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Verkhovna
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 : : Legal Framework
2001-09-20 00:00:00  Print Version



LAW OF UKRAINE

On Banks and Banking

With amendments introduced by
the Laws of Ukraine
No. 2740-III of 20 September 2001,
No. 249-IV of 28 November 2002, 
No. 485-IV of 6 February 2003,
No. 835-IV of 22 May 2003,
 No. 914-IVof 5 June 2003,
 No. 1294-IV of 20 November 2003,
 No. 1828-IVof 22 June 2004,
 No. 2631-IVof 2 June 2005,
 No. 3127-IV of 29 November 2005,
 No. 3163-IV of 1 December 2005,
 No. 3201-IV of 15 December 2005,
 No. 3205-IV of 15 December 2005,
 No. 3273-IV of 22 December 2005,
 No. 3541-IV of 15 March 2006,
 No. 133-V of 14 September 2006,
No. 358-V of 16 November 2006,
(changes introduced by paragraphs 2 and 5 of Section 1 of Law of Ukraine
 No. 358-V of 16 November 2006,
came into effect on 16 May 2008),
 No. 532-V of 22 December 2006,
 No. 997-V of 27 April 2007,
No. 639-VI of 31 October 2008,
(changes introduced by Law of Ukraine No. 639-VI of 31 October 2008,
 are valid till 1 January 2011,
except for the changes made by subparagraph 2 of paragraph 7, Section II of Law of Ukraine
 No. 639-VI of 31 October 2008, which are valid till 1 January 2012,
 with taking into account the changes made by Law of Ukraine
 No. 2856-VI of 23 December 2010),
No. 661-VI of 12 December 2008,
No. 1533-VI of 23 June 2009,
No. 1617-VI of 24 July 2009,
 No. 2258-VI of 18 May 2010,
No. 2289-VIof 1 June 2010,
(changes introduced by Law of Ukraine No. 2289-VIof 1 June 2010
 become valid on 31 July 2010),
 No. 2478-VI of 9 July 2010,
 No. 2510-VI of 9 September 2010,
No. 2522-VI of 9 September 2010,
No. 2677-VI of 4 November 2010,
 No. 2756-VI of 2 December 2010,
 No. 2856-VI of 23 December 2010,
 No. 3011-VI of 4 February 2011,
 No. 3024-VI of 15 February 2011,
 No. 3265-VI of 21 April 2011,
 No. 3385-VI of 19 May 2011,
 No. 3394-VI of 19 May 2011,
 No. 3795-VI of 22 September 2011,
 No. 4452-VI of 23 February 2012,
 No. 4652-VI of 13 April 2012,
 No. 4841-VI of 24 May 2012,
 No. 5042-VI of 4 July 2012,
 No. 5080-VI of 5 July 2012,
 No. 5178-VI of 6 July 2012,
 No. 5248-VI of 18 September 2012,
 No. 5410-VI of 2 October 2012,
 No. 5463-VI of 16 October 2012,
 No. 245-VII of 16 May 2013,
 No. 401-VII of 4 July 2013,
(except for the changes made by subparagraph 2 of paragraph 1, Section I of Law of Ukraine
No. 401-VII of 4 July 2013 coming into effect on 12 October 2013)
 No. 406-VII of 4 July 2013,
 No. 1166-IV of 27 March 2014,
No. 1170-IV of 27 March 2014,
No. 1261-VII of 13 May 2014,
No. 1507-VII of 17 June 2014,
No. 1323-VII of 5 June 2014,
No. 1586-VII of 4 July 2014,
 No. 1587-VII of 4 July 2014,
 No. 1588-VII of 4 July 2014,
No. 1698-VII of 14 October 2014,
No. 1700-VII of 14 October 2014
(changes introduced by Law of Ukraine No. 1700-VI of 14 October 2014 
become valid on 26 July 2015),
 No. 1702-VII of 14 October 2014
(as amended by Law of Ukraine
No. 78-VIII of 28 December 2014),
 No. 78-VIII of 28 December 2014
(changes introduced by subparagraph “d” of paragraph 10 of Article 8
 of Law of Ukraine No. 78-VIII of 28 December 2014
come into effect as of 7 February 2015),
No. 218-VIII of 2 March 2015,
No. 541-VIII of 18 June 2015,
No. 629-VIII of 16 July 2015,
No. 772-VIII of 10 November 2015,
(changes introduced by Law of Ukraine No. 772-VIII of 10 November 2015
 come into effect on 11 June 2016),
No. 794-VIII of 12 November 2015,
No. 901-VIII of 23 December 2015,
 No. 911-VIII of 24 December 2015,
No. 922-VIII of 25 December 2015,
No. 1404-VIII of 2 June 2016
(changes introduced by Law of Ukraine No. 1404-VIII of 2 June 2016 regarding
activities of private enforcement agents (PEAs) will come into effect on 5 January 2017),
No. 1414-VIII of 14 June 2016,
No. 1736-VIII of 15 November 2016,

(From October 20, 2017, the Law will be amended pursuant to Law of Ukraine No. 1734-VIII of 15 November 2016)

 

(In 2013, in case of the state acquisition of shares of State Savings Bank of Ukraine PJSC in exchange for domestic sovereign bonds, provisions of the second part of Article 32 of this Law - concerning money contributions to authorized capital - are applied taking into account Article 19 of Law of Ukraine No. 5515-VI of 6 December 2012)

(In 2015, in case of the state acquisition of banks’ shares in exchange for domestic sovereign bonds, provisions of the second part of Article 32 of this Law - concerning money contributions to authorized capital - are applied taking into account Article 16 of Law of Ukraine No. 80-VIII of 28 December 2014)

(In 2016, in case of the state acquisition of banks’ shares in exchange for domestic sovereign bonds, provisions of the second part of Article 32 of this Law - concerning money contributions to authorized capital - are applied taking into account Article 16 of Law of Ukraine No. 928-VIII of 25 December 2015)

(In 2017, in case of the state acquisition of banks’ shares in exchange for domestic sovereign bonds, provisions of the second part of Article 32 of this Law - concerning money contributions to authorized capital - are applied taking into account Article 16 of Law of Ukraine No. 1801-VIII of 21 December 2016)

 

(In this Law words “Supervisory Council of the bank”, “Board (Board of Directors)” and “Internal Audit Service” were respectively superseded by words “Bank's Council”, “Board” and “Internal Audit” pursuant to Law of Ukraine No.1587-VII of 4 July 2014)

 

Section I. GENERAL PROVISIONS

Chapter 1. GENERAL PROVISIONS

Article 1. Subject and Purpose of the Law

This Law defines the structure of the banking system and sets economic, organizational and legal framework for establishment, operation, restructuring and resolution of banks.

The purpose of this Law is to provide legal support for stable development and operation of banks in Ukraine, to create an appropriate competitive environment in the financial market, to protect legitimate interests of bank depositors and clients, introduce favorable conditions for the development of the economy of Ukraine, and support the domestic commodity producers.

Article 2. Definitions

The terms used in this Law shall have the following meaning:

Associated person shall mean the husband or wife, lineal relatives of a person (father, mother, children, siblings, grandfather, grandmother, grandchildren), lineal relatives of this person’s husband or wife, the husband or wife of a lineal relative;

Affiliate of a bank shall mean any legal entity in which the bank holds qualifying holding or which holds a qualifying share in the bank;

Shell bank shall mean a bank or other financial non-resident institution that has no permanent place of business and carries out no activities at its incorporation place and/or is not subject to the relevant supervision of the hosting country (on its territory);

Bank shall mean a legal entity, that has an exclusive right, under the NBU license, to render the banking services and is included in the State Register of Banks;

Bank with foreign capital shall mean a bank where the share of capital, owned by at least one foreign investor is not less than 10 percent;

Banking group shall mean a group of legal entities:

having common controller comprising a parent bank, its one or more Ukrainian and/or foreign subsidiaries and/or associated companies, that are financial institutions, or for which financial services is a predominant activity, or

comprising a parent bank that is a controller of its Ukrainian and/or foreign subsidiaries and/or associated companies, that are financial institutions, or for which financial services is a predominant activity, or

having common controller comprising two or more Ukrainian financial institutions, and/or companies for which financial services is a predominant activity, their Ukrainian and/or foreign subsidiaries and/or associated companies, that are financial institutions or for which financial services is a predominant activity, where banking prevails, or

comprising a non-banking financial institution or a company for which financial services is a predominant activity, which is a controller of its two or more Ukrainian and/or foreign subsidiaries and/or associated companies, that are financial institutions or for which financial services is a predominant activity, where banking prevails.

The bank holding company and the company that renders supporting services that has a common controller with the banking group participants shall be a part of the banking group.

The company shall be deemed the one for which financial services is a predominant activity, if the revenues from the sale of financial services according to the results of previous year makes 50 percent and more of the total net income amount (revenues) from sale of products (goods, works, services).

Banking shall be deemed the prevailing activity of a group, if the cumulative arithmetic average of assets of the banking group member banks for the last four reporting quarters equals to or exceeds 50% of the cumulative value of the arithmetic average of assets of all financial institutions belonging to the group for the mentioned period. Calculation to determine the predominant activity of a group shall be carried out every year as of 1 January.

Should, after the group is determined as the banking one on the basis of its predominant activity, the share of cumulative assets of the banks (bank) within the cumulative assets of the member financial institutions decrease and come to 40-50 percent, the group shall still be deemed the banking group during three years from the moment of such a decrease.

