On 23 May 2020 the Law “On Improvement of Banking Regulation Mechanisms” (the “Law”) entered into force. The Law introduces significant amendments to the regulation of banking activity mainly in the field of the withdrawal of banks from the market. The adoption of the Law constituted one of the requirements of the International Monetary Fund for provision of financing to Ukraine.

The main changes introduced by the Law are as follows:

Decisions of the National Bank of Ukraine (“NBU”) on withdrawal of banks from the market are irreversible even if courts find such decisions illegal. Former owners of such banks will not be entitled to get their shares back, only to receive monetary compensation of their losses. Provisions of the Law on determining the amount of former owners’ losses will apply to all ongoing court proceedings not settled in the courts of first instance, courts of appeal or cassation courts as of the date the Law enters into force.

• Monetary compensation of losses shall be awarded by a court and be equal to the fair market value of the shares of the bank at the time when the NBU declared the bank insolvent. Such fair market value will be determined in accordance with the international valuation standards by an international audit firm appointed by the court.  

• The Law introduces the concept of professional judgement in the decision-making process of the NBU. The NBU will apply its professional judgement (a reasoned opinion) to access the quality of corporate governance of banks, to determine circumstances affecting stability of the bank and in other instances. The NBU’s decisions based on professional judgement may be challenged in a court. 

• The NBU will apply new criteria for declaring banks as problematic. The NBU will now have 120 days (instead of 180 days) to remove the bank from the market after declaring it problematic. 

• The Law improves the liquidation procedure of banks. The Deposit Guarantee Fund will have extended powers to restructure the indebtedness of clients of liquidated banks. Such powers, among others, include the right to change interest rates and security under loans and to cancel penalties. 

• The procedure of the nationalization of banks was clarified. The Government obtained a right to establish a transition bank in the event of threats to the stability of the banking system. Such a transition bank may receive assets and liabilities of insolvent banks. The establishment of the transition bank is a banking secret until it is used for the withdrawal of insolvent banks from the market. 

• The provisions of the Law shall apply to all ongoing court proceedings, in which a final decision has not been rendered as of the date the Law enters into force. 

• In case the bank’s former owners have chosen the remedy to protect the rights and interests relating to withdrawal of a bank from the market under illegal decisions of the NBU other, than monetary compensation of losses, such ongoing court proceedings shall be dismissed in relevant part of a claim.