Ukraine Introduces Nominee Holder’s Account
Avellum, Kyiv, Ukraine,
Fri, July 27, 2018
On 20 July 2018, the President of Ukraine signed the law which is expected to simplify procedures of inward and outward investment. The law will become effective on 24 November 2018. It will introduce a nominee holder concept which will allow accounting ownership rights for securities of clients of global custodians or other financial intermediaries.
Foreign financial institutions, which meet the established requirements, may now open securities accounts of nominee holders at Ukrainian depository institutions. There is no limitation on the number of accounts which a nominee holder may have at a depositary institution. These accounts have a special status and are treated as a separate type of securities account. They serve to record securities, rights to securities, and rights under securities, owned by nominee holder’s clients, as well as by the clients’ own clients. The securities recorded on the nominee holder’s account may not be enforced under the obligations of the nominee holder.
The nominee holder must disclose information on securities and their owners, as well as transactions with such securities in certain cases. The depositary institution is required to report to the National Securities and Stock Market Commission (“Regulator”) itself on any violations of the nominee holder’s disclosure obligations. In turn, in case of failure of the nominee holder to disclose such information, the Regulator may prohibit or suspend transactions with some or all securities at the account of such nominee holder.
Ukrainian depository institutions will be able to act as nominee holders on foreign markets.
Who may become a nominee holder?
A foreign financial institution may become a nominee holder, if:
- it is registered in the EU member state and/or in a state party to FATF
- it meets the requirements of the Regulator
- its legal status allows it to provide accounting of securities and registration of transfer of ownership rights to securities services
At the same time, a foreign financial institution may not become a nominee holder, if:
- it is established under the law of a state committing armed aggression against Ukraine and/or
- it is directly or indirectly controlled by residents of such state
It is established that transactions involving securities are void if committed on behalf of and/or in favour of individuals sanctioned under the Law of Ukraine “On Sanctions”, which prohibits or restrains implementation of the relevant transactions and/or corresponding financial transactions.
Obligations of subjects of primary financial monitoring (SPFM) were supplemented with additional measures in respect of financial institutions. In particular, SPFM is obliged to:
- collect information about a financial institution to the extent needed to fully understand its nature of activities, reputation, and quality of control
- evaluate actions of a foreign financial institution aimed at combating money laundering and financing of terrorism
- document obligations of a foreign financial institution in anti-money laundering area and in combating the financing of terrorism
- ascertain that a foreign financial institution acting as a nominee holder identifies, verifies, and reviews clients
The obligations concerning identification of beneficiaries remain in effect for:
- depositary institutions which opened a nominee holder account
- securities traders which sell securities to non-residents
- banks which conduct payments under transactions
If a person on whose behalf or by whose instruction the financial transaction was conducted and the beneficiary cannot be identified, the SPFM may refuse to carry out a financial transaction.