Bank holding company shall mean a financial holding company, where banking is the predominant activity of the financial institutions being its subsidiary or associate companies;

Banking activity shall mean taking deposits from individuals and legal entities and investment of these funds on the bank’s own behalf, on its terms, and at its own risk, opening and servicing accounts of individuals and legal entities;

Bank credit shall mean any commitment of a bank to extend a certain amount of money, any guarantee, any obligation to acquire the right to claim debt, or any extension of the debt maturity, which occurs in exchange for the borrower’s commitment to repay the debt amount, as well as an obligation to pay interest and other charges due on this amount;

Banking license shall mean a document issued by the NBU in accordance with the procedure and subject to the conditions specified hereunder, that grants banks and branches of foreign banks the right to carry out banking activity;

Banking payment instrument shall mean an instrument containing the details identifying its issuer, the payment system, in which it is used and, as a rule, its holder. Relevant documents are formed with the help of banking payment instruments for the transactions performed using the banking payment instruments, on the basis whereof funds are transferred or other services rendered to the holders of such instruments;

Bank accounts shall mean the accounts that show bank’s own funds, claims, commitments of a bank to its clients and counterparties, and enable transfer of the funds by using the banking payment instruments;

State Register of Banks shall mean the register maintained by the NBU that contains information about state registration of all banks;

Subsidiary shall mean a legal entity, controlled by another legal entity (parent company);

Deposit shall mean the funds in cash or noncash form in hryvnia or a foreign currency which are placed by the clients into their personal accounts with a bank according to an agreement with the bank for a specified period of time or without specification of such a period of time, and which are subject to repayment to the depositor under the laws and regulations of Ukraine and terms and conditions of the agreement.

Business reputation shall mean the information collected by the NBU regarding compliance of an artificial or individual’s activities, including those of the managers of the artificial person or holders of the qualifying shares therein, with the requirements of law, business practice and professional ethics, as well as the data on integrity, professional and managerial skills of the individual;

Economic ratios shall mean the indicators set by the NBU and mandatory for all banks;

Foreign shall refer to a citizen or a legal entity of any country other than Ukraine.

Bank Inspection shall mean a form of on-site banking supervision performed by the persons authorized by the NBU at the bank’s premises;

Qualifying holding shall mean direct and/or indirect, independent or joint holding of 10 or more percent of the authorized capital or the voting rights granted by purchased shares (stakes) of a legal entity or the ability to exert decisive influence on the management or activities of the legal entity irrespective of the formal ownership; An entity is deemed the owner of an indirect qualifying holding regardless of whether the entity in question controls the direct owner of the holding in the legal entity or controls any other person in the chain of corporate rights ownership of the legal entity;

Capital of a Bankshall mean the capital base, i.e. the residual value of the bank assets after deduction of all its liabilities.

Assigned Capitalshall mean an amount of money in a freely convertible currency granted by a foreign bank to its branch for accreditation thereof.

Authorized Capitalshall mean paid-in money contributions of bank participants in the value of shares (stakes) of the bank in an amount determined by the bylaws of the bank.

Regulatory Capitalshall mean an aggregate of the core and additional capital whose components are defined by this Law and regulations of the NBU;

Legal Entity Managers(other than a bank) shall mean managers of an enterprise or institution, members of the executive body and (supervisory) council of the legal entity.

Client of a Bank shall mean any individual or legal entity that uses services of a bank.

Key Participant of a Legal Entity shall mean any individual who owns equity rights of the legal entity, as well as a legal entity that owns two or more percent of the equity rights of legal entity and at the same time:

1) if there are more than 20 individuals  participating in a legal entity, 20 of them with the largest shares shall be considered as key participants;

2) if more than twenty individuals own the equal bundles of equity rights of a legal entity, all the individuals owning two and more percent of the equity rights of legal entity shall be considered as key participants;

3) it is deemed that a listed company has no key participants;

Controllershall mean an individual or legal entity that has no individual controlling his/her/its activities and is able to exert decisive influence on the management or activities of a legal entity through direct and/or indirect, independent or joint holding of a share in the legal entity corresponding to an equivalent of 50 or more percent of the authorized capital and/or voting rights of the legal entity or, irrespective of the formal ownership, able to exert such influence on the basis of an agreement or in any other way.

Controlshall mean the possibility of exerting decisive influence on the management and/or activity of a legal entity by virtue of direct and/or indirect possession by one person independently or jointly with other persons of a share in the legal entity amounting to an equivalent of 50 or more percent of the authorized capital and/or voting rights of the legal entity, or irrespective of the formal ownership, the possibility to exercise such influence on the basis of an agreement or in any other way.

Conflict of Interest shall mean existing and potential contradictions between personal interests and professional or official duties of a person that may corrupt performance of his or her duties, objectivity and impartiality of his or her decision;

Funds shall mean the money in the national or a foreign currency or its equivalent;

Bank’s creditor shall mean a legal entity or an individual who has a written confirmation of a claim to the borrower with regard to latter’s property obligations.

equity right ownership chain of a legal entity shall mean information on the composition of key participants of a legal entity, that includes information on key participants of the first and any subsequent level of equity right ownership of a legal entity;

Liquidation of a Bank shall mean a procedure for terminating the functioning of a bank as a legal entity pursuant to the provisions of the present Law and the Law of Ukraine “On Household Deposit Guarantee Scheme”;

Parent Bank shall mean a Ukrainian bank, where among subsidiaries and/or associated companies there is a bank and/or non-banking financial institution, and which is not a subsidiary of other Ukrainian bank or bank holding company.

Capital Adequacy Ratio shall mean the ratio of the bank’s regulatory capital to total assets and off-balance liabilities weighted by the respective credit risk coefficients and an amount of the claims necessary to cover other risks of the bank.

Regulations of the NBU shall mean the regulations issued by the NBU within its authority and in pursuance of this and other laws of Ukraine;

Listed Company shall meanforeign legal entity established in the form of a public joint stock company the shares whereof are on the lists (have passed listing procedures) of the stock exchanges that meet the criteria set by the NBU;

Level of Equity Right Ownership of a Legal Entity shall mean relations of equity right ownership of a legal entity between such legal entity and its participants. If all the participants of the legal entity are individuals, such legal entity shall have only one level of equity right ownership;

Reorganization of a Bank shall mean merger, takeover, spin-off or break-up of a bank, transformation of its organizational and legal form resulting in the transfer, assumption of its property, funds, rights and liabilities by legal successors;

Disclosed Provisions shall mean the reserves and funds formed or increased at the cost of the retained earnings and published in the bank’s financial reporting;

Banking Settlement Operations shall mean movement of funds on bank accounts which is performed pursuant to client instructions or as a result of the actions, which have led to the legal transfer of assets ownership rights;

Congenerous Party shall mean a legal entity the holders of qualifying holding wherein are at the same time the holders of qualifying holding in a bank;

Systemically Important Bank (SIB) shall mean a bank that corresponds to the criteria set by the NBU and whose activity impacts the stability of the banking system;

Ownership Structure of Legal Entity shall mean a system of mutual relations of legal entities and individuals which enables to identify:

1) all key participants (including listed companies) and controllers of the legal entity;

2) all key participants of each legal entity in the equity right ownership chain of such legal entity;

3) all the persons having direct and/or indirect qualifying holding in the legal entity;

4) control relations regarding the legal entity among all the entities and persons defined in paragraphs 1 – 3 of this definition;

Bank’s authorized person shall mean a person, who, on the basis of the bylaws or an agreement, is empowered to represent a bank and take certain actions of legal nature on behalf of the latter.

Banking Group Participants shall mean the banks, other financial institutions, bank holding companies, companies that render supporting services, which have a common controller.

Participants in a Bank shall mean bank founders, shareholders of a bank that is a public joint stock company, and stakeholders in a cooperative bank.

Participant of a Legal Entity shall mean a person that owns equity rights of this legal entity;

Financial Rehabilitation of a Bank shall mean recovery of bank’s solvency and suiting the financial indicators of its activity to the requirements of the NBU.

The terms “associate company”, “parent company”, “financial holding group”, “company that renders supporting services” shall have the meaning as per the Law of Ukraine On Financial Services and State Regulation of the Financial Services Markets.

The terms “underwriter” and “underwriting” shall have the meaning as per the Law of Ukraine On Securities and Stock Market.

 

Article 3. Application (Scope) of the Law

This Law shall govern relations that arise in the course of establishment, registration, activities, reorganization and liquidation of banks.

The provisions of the present Law and regulations of the NBU shall be applicable both to banks and foreign bank branches.

Provisions of the present Law shall be applicable to the representative offices of foreign banks operating in the territory of Ukraine, unless otherwise established by the effective international treaties (agreements) ratified by the Verkhovna Rada of Ukraine, as well as to branches of Ukrainian banks abroad and to the bank’s related parties specified in Article 52 of the present Law.

Appropriate provisions of the present Law shall also be applicable to some liabilities and responsibilities of other persons, whose activity is connected with operation of banks.

The relations that arise as a result of application of the provisional administration and liquidation of an issuer of the mortgage-backed securities shall be regulated by the present Law if that is not contrary to the Law of Ukraine “On Mortgage-Backed Securities”.

Article 4. Banking System of Ukraine

The banking system of Ukraine consists of the NBU and other banks, as well as the branches of foreign banks, which have been established and operate on the territory of Ukraine in compliance with the present Law provisions and those of other laws of Ukraine.

Each bank may independently determine areas of its activity and specialization by types of operations and services.

The NBU may determine types of the specialized banks and a procedure of obtainment of the specialized bank status by a bank.

