On 2 June 2011, the Parliament of Ukraine adopted Law of Ukraine “On Amendments to Several Laws of Ukraine regarding Regulation of Financial Services Markets” No. 3462-VI (the “Law”). According to the Law and the official web site of the Parliament of Ukraine, the Law becomes effective on 8 January 2012. The Law is aimed at enhancing the transparency of Ukrainian financial services markets, however, certain novelties of the Law substantially increase the state control over financial services markets and as a result, put more administrative pressure on its participants (Ukrainian banks, credit unions, investment funds, insurance and leasing companies, etc.).

The key amendments set out by the Law are the following:

1. A permit will be required to acquire or increase a substantial share in a financial institution.

An individual or legal entity that intends to acquire or increase its share in a financial institution will have to obtain a permit from the relevant competent state body. As a general rule, the competent body would be the State Commission for the Regulation of Financial Services Markets of Ukraine (the “Commission on Financial Services Markets”), or in cases where a share in professional participants of the stock market (the “Participants”) is being acquired, the Securities and Stock Market State Commission (the “Commission on Securities and the Stock Market”). As regards Ukrainian banks, they must follow a similar procedure already provided by the specific banking law (in this case, the National Bank of Ukraine acts as a competent state body).

The permit is required when: (i) acquiring a substantial share in a financial institution, (ii) increasing a share in such a way that will result in a direct or indirect ownership or control of 10, 25, 50 or 75 per cent. of the statutory (composed) capital of such institution, or (iii) acquiring the voting right in a governing body of a financial institution through a purchase of its shares.

To obtain a permit, an individual or legal entity must file relevant documents with the Commission on Financial Services Markets or the Commission on Securities and the Stock Market (as the case may be), containing information on its financial status, business reputation and (for legal entities) its ownership structure. Such permit shall be issued not later than one month from the date of filing.

Without this permit, an individual or legal entity may not exercise in any way its rights under voting shares (or participatory interest) or participate in the governance of the financial institution. Should the competent state body discover that the abovementioned actions took place without the required permit, it will appoint an authorised person to participate in place of the relevant individual or legal entity in any vote at a general meeting of the financial institution. In addition, any decisions made during a general meeting in violation of the newly established rules (i.e. procedure of obtaining the permit described above) will be invalid.

2. The powers of the financial services markets regulators are to be extended.

1. The Commission on Financial Services Markets will have the right to set up the terms and procedure for the carrying out of internal audits.
2. The Commission on Securities and the Stock Market will be competent to set corporate governance standards for the Participants and control their compliance with such standards.
3. The National Bank of Ukraine, the Commission on Financial Services Markets, the Commission on Securities and the Stock Market, the Antimonopoly Committee of Ukraine and other authorised state bodies have a right to request from the state bodies, municipalities and legal entities or individuals, information to confirm the sources of funds used for a financial institution’s statutory capital formation and for the acquisition or the increase of a substantial share in it. These entities also have the right to obtain information on the financial status and the business reputation of the holders of the substantial share. The requested information must be provided to the respective state body within 10 business days.

3. Financial institutions shall disclose more information to their clients.

According to the Law, a client of a financial institution will now receive more information regarding the financial services provided by that financial institution. In particular, before entering into a financial services agreement with the client, the financial institution must, among other things, provide the client with the following information: (i) the terms and price of the additional services provided, (ii) the taxes and charges levied at the expense of the client as a result of receiving the financial services, and (iii) in cases of early termination of the rendering of the financial services, the consequences of the same and a procedure for payments to settle the services.

4. The liability for violations of financial services markets rules is to be strengthened

The penalty rates that will be applied towards the participants of the financial services market (excluding consumers) will be increased. The participants of the financial services market will bear increased liability for: (i) conducting activities that are subject to the receipt of a licence or registration without such licence or registration (rate increased to UAH 17 000 - 170 000 or approximately EUR 1500 – 14 940), (ii) failure to present, or the intentional presentation of false, information (rate increased to UAH 1700 - 34 000 or approximately EUR 150 - 3000), and (iii) the failure to perform or the untimely performance of the decision of the Commission on Financial Services Markets to eliminate an infringement regarding the rendering of financial services (rate increased to UAH 1700 - 17 000 or approximately EUR 150 - 1500).

In addition to the above, the Law has also set the requirements for internal audits, peculiarities of information disclosure in financial, consolidated or corporate reports, and amended or introduced as the case may be, certain informative definitions.

The amendments introduced do not apply to legal relationships that were created in the past. However, all financial institutions are obliged to bring their activities in compliance with the new requirements set by the Law within a period of one year from the date the same comes into effect.

Law: The Law of Ukraine “On Amendments to Several Laws of Ukraine regarding Regulation of Financial Services Markets” No. 3462-VI, dated 2 June 2011.