By Oleksandr Kurdydyk, Illya Muchnyk and Oleksandra Poliakova

On March 30, 2020, the Parliament of Ukraine adopted at the first reading the draft law On Improvement of Banking Regulation Mechanisms (the Draft Law). The Draft Law introduces amendments to the regulation of banking activity, mainly in the field of the withdrawal of banks from the market. 

The principal changes introduced by the Draft 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 losses. 
• Monetary compensation of losses will 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 Draft 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 will apply new criteria for declaring banks as problematic. The NBU will now have 90 days (instead of 180 days) to remove the bank from the market after declaring it problematic.
• The Draft Law introduces changes into 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 cancel penalties.
• The Government has the 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. 

If the Draft Law is adopted at the second reading, the law will enter into force after being signed by the President and published in the official gazette.