The NBU shall regulate activities of the specialized banks through the economic ratios and regulations that support the operations performed by these banks.

The NBU uses the following criteria to define systemically important banks: size of banks, financial interconnectedness and lines of activity.

The NBU shall exercise its regulatory and supervisory activities pursuant to the provisions of the Constitution of Ukraine, the present Law, the Law of Ukraine “On the NBU”, other legislative acts and its own regulations. The NBU sets the peculiarities of regulations and supervision of a systemically important bank and a bank that has the status of the Settlement Center for the financial markets contracts taking into account the specifics of their activities.

Article 5. Economic Independence of Banks

Banks shall have the right to independently hold, use and manage the property they own.

The State shall not be held responsible for commitments of the banks, and banks shall not be held responsible for commitments of the State, unless otherwise provided for by law or an agreement.

The NBU shall not be held responsible for commitments of the banks, and banks shall not be held responsible for commitments of the NBU, unless otherwise provided by law or an agreement.

Public authorities and local government bodies shall not be allowed to influence in any way the management or employees of banks during the exercise of official duties by them, or to interfere with the bank activities, except when expressly specified by law.

The damage inflicted on a bank as a result of such interference shall be subject to compensation pursuant to the procedures specified by law.

Article 6. Organizational and Legal Form of the Bank

In Ukraine, banks shall be created in the form of a public joint stock company or a cooperative bank.

The legal status, establishment procedures, activities, reorganization and liquidation of banks shall be determined by the present Law and the Law of Ukraine “On Household Deposit Guarantee Schemes”.

Article 7. State Banks

The state bank is a bank in which the State owns 100 percent of the authorized capital.

The state bank shall be established by a decision of the Cabinet of Ministers of Ukraine. In so doing, the expenditures shall be provided for in the Law on the State Budget of Ukraine for the respective year for the formation of the authorized capital of the state bank. The Cabinet of Ministers of Ukraine shall obtain a positive opinion of the NBU in respect of the foundation of the state bank. Obtaining the NBU opinion shall also be obligatory in case of the liquidation (reorganization) of a State bank, with the exception of the liquidation resulting from the State bank insolvency.

The by-laws and activities of the state bank shall meet the requirements of the present Law, other laws of Ukraine and regulations of the NBU.

The by-laws of the state bank shall be approved by a Resolution of the Cabinet of Ministers of Ukraine.

The state registration of the State banks shall be carried out in accordance with the laws on the state registration of legal entities and individual entrepreneurs with taking into account the particularities introduced by the present Law.

The State shall exercise and realize ownership rights in respect of shares (stakes), which belong to it in the authorized capital of a state bank through management bodies of the state bank. The Cabinet of Ministers shall exercise management of the state bank in cases specified in the present Law, other laws and the by-laws of the state bank.

The Supervisory Council and Board shall be the management bodies of the state bank.

The Revision Commission, whose personal composition (panel) and staff number may be determined by the Supervisory Council of the state bank, shall be a controlling body of the state bank.

The Supervisory Council shall be the highest management body of the state bank controlling its Board activities in order to preserve the funds attracted as deposits, guarantee their repayment to depositors and protect interests of the State as a state bank shareholder, and exercise other functions stipulated by the present Law.

The Supervisory Council of the state bank shall be made up of the members appointed by the Verkhovna Rada of Ukraine, the President of Ukraine and the Cabinet of Ministers of Ukraine. In order to represent the interests of the State, representatives of executive bodies and other persons that meet the requirements set forth in this Article may be included in the Supervisory Council of the state bank. The term of office of the state bank Supervisory Council members shall be five years.

The President of Ukraine shall appoint five members of the state bank Supervisory Council through the adoption of a corresponding Decree.

The Verkhovna Rada of Ukraine shall appoint five members of the state bank Supervisory Council through the adoption of a corresponding Resolution.

The Cabinet of Ministers of Ukraine shall appoint five members of the state bank Supervisory Council through the adoption of a corresponding Resolution.

The member of the state bank Supervisory Council shall be a citizen of Ukraine who has received formal higher education in economics or law, or has an academic degree in the field of economics, finance and/or law, having experience of work in the legislative bodies or on the managerial positions in the central government agencies of Ukraine which ensure implementation and realization of the state financial, economic and legal policy, or in banking institutions, or else has experience of research and practical work in the area of economics, finance or law. A person who is a member of the Supervisory Council or other management body of a bank (except a state one) or a member of his/her family of the first degree of relation, or a person who has been convicted for financial abuse with (outstanding) conviction not cancelled or overturned as prescribed by law may not be a member of the Supervisory Council of a state bank. Appointment of a person to the position of a member of the Supervisory Council of a state bank is not permitted if it can lead to a conflict of interests.

The members of the state bank Supervisory Council shall exercise their functions without receiving any remuneration.

The Supervisory Council of the state bank shall be headed by the Chairman elected by the Supervisory Council from among its members.

Meetings of the Supervisory Council shall be effective if attended by at least 10 of its members.

Supervisory Council decisions shall be adopted by a simple majority of votes of those present at the meeting of the state bank Supervisory Council. The by-laws and internal regulations of the state bank may define the procedure of the Supervisory Council convocation, voting, decision taking and execution.

Powers and authorities of the appointed state bank Supervisory Council and/or of each of its members may be terminated upon the decision of the Verkhovna Rada of Ukraine, the President of Ukraine and the Cabinet of Ministers of Ukraine with regard to the members appointed by them, but not earlier than one year after the appointment. The powers of the state bank Supervisory Council shall be suspended as of the date of appointment of the authorized person of the Household Deposit Guarantee Fund.

In its activities, the state bank Supervisory Council shall abide by this Law, other effective laws of Ukraine, and the by-laws of the state bank. The Supervisory Council shall not interfere in the everyday activity of the state bank.

The competence of the state bank Supervisory Council shall cover decision-making on the issues stipulated by paragraphs 1, 5 and 6 of Article 38 and paragraphs 1-7 of Article 39 of the present Law, as well as the other issues whose regulation is prescribed by this Law.

Decisions on changing the size of state bank authorized capital and suspension of its activities shall be taken by the Cabinet of Ministers of Ukraine. In so doing, the Cabinet of Ministers of Ukraine shall have obtained a positive opinion from the NBU regarding the intention to change the size of the state bank authorized capital.

Powers of the executive body of the state bank shall be determined by its by-laws. Candidates for the positions of the Chairman and members of the executive body shall be agreed with the NBU in accordance with the requirements of the present Law.

The bank, established according to the procedure set forth in Part 2 of this Article, has the right to add the word “state” to its name and to use the imprint of the Coat of Arms of Ukraine and the State Flag of Ukraine.

In case a decision has been taken by the State concerning the partial or complete alienation of its shares (stakes) in a state bank, such a bank shall be deprived of the state bank status. The shareholders shall bring the by-laws and activities of this bank in compliance with the requirements of this Law and regulations of the NBU.

Article 8. Cooperative Banks

The cooperative bank shall be established pursuant to the procedures stipulated by the present Law. The Laws on the cooperative societies shall be applied to the cooperative banks to the extent when they do not contradict the present Law.

The cooperative banks shall be established under the territorial principle and divided in the local and central cooperative banks.

The minimum number of shareholders in the local (within an oblast) cooperative bank shall be not less than 50 persons. If this number has decreased and the cooperative bank in question is unable to increase it to the minimum needed within a year, the activity of such a bank shall be terminated by changing its organizational and legal form or through the liquidation.

The local cooperative banks shall be participants in the central cooperative bank.

In addition to the functions stipulated by the present Law, the central cooperative bank shall engage in the centralization and re-allocation of resources accumulated by the local cooperative banks, and supervise the activities thereof at the regional level.

The General Meeting of Shareholders (Stakeholders), the Bank's Council, and the Board shall be the management bodies of the cooperative bank. The Revision Commission shall be the cooperative bank’s control body. The management and control bodies of the cooperative bank shall be set up and exercise their powers in accordance with the present Law.

The authorized capital of the cooperative bank shall be divided into stakes. The minimum size of the cooperative bank authorized capital shall be established by the NBU under the present Law.

Each cooperative bank participant shall have the right to one vote irrespective of the size of his/her participation in the bank capital (stakes).

Cooperative bank profits or losses resulting from the performance in the fiscal year shall be divided among the participants in proportion to the size of their stakes.

The restrictions imposed by the present Law on bank operations with related parties shall not be applicable to operations of the cooperative bank.

Article 9. Consolidated Banking Supervision

Consolidated banking supervision is the supervision realized by the NBU over the banking group with the purpose of ensuring the banking system stability and mitigating the risks a bank faces due to participation in the banking group by means of regulation, monitoring and control of the risks of the banking group according to the procedure established by the NBU.

The NBU, in order to carry out the consolidated supervision, is entitled to determine, within the banking group, subgroups consisting at least of two financial institutions and oversee them on the basis of sub-consolidated supervision.

Criteria for determination of such subgroups shall be set by the NBU regulations.

The NBU is entitled to set requirements to the banking group and/or banking subgroup on the consolidated and sub-consolidated basis regarding:

1) availability of an efficient system of the corporate governance;

2) availability of an efficient system of the risk management;

3) availability of an efficient system of the internal controls;

4) availability of the accounting procedures, information systems necessary to ensure compliance with the requirements on consolidated basis;

5) compilation and procedure of submittal of the consolidated and sub-consolidated reporting;

6) adequacy of the regulatory capital;

7) economic ratios;

8) limits and restrictions regarding certain types of activities, including with regard to the activities on the territory of other countries;

9) procedure of submittal of necessary reporting and data.

