EU legislation.

Today, the legislation of Ukraine governing the provision of payment services seems outdated. It properly regulates only one payment service, namely the financial service for the transfer of funds. In turn, the Draft Law provides for the introduction of nine types of payment services:

• financial:
  • services for crediting cash to user accounts and services for opening, maintaining and closing accounts (except for e-purses);
  • services for withdrawing cash from user accounts and services for opening, maintaining and closing accounts (except for e-purses);
  • services for performing payment transactions with user’s own funds from/to the user account (except for payment transactions with electronic money), including:

a) performance of a credit transfer;

b) performance of a debit transfer;

c) performance of other payment transaction, including with the use of payment instruments;

• services for performance of payment transactions from/to the user account (except for payment transactions with electronic money) provided that the funds for the payment transaction are provided to the user by the payment service provider on the terms of credit, including:

a) performance of a credit transfer;

b) performance of a debit transfer;

c) performance of other payment transaction, including with the use of payment instruments;

• services for issuing payment instruments and/or acquiring payment instruments;
• services for transferring funds without opening an account;
• services for issuing and performing payment transactions with electronic money, including opening and maintaining e-purses.
• non-financial:
  • services for initiating payment transaction;
  • services for providing account information.

 To regulate the provision of respective payment services, the Draft Law, in particular:

• sets requirements for authorization of activities in the payment service market: the procedure for granting a license for the provision of payment services and registration of payment service providers in the Register of Payment Infrastructure;
• sets requirements for payment service providers, in particular for corporate governance and risk management of certain categories of payment service providers, capital requirements for a legal entity intending to provide payment services;
• establishes general principles of issuing and using electronic money and digital money of the National Bank of Ukraine in Ukraine;
• sets requirements for protection of information in payment transactions;
• establishes liability of entities engaged in payment services.

A draft law to stimulate the development of the oil and gas industry was registered

On November 9, 2020, the Draft Law “On Amendments to Certain Legislative Acts to Stimulate the Development of the Oil and Gas Industry” (hereinafter – the “Draft Law“) was registered in the Verkhovna Rada of Ukraine. The purpose of the Draft Law is to improve the regulation of production sharing agreements.

The Draft Law details the terms of a tender for a production sharing agreement. In particular, it proposes to ensure the openness and publicity of activities of the Interdepartmental Commission through online broadcasting of its meetings in which bids are opened and winners of tenders are determined and to amend the list of criteria for evaluation of bids by the Interdepartmental Commission.

The Draft Law also proposes to eliminate the possibility to conclude production sharing agreements without a tender in respect of minor mineral deposits; to prohibit persons related with the aggressor state recognized by the Verkhovna Rada of Ukraine to be an investor under a production sharing agreement; cancel the transfer of explored mineral deposits for industrial exploitation; to introduce the possibility of application of some international standards (in particular, the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC-2009), the classification of the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), the Petroleum Resources Management System (PRMS) in examining and estimating mineral reserves at the request of a subsoil user.

The initiators of the Draft Law stress that it will give the possibility to optimize the process of holding a tender for a production sharing agreement and to ensure its transparency and fair assessment, and will eliminate corruption risks in determining the winner.