An entity or individual intending to become the controller of a banking group shall, via its/his/her authorized person, inform thereof the NBU and submit to the latter the data on such a banking group including on the ownership structure of the banking group and types of activities of the participants therein according to the procedure established by the NBU.

The banking group, subgroup, its participants shall meet the requirements established by the NBU in accordance with this Law.

Non-banking institutions being members of the banking group are subject to the supervision of the NBU within the framework of supervision on the consolidated and sub-consolidated basis according to this Law.

The chief of the bank holding company, his/her deputies, members of the executive body and supervisory council, chief accountant, his/her deputy shall meet the requirements to the managers of banks established by this Law.

The banking group shall choose among its participants a responsible person of the banking group able to ensure compliance with the NBU requirements to the banking group and seek the NBU approval of the selected candidate. In the banking group that includes the parent bank, the parent bank shall be a responsible person.

Approval of the responsible person of the banking group by the NBU shall be done on the basis of the petition that shall contain rationalization of such person appointment together with other documents determined by the NBU.

Before the approval of the banking group responsible person by the NBU or in case the latter has concluded that the responsible person appointed by the banking group is unable to ensure the exercise of the responsible person’s duties, the duties shall be exercised by the banking group participant bank having the highest assets in the last reporting period (quarter).

The banking group participant shall, not later than 10 calendar days after a change in its ownership structure or activity types, inform thereof the banking group responsible person.

The banking group responsible person shall inform the NBU about the changes of the banking group ownership structure and participants’ activity types not later than 30 calendar days after such changes occur.

The banking group responsible person shall ensure meeting by the banking group the requirements established by the NBU in accordance with this Law.

The banking group responsible person shall compile consolidated reporting on the basis of reports of the banking group participants according to the procedure established by the NBU.

The banking group participants shall submit to the banking group responsible person the reports, data and documents necessary for preparation of the consolidated reports as well as ensure meeting the requirements regarding the consolidated supervision.

The total amount of the direct and/or indirect participation of the banking group participants in the authorized capital of an entity that is not a financial institution shall not exceed 15 percent of the consolidated regulatory capital of the banking group.

The total amount of the direct and/or indirect participation of the banking group participants in the authorized capital of all entities that are not financial institutions shall not exceed 60 percent of the consolidated regulatory capital of the banking group.

The amount of banking group participants’ contributions to the capital of an insurance company (insurance companies) shall not be included in the banking group regulatory capital.

The NBU shall control the transactions between the banking group participants.

The NBU shall control the transactions between the banking group participants and their related parties that are not financial institutions. The total amount of the transactions, generating the credit risk, between the banking group participants and their related parties that are not financial institutions shall not exceed 20 percent of the consolidated authorized capital of the banking group. The total amount of the transactions, generating the credit risk, between the banking group participants and a related party of the banking group that is not a financial institution shall not exceed 5 percent of the consolidated authorized capital of the banking group.

List of the transactions generating the credit risk shall be determined by the NBU regulations.

Each banking group participant shall ensure annual audit of the annual financial reporting by an external auditor (audit firm). The banking group responsible person shall ensure annual audit of the annual consolidated reporting of the banking group by an external auditor (audit firm).

The auditor (audit firm) engaged in the audit of the annual financial reporting of a banking group participant, of the annual consolidated reporting of the banking group shall notify the NBU of material distortions in financial statements indicators, violations and operational deficiencies detected during the audit and provision of other audit services, as well as of any other events which could materially influence the solvency, security and reliability of a banking group participant or the banking group as a whole in three days after such events or facts are detected.

The auditor (audit firm) shall, at the request of the NBU, furnish the latter with the working documents related to audit of the annual financial reporting of a banking group participant or annual consolidated reporting of the banking group.

Article 10. Excluded

Article 11. Excluded

Article 12. Excluded

Article 13. Bank Unions and Associations

In order to protect and represent interests of its members, develop interregional and international relations, ensure research and information exchange as well as the professional interests, develop the recommendations related to banking activities, the banks shall have the right to set up non-profit unions or associations.

The unions or associations shall not have the right to perform banking or entrepreneurial activities, and may not be established in order to gain profit.

The association (union) of banks is a contractual association of banks, which has no right to interfere with activity of the member banks of the association (union).

Section ²². ESTABLISHMENT, STATE REGISTRATION, LICENSING AND REORGANIZATION OF BANKS

Chapter 2. ESTABLISHMENT OF BANKS

Article 14. Bank Participants

Resident and non-resident legal entities and individuals, as well as the State in the person of the Cabinet of Ministers of Ukraine or the bodies authorized by it may be participants in a bank.

Owners of qualifying holdings in the bank shall have an irreproachable business reputation and a satisfactory financial standing.

Requirements as to the business reputation and satisfactory financial standing of the founders and shareholders (stakeholders) that are going to acquire a qualifying holding in the bank are established by the NBU.

Legal entities, in which the bank has a qualifying holding, as well as public associations, religious and charity organizations may not become bank participants.

Collective investment vehicles may be the founders of a bank or qualifying shareholders in a bank only if such vehicles are corporate venture capital fund over 75 percent ownership (investment certificates)  of which and over 75 percent ownership (shares) of an asset managing company of which directly and/or indirectly held by one entity or a group of  associates.

Article 15. Name of the Bank

The bank shall have a full and abbreviated official names in Ukrainian and in foreign languages. The bank name shall contain the word “bank,” as well as a reference to the organizational and legal form of the bank.

The bank shall have a seal with its full official name.

The word "bank" and its derivative words may only be used in the name of those legal entities that have been registered by the NBU as a bank and have a banking license. An exception is made for international organizations, which operate on the territory of Ukraine in conformity with the international agreements, ratified by the Verkhovna Rada of Ukraine, and the effective laws of Ukraine.

It is not allowed to use a bank name that repeats the name of an existing bank or misleads one as to the types of activity the bank performs. The use of the words "Ukraine", "State", "Central", "National" and derivatives thereof in the name of a bank is possible only upon consent of the NBU.

The NBU shall have the right to refuse the usage of the proposed name of a bank due to the reasons set forth in this Article.

The bank separate sub-division shall only use the name of the bank of which it is a sub-division. The name of the location of this subdivision may be added to the name of the bank separate sub-division.

Article 16. Bank By-Laws

The by-laws of the bank shall be drawn up with taking into account the provisions of the Civil Code of Ukraine, Economic Code of Ukraine, the present Law and other laws of Ukraine.

The bank by-laws shall contain without fail the following information about the bank:

1) the name (both full and abbreviated) of the bank;

2) the location of the bank;

3) the organizational and legal form of the bank;

4) type of the operations to be performed by the bank;

5) the size and procedure for formation of the bank authorized capital, type of the bank shares, their face value, form of share issuance (documentary or non-documentary), number of shares to be bought by the shareholders;

6) the structure of the bank management, management bodies, their authority and procedure of decision taking;

7) the procedure for reorganization and liquidation of the bank in accordance with Chapters 5 and 16 of the present Law;

8) the procedure for introducing amendments to the bank by-laws;

9) the size and procedure for the formation of reserves (provisions) and other general funds of the bank;

10) the procedure for the profit distribution and cover of losses;

11) the regulations on conducting bank audits;

12) the regulations on bank bodies of the internal audit.

Changes of the bank by-laws shall be subject to the state registration in accordance with the laws on the state registration of legal entities and individual entrepreneurs with taking into account the particularities introduced by the present Law.

Documents on the state registration of the amendments to the bank by-laws shall be submitted after approval thereof by the NBU.

The bank shall submit the documents on approval of the amendments to the bank by-laws related to an increase of the authorized capital of the bank only after full payment of the contributions thereto by the bank participants.

The list of documents and the procedure of approval of the amendments to the bank by-laws shall be established by the NBU.

The decision on approval or denial of the amendments to the bank by-laws shall be taken by the NBU not later than within one month from the moment the full package of documents is submitted.

The NBU shall, in accordance with the procedure established by it, make the respective entry into the State Register of Banks after the state registration of amendments to the constituent instruments.

Chapter 3. STATE REGISTRATION AND LICENSING OF BANKS

Article 17. State Registration of the Legal Entity Intending to Engage in Banking

The state registration of a legal entity intending to engage itself in banking shall be carried out in accordance with the laws on the state registration of legal entities and individual entrepreneurs with taking into account the particularities introduced by the present Law.

A person authorized by the founder shall submit the documents for the state registration of the legal entity intending to engage in banking after approval of the by-laws of this entity by the NBU.

A person authorized by the founder of the legal entity intending to engage in banking, for the approval of the by-laws thereof, shall submit to the NBU together with the application on the by-laws approval the following documents:

1) minutes of the meeting of founders and foundation meeting, agreement on bank establishment or the Resolution on the establishment of a state bank;

2) bank by-laws;

3) copies of the documents specified by the NBU required to identify the founder and all other persons through which the indirect ownership of the qualifying holding in the bank is likely to be exercised;

4) the documents specified by the NBU to draw a conclusion about:

the business reputation of the founder, if the latter is a legal entity, then also that of the members of the executive body and/or supervisory council thereof, as well as of all the persons through which the indirect ownership of the qualifying holding in the legal entity intending to engage in banking is likely to be exercised;

the financial standing of the founding entity as well as the property status of the founding individual;

whether the founder has enough own funds to make the declared contribution to the authorized capital, sources of such funds;

5) documents confirming the full payment of the contributions to the authorized capital by the founders;

6) data on the property structure of the legal entity intending to engage in banking and of the founder obtaining the qualifying holding therein according to the NBU requirements;

7) information, in the form required by the NBU, on the associated persons of the founding individuals;

8) information, in the form required by the NBU, on the legal entities under the management and/or control of the founding individual;

8 1) information , in the form required by the NBU, on the bank’s related parties that fall under criteria defined in part 1 of Article 52 hereof;

9) a copy of the interim certificate of registration of the issue of shares;

10) a conclusion made by the Anti-Monopoly Committee of Ukraine, as provided by the applicable Ukrainian laws;

11) a copy of the payment document confirming payment of the fee for approval of the bank’s by-laws in an amount determined by the NBU.

A person authorized by the founder of the legal entity intending to engage in banking, for the approval of the by-laws thereof, shall submit to the NBU additionally the documents prescribed by the ninth part of Article 34 hereof about the founders being foreign legal entities and by the eleventh part of Article 34 hereof about the founders being foreign individuals. The documents submitted in accordance with the present part shall be executed with taking into account the requirements of the twelfth and thirteenth parts of Article 34 hereof.

The decision on approval or denial of the bank by-laws shall be taken by the NBU not later than within three months from the moment the full package of documents stipulated hereby is submitted. The NBU shall make the decision with taking into consideration the requirements of the fourteenth part of Article 34 hereof.

The NBU has the right to require the submitted documents to be emended.

The founder of the legal entity intending to engage in banking is inhibited from alienating the shares he/she has or imposing liabilities thereon before the legal entity in question obtains the banking license.

The legal entity may obtain the status of a bank and rights to engage itself in banking only after receipt of the banking license and entry of the information about this entity into the State Register of Banks.

Banking without the banking license is prohibited.

The persons, culpable of carrying out banking activities without a banking license, shall bear criminal, civil or administrative responsibility in accordance with the laws of Ukraine.

Article 18. Grounds for Refusal to Approve the By-Laws of the Legal Entity Intending to Engage in Banking

The NBU is entitled to refuse the by-laws approval to the legal entity intending to engage itself in banking provided:

1) submitted has been an incomplete package of the documents necessary for the by-laws approval;

2) the documents contain corrupt data;

3) the documents do not meet the requirements of the Ukrainian laws in effect or NBU regulations;

4) the business reputation of the founder, for the founder being a legal entity also that of its executive board and/or supervisory council members, and all persons through which indirect ownership of the qualifying holding in the bank is likely to be exercised, does not meet the requirements set forth by the NBU;

5) the financial standing of the legal entity being the founder and/or the property status of the individual being the founder do not meet the requirements set forth by the NBU;

6) the founder has not enough own funds to make the declared contribution to the authorized capital;

7) the pattern of ownership of the legal entity intending to engage itself in banking and/or the founder obtaining the qualifying holding therein does not meet the transparency requirements set forth by the NBU;

8) the documents confirming availability of the paid-in authorized capital of the legal entity intending to engage in banking have not been submitted.

The NBU is not entitled to refuse the by-laws approval to the legal entity intending to engage itself in banking on the basis of any grounds not specified in this Article.

Article 19. Banking License

The legal entity intending to engage in banking shall, within one year from the state registration date, submit to the NBU, in accordance with the procedure prescribed herein and regulations of the NBU, documents necessary to obtain the banking license.

The legal entity intending to engage in banking, in order to obtain the banking license, shall submit to the NBU together with the application on the banking license issue the following documents:

2) a copy of the by-laws with the State Registrar’s notation of the state registration of the legal entity;

3) copies of the report registered by the State Commission for Securities and Stock Market on the results of private stock placement and certificate of registration of issue of shares - for the bank established as a public joint stock company;

4) information on the number of members of the Bank's Council, Board, and Revision Committee;

5) the data according to the form established by the NBU that allows to draw a conclusion about:

availability of at least three persons, appointed members of the Board, including the Board Chairman, their fitness and propriety;

professional skills of the chief accountant and the head of internal audit service;

business reputation of the Bank's Council members, chief accountant and the head of internal audit;

availability of the organizational structure and corresponding specialists necessary to ensure rendering of banking and other financial services, banking equipment, computers, software, premises compliant with the NBU requirements;

6) copies of the bank bylaws that govern rendering of banking and other financial services, determine the procedure of internal controls and risk management;

7) business plan for three years compiled according to the NBU requirements;

8) a copy of the payment document confirming payment of the fee for receipt of the banking license in an amount determined by the NBU.

To obtain the banking license, the legal entity intending to engage in banking shall submit at the same time to the NBU all the documents and information stipulated by the present Law.

The decision to grant or to deny the banking license shall be taken by the NBU within two months from the day it has received the full package of the documents prescribed by the present Law. In case of bank reorganization on the basis of provisional administration results the decision on granting the banking license shall be taken by the NBU within three days after receipt of the full package of the documents prescribed by the present Law.

The NBU shall enter the data on the legal entity into the State Register of Banks simultaneously with taking the decision on granting the banking license.

No bank is entitled to transfer its banking license to third parties.

The managers of the bank and the persons with the qualifying holding therein shall meet, during all the time they retain their status in the bank or have the qualifying holding therein, the requirements stipulated by the present Law.

Article 19 1. Reasons for Refusal to Grant the Banking License

The NBU is entitled to refuse to grant the banking license to the legal entity intending to engage itself in banking provided:

1) submitted has been an incomplete package of the documents necessary for the bylaws approval;

2) the documents submitted to obtain the banking license contain corrupt data;

3) the documents submitted to obtain the banking license do not meet the requirements of the Ukrainian laws in effect or NBU regulations;

4) the legal entity intending to engage in banking has applied for the the banking license after more than one year from the date of the state registration thereof;

5) the fitness and/or propriety of at least one manager of the legal entity intending to engage itself in banking and/or of the head of the internal audit thereof do not meet the requirements established by the NBU;

6) less than three persons have been appointed members of the Board, including the Board Chairman; 

7) the banking equipment, computers, software, premises meeting the NBU requirements are absent.

The NBU is entitled to refuse to grant the banking license to the legal entity intending to engage itself in banking, if the founders thereof have not met the requirements of the seventh part of Article 17 hereof.

The NBU shall take legal action for dissolution of the legal entity, if the latter (i.e. the entity intending to engage in banking) has not met the requirements of the first part of Article 19 hereof during one year from the state registration date.

Article 20. Excluded

Article 21. Excluded

Article 22. Excluded

 

Chapter 4. SEPARATE SUBDIVISIONS OF THE BANK

Article 23. Procedure for establishment of separate bank subdivisions on the territory of Ukraine

Any bank shall be entitled to establish the separate subdivisions (branches, banking units, representative offices, etc.) on the territory of Ukraine, if it is not inconsistent with the requirements for establishing separate subdivisions imposed by regulations of the NBU.

The bank shall inform the NBU of establishment of such a separate subdivision.

The NBU shall include the information on bank separate subdivisions to the State Register of Banks upon the written notification from the bank.

The separate subdivision in question is entitled to start its operation after 10 days from the notification of establishment of such a separate subdivision by the bank to the NBU.

In the notification of establishment of a separate subdivision that is to operate on behalf of the bank the latter shall indicate:

1) intrabank registration code of the separate subdivision;

2) full name of the separate subdivision;

3) its place of location;

4) surname, name and patronymic (if applicable) of the separate subdivision’s CEO;

5) volume and types of activities to be performed by the separate subdivision;

6) information of the decision of the bank’s authorized body on the establishment of such a subdivision;

7) the number and approval date of the standing orders of the separate bank subdivision;

8) written assurance of compliance of the separate subdivision with the requirements imposed by this Law and by regulations of the NBU, including those to the premises and equipment of the bank separate subdivision and professional qualification and business reputation of the managers thereof.

The NBU shall have the right to make a decision on termination of the separate bank subdivision operations effected in favour or by order of clients, if the information about establishment of the subdivision furnished by the bank comprises untrue data or if activity of such a separate subdivision fails to meet the requirements of this Law and regulations of the NBU.

The notification about establishment of the separate subdivision that is to exercise functions of the representative office and protect the bank’s interests shall be supplemented by the following documents:

1) decision of the bank’s authorized body on establishment of the representative office;

2) Representative Office Regulation approved by the authorized body of the bank.

The bank is obliged to inform the NBU about changes in the documents and data submitted to meet this Article requirements and to send to the NBU a copy of its decision on amending the Regulation of a separate subdivision within two weeks after approval thereof by the authorized body of the bank.

The bank shall inform the NBU on the decision taken by the bank’s authorized body to close a separate subdivision within seven days after adoption of such a decision and within three days the bank shall inform about the actual termination of the subdivision operation.

Article 24. Procedure for Establishment of Foreign Bank Branches and Representative Offices on the Territory of Ukraine

Foreign banks shall have the right to open branches and representative offices on the territory of Ukraine.

Any foreign bank shall have the right to open a branch in Ukraine, provided:

1) the country where the foreign bank has been registered belongs to the countries that have no admonitions of the respective international bodies on compliance with the international standards in the area of preventing and combating legalization (laundering) of proceeds from crime and terrorism financing;

2) banking supervision in the country where the foreign bank has been registered complies with the Core Principles for Effective Banking Supervision of the Basel Committee on Banking Supervision;

3) the NBU and the supervisory authority of the country where the foreign bank has been registered have signed an Agreement on Cooperation in Banking Supervision, Harmonization of its Principles and Terms;

4) minimum amount of the assigned capital of the branch for the time of its accrediting is not less than 120 million hryvnias;

5) the foreign bank has issued a written commitment to unconditional fulfillment of the obligations arising from its branch activities on the territory of Ukraine.

The NBU shall carry out accreditation of the branches and representative offices of foreign banks on the territory of Ukraine according to the terms and conditions specified in this Law and in regulations of the NBU.

Accreditation of the foreign bank branch shall be effected by means of an appropriate entry in the State Register of Banks and by granting the banking license.

Accreditation of a foreign bank branch shall be the basis for its banking activity.

The following documents shall be submitted for accreditation of a foreign bank’s branch:

1) application of the foreign bank for establishment of a branch specifying its location in Ukraine;

2) document confirming state registration of the foreign bank in its home country;

3) decision by an authorized body of the foreign bank on establishment of the branch;

4) regulation of the branch approved by the authorized body of the foreign bank;

5) information about professional suitability and business reputation of the manager and chief accountant of the foreign bank’s branch;

6) a copy of bylaws of the foreign bank;

7) financial statements of the foreign bank for the last three years approved by an independent auditor;

8) written permit for establishment of a foreign bank branch in Ukraine granted by a state or other authorized regulatory body of the country where the foreign bank has been registered or a written assurance of the foreign bank as to absence of any legal requirements to obtain such a permit;

9) notification from the supervisory authority of the foreign country on effecting the supervision of the foreign bank’s activities;

10) written obligation of the foreign bank on unconditional fulfillment of the obligations arising from its branch activities in the territory of Ukraine.

11) documents confirming transfer of funds in an amount of the assigned capital of the branch;

12) a copy of the payment order for transferring the fee for accreditation of the foreign bank’s branch as charged by the NBU;

13) copies of the bank bylaws (a list thereof) that govern rendering of banking and other financial services, determine the procedure of internal controls and risk management;

14) the information under the form established by the NBU enabling to effectuate a conclusion on availability of the organizational structure and corresponding specialists necessary to ensure rendering of banking and other financial services, banking equipment, computers, software, premises compliant with the NBU requirements;

15) business plan for three years compiled according to the NBU requirements;

16) the documents specified by the NBU enabling to effectuate a conclusion on the business reputation of the foreign bank;

17) data determined by the NBU with regard to the owners of qualifying holdings in the foreign bank in question;

Activity of the foreign bank branch shall meet the requirements set by this Law and regulations of the NBU. The NBU shall regulate activity and set the economic ratios for foreign banks’ branches according to the requirements of the Ukrainian laws.

The NBU shall have the right to refuse accreditation of a foreign bank’s branch on the following grounds:

1) the documents submitted are non-compliant with the requirements of this Law and regulations of the NBU;

2) premises and equipment of the branch do not meet the requirements of the NBU;

3) candidates for the positions of the manager and chief accountant of the branch do not meet the proficiency and business reputation requirements of this Law and regulations of the NBU;

4) financial or legal problems have been detected in activity of the foreign bank, which might have negative consequences for clients or potential clients of the bank as a result of establishment of the branch.

The NBU shall make a decision on the foreign bank’s branch accreditation or refusal within three months from submittal of all required documents. The rejection shall be delivered in writing with indication of the corresponding reasons.

The foreign bank’s branch shall operate in compliance with the requirements imposed by the laws of Ukraine on banks.

The NBU shall have the right to initiate the liquidation of a foreign bank branch, in the order stipulated by the laws of Ukraine.

Accreditation of the representative office of a foreign bank shall be effected by means of an appropriate entry in the State Register of Banks.

The following documents shall be submitted for accreditation of a foreign bank’s representative office:

1) application of the foreign bank on establishment of the representative office signed by an authorized person;

2) document confirming state registration of the foreign bank in its home country;

3) regulation (standing orders) of the representative office approved by the authorized body of the foreign bank;

4) Power of Attorney from the foreign bank to the representative office Head for exercising representative functions;

5) a copy of the payment document on transfer of the fee for accreditation of the foreign bank’s representative office as charged by the NBU.

The NBU may refuse to provide a foreign bank’s representative office with accreditation in case of violations of the registration procedure, non-conformity of the submitted documents with the laws of Ukraine or with regulations of the NBU, untrue information submitted or exceeded authority in relation to the spheres of activities of the representative office.

The NBU shall make a decision on the foreign bank’s representative office accreditation or refusal thereof within one month from submittal of all required documents.

The rejection shall be delivered in writing with indication of the corresponding reasons.

The NBU is entitled to annul the accreditation of any foreign bank’s representative office by means of exclusion of the corresponding entry in the State Register of Banks as per the procedure established by the NBU.

The foreign bank shall inform the NBU of any amendments to the documents or information mentioned in paragraphs 4 – 6, 14-17 of the sixth part and paragraphs 3 and 4 of the fourteenth part of this Article. The amendments shall be proved by appropriate documents.

The official documents submitted to the NBU shall have been duly legalized pursuant to the established procedure, unless otherwise is provided by the effective international agreements, ratified by the Verkhovna Rada of Ukraine, and shall be accompanied with a notarized translation into Ukrainian.

Article 25. Subsidiary Banks, Branches and Representative Offices of a Ukrainian Bank on the Territory of Other Countries

Ukrainian banks are entitled to establish (also through acquisition) subsidiary banks, branches and representative offices on the territory of other countries on the basis of the NBU permit. The same requirements are set forth for opening subsidiary banks, branches and representative offices of Ukrainian banks in the territory of other states as those for opening branches and representative offices of the banks in the territory of Ukraine, provided the NBU has granted the permit for investments abroad in connection with the establishment of a branch or a representative office of the bank on the territory of other country.

In order to establish a subsidiary bank, branch or representative office of a Ukrainian bank abroad, the bank shall provide the NBU with a business plan and economic justification for establishing the subsidiary bank, branch or representative office of the bank abroad.

The NBU is entitled to deny the bank the permit to establish a subsidiary bank, branch or representative office of the bank on the territory of other country, in case the bank has not met the requirements of the NBU regulations regarding the establishment of subsidiaries, branches or representative offices of banks in Ukraine as well as in case the banking supervision in the country in question does not comply with the Core Principles of Banking Supervision of the Basel Committee on Banking Supervision.

The subsidiary bank, branch or representative office of a Ukrainian bank in the territory of other country shall undergo registration in conformity with the legislation requirements of the respective country.

Within one month the bank shall inform the NBU of opening of a subsidiary bank, branch or representative office in the territory of other country and provide copies of the appropriate documents on their registration.

Ukrainian banks shall ensure submittal of reports and data by the subsidiary or branch established on the territory of other countries to the parent bank and NBU in accordance with the requirements of the latter regarding the consolidated supervision.

The NBU is entitled to require any Ukrainian bank to decrease the participation in its subsidiary bank capital, to close a subsidiary bank or branch established on the territory of other countries, in case the NBU does not receive the data necessary to carry out the consolidated supervision or if the supervision over the subsidiary banks or branches established on the territory of other countries by a Ukrainian bank is inefficient, in particular it does not comply with the Core Principles for Effective Banking Supervision of the Basel Committee on Banking Supervision.

Chapter 5. REORGANIZATION OF A BANK

Article 26. Ways of Bank Reorganization

A bank may be reorganized by a decision of its owners.

The reorganization may be carried out by a merger, takeover, splitting, separation and transformation.

In the case of bank reorganization through transformation the provisions of law on legal entity winding-up shall not apply. In the course of the bank reorganization through transformation the creditors are not entitled to require from the bank to terminate or fulfill before the appointed time any obligation.

Article 27. Conditions for Bank Reorganization

The reorganization upon the decision of bank owners shall be carried out in accordance with the laws of Ukraine on companies (economic partnerships) provided the prior permit has been obtained from the NBU and the bank reorganization plan has been approved by the NBU.

Should a bank be reorganized through transformation upon decision of the bank owners, the bank reorganization plan is not indispensable.

The NBU shall determine the list of documents to be submitted in order to obtain the permit for reorganization and approval of the bank reorganization plan.

The NBU shall not give the permit for the bank reorganization in the event there are sufficient grounds to believe that the reorganization poses a threat to the interests of depositors and other creditors, and the bank, established as a result of the reorganization, and/or the bank remaining a legal entity as a result of takeover by or separation from it is likely to fail to meet the requirements regarding economic ratios, bank registration and licensing procedure.

The NBU shall grant the permit or issue a rejection for the reorganization of the bank within one month from the moment the application of the bank for reorganization is received.

Article 28. Decision on Reorganization

The decision on reorganization of a bank, with the exception of transformation, shall include the following data on:

1) an agreement on reorganization in case of a merger or takeover;

2) the appointment of commission members to carry out the reorganization;

3) the appointment of members of the Revision Commission to take an inventory and review valuables in the books of the bank (banks);

4) the appointment of the auditor;

5) the timetable for reorganization;

6) the Board composition after the reorganization.

The reorganization shall begin after the NBU approves the reorganization plan, which, apart from all other necessary measures, shall provide for submitting to the NBU the appropriate documents necessary for approval of the new bank’s bylaws or amendments to the bylaws of the existing bank.

Article 29. Agreement on Merger or Takeover

The agreement on merger or takeover shall be concluded in writing by the banks being reorganized through the merger or takeover.

The agreement on merger or takeover shall contain provisions that regulate the issues set forth in Article 28 of the present Law.

The agreement on merger or takeover shall enter into force the moment it has been approved by a 2/3 majority of shareholders (participants) at the general meeting of each of the banks.

Section ²²². CAPITAL, GOVERNANCE AND REQUIREMENTS TO ACTIVITIES OF BANKS

Chapter 6. CAPITAL, FUNDS AND RESERVES OF A BANK

Article 30. Bank regulatory capital composition

The bank regulatory capital shall include:

1) core capital;

2) additional capital.

The core capital of any bank shall include the authorized capital and disclosed reserves (provisions) that are formed or increased at the expense of the retained profit, share premiums and additional contributions of shareholders to the capital, the general risk provisioning fund formed for for the unspecified business risk in banking operations, with the exception of losses in the current year and intangible assets. The disclosed reserves also include other funds of the same quality, which shall correspond to the following criteria:

1) payments to the funds shall be made from the profits after taxation or from profits before taxation, adjusted for all potential tax obligations;

2) the funds and cash inflow and outflow shall be separately disclosed in the published statements of the bank;

3) the bank shall have the funds available to cover losses to be instantly used in unlimited amounts if losses are incurred;

4) the losses may not be covered directly from the funds. They shall be entered to the profit and loss account.

If approved by the NBU, the additional capital may include:

1) undisclosed reserves (apart from the fact that such reserves are not shown in the published balance sheet of the bank, they shall be of the same quality and nature as the disclosed capital reserve);

2) revaluation reserves (fixed assets and unrealized value of the “hidden” revaluation reserves resulting from long-term holding of the securities recorded in the balance sheet at the historical cost of their acquisition);

3) hybrid (debt/capital) capital instruments that shall meet the following criteria:

they are unsecured, subordinated and fully paid;

they may not be repaid on the initiative of the owner;

they may freely participate in the cover of losses without demanding that the bank terminates trading transactions;

they allow delay in servicing obligations as to the interest payments in case the level of profitability does not allow performing such payments;

4) subordinated debt (ordinary unsecured by the bank debt capital instruments, which under contract conditions may not be withdrawn from the bank earlier than after a 5 year period, and in case of bankruptcy or liquidation shall be returned to investors after reimbursement of claims of all other creditors). In such a case, the amount of subordinated debt included into capital shall annually decrease by 20% of its initial value within the last 5 years of the contract.

In case the subordinated debt has been in a foreign currency of the first group of the Foreign Currency Classifier of the NBU, it shall be included in calculation of capital at the official exchange rate of the NBU as at the reporting date.

The NBU has the right to determine, in the form of its resolutions, other components of the regulatory capital as well as conditions and the procedure for its formation.

The additional capital may not exceed 100% of the core capital.

Article 31. Size of the Authorized Capital at the Moment of State Registration of the Legal Entity Intending to Engage in Banking

The minimum size of the authorized capital at the moment of state registration of the legal entity intending to engage in banking shall not be less than UAH 500 million.

The NBU shall have the right to establish for some legal entities intending to engage themselves in banking, depending on their specialization, a differentiated minimum size of the authorized capital at the moment of state registration of them. This size shall not be less, however, than the amount specified in this Article.

Article 32. Procedure for Bank’s Authorized Capital Formation and Increase

The authorized capital of a bank shall be formed in accordance with the requirements of the present Law, the legislation of Ukraine and foundation documents of the bank.

The formation of the authorized capital and bank capitalization may be carried out through money contributions, except the cases envisaged by the Law of Ukraine “On Priority Measures to Avoid Negative Consequences of the Financial Crisis and Amendments to Some Acts of Law of Ukraine” during its effect period. The money contributions for the formation and increase of the authorized capital of a bank by Ukrainian residents shall be made in hryvnias, whereas non-residents may pay the contributions in a foreign freely convertible currency or in hryvnias.

The authorized capital of the bank shall not be formed from unverified sources.

The legal entity intending to engage itself in banking, before receipt of the banking license and entry of the data on it into the State Register of Banks, is entitled to spend the funds contributed by the founders thereof in order to form the authorized capital thereof only with the purpose of preparing itself for performing the banking operations.

A bank shall not have the right to reduce the size of the regulatory capital lower than the established minimum without approval of the NBU. This requirement shall not be applied to a newly established bank during one year from the date of receipt of the banking license by the bank in question.

It is prohibited to use budget funds for the bank authorized capital formation if these funds are earmarked for other purposes.

In the case of decrease of total amount of deposits in the banking system by five or more percent during the term up to six calendar months the NBU by its decision introduces (cancels) simplified procedure for registration of the issue of shares, the NBU approval of the amendments to the bank by-laws, state registration of the amendments to the bank by-laws. According to the semplified procedure:

- date of submittal of the decision on bank’s capitalization, amendments to the bank’s by-laws to the National Securities and Stock Market Commission shall be deemed the date of issue registration;

- date of submittal of amendments to the bank’s by-laws for approval to the NBU and for registration to the State Registrar shall be deemed the date of their approval by the NBU and the date of registration by the State Registrar respectively;

- date of submittal of the documents for registration of share issue of the bank shall be deemed the date of issue registration.

The date of submittal of respective documents to the NBU, State Registrar and National Securities and Stock Market Commission shall be determined in accordance with an incoming stamp of the respective public authority (registration index).

- Antimonopoly Committee of Ukraine, in cases specified in part seventh of thei article, shall issue a conclusion and/or permit for concentration within five business days since the date of submittal of the respective documents by the bank.

Article 33. Bank Shares and Stakes

Banks may issue their own shares in compliance with the Ukrainian legislation on companies (economic partnerships) as well as securities with taking into account the peculiarities defined by the present Law.

Banks are not allowed to issue the shares to bearer.

Existence of bank losses is not an obstacle for an increase of the bank’s authorized capital.

Banks shall have the right to purchase their own shares or stakes with further written notification to the NBU of the contracts concluded, which shall be sent within 5 days after the date of signing the contract. The banks may not purchase their own shares if this can lead to a decrease in the regulatory capital to a level lower than the floor.

The bank shall, 15 calendar days prior to signing such a contract, notify the NBU in writing of its intention to acquire 10 and more percent of own shares or stock of the total issue. The NBU shall have the right to prohibit such purchase of bank’s own shares or stock if this can result in a deterioration of the bank’s financial standing.

The bank may offer its shares to the first owners directly or through underwriters. The Bank shall be permitted to act as an intermediary for the purchase and sale of its own shares or stakes.

Article 34. Qualifying Holding

A legal entity or an individual intending to acquire a qualifying holding in a bank or to increase it so that this entity could, directly and/or indirectly, alone or jointly with other entities, hold 10, 25, 50, 75 or more percent of the bank’s authorized capital or voting shares in the bank’s authorized capital and/or could influence the bank’s management or activities in a significant manner, regardless of whether this entity is the formal owner of the bank, shall be required to notify both the bank in question and the NBU of its intentions three months prior to the acquisition or increase of the qualifying holding.

The entities listed in Part 1 of the Article shall be required to furnish the NBU, along with the notification, with a complete set of the documents specified by this Law and NBU regulations.

The NBU shall consider the documents specified in the Article within three months from the day of receipt of the complete set of the appropriate documents. If the bank mentioned in the first part of this Article holds a license as a stock market professional, the NBU shall inform the National Securities and Stock Market Commission about the mentioned entities intending to acquire or increase a qualifying holding in such bank.

The NBU shall communicate (send) decisions to prohibit the relevant entity from acquiring or increasing the qualifying holding in a bank and the rationale behind the prohibition.

In the event that the NBU has not informed the relevant entity of its decision to prohibit it from acquiring or increasing the qualifying holding in a bank within the time limit applicable under Part 3 of the Article, the acquisition or increase shall be deemed approved.

The entities listed in Part 1 of the Article shall be required to notify the bank of the approval given by the NBU to acquire or increase the qualifying holding in the bank and provide information about their ownership structure and the percentage of qualifying holding in the bank.

A legal entity or individual intending to transfer its qualifying holding in a bank to any other entity or individual or to decrease the holding so that its percentage in the bank’s authorized capital or its voting right would be lower than the levels envisaged in Part 1 of the Article, or to transfer control of the bank to another entity shall be required to notify thereof, as applicable, both the bank and the NBU.

A legal entity intending to acquire or increase the qualifying holding in a bank shall be required to furnish, as applicable, both the bank and the NBU with:

1) the documents specified by the NBU which confirm that the legal entity intending to increase its qualifying holding in a bank has a qualifying holding in the bank;

2) the documents specified by the NBU to establish:

the business reputation of the legal entity, its executive board and supervisory council members, entities that have a qualifying holding and all entities through which indirect ownership and/or control of the qualifying holding in the bank are likely to be executed;

the financial standing of the said entity;

whether the entity has enough own funds to make the intended contribution to the bank’s authorized capital, sources of such funds;

3) copies of the documents specified by the NBU required to verify the identity of the legal entity and all other entities through which indirect ownership and/or control of the qualifying holding in the bank are likely to be executed;

4) information about its pattern of ownership according to the requirements of the NBU;

5) a conclusion made by the Anti-Monopoly Committee of Ukraine, as provided by the applicable Ukrainian laws.

A foreign legal entity intending to acquire or increase the qualifying holding in a bank shall be required to additionally furnish the NBU with the following documents:

1) a copy of the decision made by the authorized management body of the foreign legal entity in relation to the holding in a Ukrainian bank;

2) a written permit to have a holding in a Ukrainian bank granted to the foreign legal entity by the authorized control agency in the country where the head office of the foreign legal entity has been registered, if the laws in effect in that country require that such a permit be obtained, or written assurance of the said foreign legal entity that the laws in effect in that country do not require that such a permit be obtained;

3) an excerpt from the trade, banking or court registry or any other official document which confirms the registration of the foreign legal entity in the country where its head office has been registered;

4) a copy of the auditor’s report produced by a foreign auditor confirmed by a Ukrainian audit firm on the financial standing of the foreign legal entity as of the end of the last complete calendar year.

An individual intending to acquire or increase the qualifying holding in a bank shall be required to furnish, as applicable, both the bank and the NBU with:

1) the documents, specified by the NBU, which confirm that the individual intending to increase his/her qualifying holding in a bank has a qualifying holding in the bank;

2) the documents, specified by the NBU, to establish the business reputation of the individual and all persons through which indirect ownership of the qualifying holding in the bank is likely to be exercised;

3) the documents, specified by the NBU, to establish the property status of the individual and all persons through which indirect ownership of the qualifying holding in the bank is likely to be exercised;

3 1) the documents, specified by the NBU, to establish the sources of the funds used by an individual to acquire or increase the qualifying holding in a bank;

4) copies of the documents required to verify the identity of the individual and all other persons through which indirect ownership and/or control of the qualifying holding in the bank are likely to be exercised;

5) information to be provided under the form developed by the NBU on the associated persons of the individual;

6) the information to be provided under the form developed by the NBU on the legal entities where the individual in question is a manager and/or controller.

A foreign individual intending to acquire or increase the qualifying holding in a bank shall additionally furnish the NBU with a written permit to have a holding in a Ukrainian bank granted by the authorized control agency in the country where the person has permanent residence, if the laws in effect in that country require that such a permit be obtained, or written assurance that the laws in effect in that country do not require that such a permit be obtained.

The documents which are listed in this Article and to be submitted by the foreign legal entity and the foreign individual shall be notarized in the country in which they have been issued and legalized, as applicable, unless otherwise specified by the international treaties ratified by the Verkhovna Rada of Ukraine.

In case the documents listed in this Article are written in a foreign language, they shall be supplemented with a notarized translation into Ukrainian.

The NBU shall approve the acquisition or increase of the qualifying holding by a foreign legal entity and individual provided that:

1) the country where the foreign entity has been registered (has permanent residence) adequately complies with the international anti-money laundering and anti-terrorism financing standards;

2) banking supervision in the country where the foreign entity has been registered (has permanent residence) adheres to the Core Principles of Banking Supervision of the Basel Committee on Banking Supervision based on assessments made by the relevant international authorities.

3) paragraph 3 of the first part of Article 34 excluded

The NBU shall have the right to prohibit a legal entity or an individual from acquiring or increasing a qualifying holding in a bank in the event:

1) an incomplete set of documents has been submitted, or the documents provide inadequate information, or do not meet the requirements of the Ukrainian laws in effect or NBU regulations;

2) the business reputation of the entity, for the legal entity also that of its executive board and/or supervisory council members, entities that have a qualifying holding in it and all entities through which indirect ownership and/or control of the qualifying holding in the bank are likely to be  executed does not meet the impeccability requirements set by the NBU;

3) the financial standing of the legal entity and/or the property status of the individual and all other persons through which indirect ownership on the qualifying holding in the bank is likely to be exercised does not meet the requirements set by the NBU;

4) the entity has no own funds to acquire or increase the qualifying holding in a bank;

5) the acquisition or increase of the qualifying holding in a bank by the entity threatens the interests of depositors and other creditors of the bank or runs counter to the Ukrainian anti-monopoly laws;

6) the pattern of ownership of the legal entity does not meet the transparency requirements set by the NBU.

A legal entity that has a qualifying holding in a bank shall be required to notify, as applicable, the NBU of all changes to its pattern of ownership and also to furnish it with information about the business reputation of its newly appointed managers within a month of the date on which the said changes occur.

An individual that has a qualifying holding in a bank shall be required to notify, as applicable, the NBU of all changes to the information it is required to furnish under this Article.

The NBU shall have the right to establish whether there is a significant or decisive influence on the management or activities of the legal entity.

Article 35. Capital Adequacy Ratio

The bank and each owner of a qualifying holding in the bank shall maintain the regulatory capital adequacy ratio at a level established by the NBU.

The NBU has the right to set a minimum ratio of the core capital to the total assets.

The NBU also has the right to set a minimum ratio of the regulatory capital to the total liabilities of the bank.

The NBU, taking into account the needs to ensure stability of the banking system as well as compliance with the internationally accepted principles and standards, may determine the minimum size of the regulatory capital of the bank, minimum value and calculation procedure for the regulatory capital adequacy ratio, the ratio of the regulatory capital to the total assets and the ratio of the regulatory capital to liabilities of the bank.

The bank shall submit to the NBU the action plan for recovery of the regulatory capital level, should the level have decreased to the minimum determined by the NBU. The action plan shall be submitted by the bank during 10 days after the decrease of the regulatory capital level is discovered and determine the procedure and deadlines of the measures to be taken.

The bank shall be prohibited from paying dividends or distributing capital in any other way, if such payments or distribution result in a violation of the regulatory capital adequacy ratio and/or core capital adequacy ratio.

The bank is entitled to pay dividends once a year on the basis of the calendar year results at the expense of the reporting year profits that remain available for the bank. The bank shall pay the dividends in accordance with the procedure prescribed by the bank bylaws.

Article 36. Reserves and Other Funds of the Bank

Banks shall form a reserve fund to cover possible unforeseen losses in all asset items and off-balance sheet liabilities.

The allocations to the reserve fund shall not be less than 5% of the bank’s profit until the reserve fund reaches 25% of the bank’s regulatory capital.

Should the activity of the bank pose a threat to interests of depositors and other creditors of the bank, the NBU has the right to require an increase in reserves and annual contributions thereto.

Banks shall form other funds and reserves to cover losses in assets in conformity with the NBU regulations.

Chapter 7. BANK MANAGEMENT

Article 37. Bank Management and Controlling Bodies

The supreme management body of the bank shall be the General Meeting of Shareholders which decides on all the issues of the bank’s activity.

The executive body of the bank performing the day to day management of the bank shall be bank’s board.

A bank shall be obliged to establish a body to control the executive body, protect the depositors, other creditors and bank’s participants. This body according to the constituent documents may have one of the following names: “bank’s council” “supervisory council of the bank”, or “supervisory board of the bank” (hereinafter - bank’s council). The bank’s council shall not perform the the day to day management of the bank.

The distribution of responsibilities between governing bodies of the bank shall ensure an effective system of internal control.

In order to be efficient the internal controls of a bank shall include:

1) management control over compliance with the legislation of Ukraine and internal procedures of the bank;

2) distribution of responsibilities when performing bank’s activity;

3) control of the risk management system;

4)  control of information security and exchange of information;

5) internal control procedures;

6) internal control system monitoring;

7) internal audit procedures.

The members of bank’s council and bank’s board are also responsible for bank’s activity within their competence.

The members of bank’s council and bank’s board shall be obliged to refuse to participate in taking decisions if a conflict of interest does not allow them to fully perform their duties in the interests of the bank, its investors and participants.

Article 38. General Meeting of Bank’s Shareholders

The General Meeting of bank participants shall have the exclusive authority to take decisions on the following matters:

Definition of basic trends in bank’s activities and approval of reports on the implementation thereof.

2) Introduction of amendments to the bank’s Charter;

3) Changes in the size of the bank’s authorized capital;

4) election and revocation of the bank’s council members, approval of terms and conditions of civil -law and labor agreements enterered into with them, setting the amount of their compensation, including incentive and compensatory payments, the election of the person authorized to sign the civil-law contracts with members of bank’s council;

5) approval of annual results of bank activities including those of the bank subsidiaries, report of bank’s council, the bank’s board, revision commission of the bank (if established) as well as approval of the measures taken on the basis of conclusions of the external auditors;

6) cover of losses and profit distribution;

7) approval of of annual dividends amount;

8) Approval of regulations on the general meeting of the bank’s participants and amendments thereto;

9) approval of principles (code) of the corporate governance of the bank;

10) Approval of regulations on the revision commission (if established) and amendments thereto;

11) change of the organizational and legal form of the bank;

12) placement of shares, split or consolidation of shares;

13) buying back the shares placed by the bank;

14) cancellation of bank’s shares;

15) termination of the bank, election of liquidation commission (liquidator) of the bank, approval of the liquidation balance.

The bank’s charter may include other issues within the competence of the General Meeting of Shareholders. The bank’s charter may include powers which are not within exclusive authority of the General Meeting of Shareholders of the bank, to the bank’s council authority unless otherwise provided by the law.

The NBU has the right to request the convocation of the extraordinary general meeting of bank’s participants.

Any decision of the General Meeting of Shareholders of the bank shall be made void, if it has been taken with making use of the voting rights of the shares (stakes) held or controlled by the persons whom the NBU has incapacitated from voting under the shares (stakes) above.

Article 39. Bank’s Council

The Bank’s Council shall be elected at the General Meeting of Shareholders from among the bank participants, their representatives and independent members in the quantity of at least five persons.

The members of the bank Supervisory Council may not be the members of the Board, as well as hold other positions in the bank on the terms of employment agreement.

At least one-fourth of the Bank’s Council members shall be independent (this does not apply to the cooperative banks).

Member of the bank’s council which is associated person of member of the board, representative of congenerous or affiliated parties of the bank, shareholder of the bank or its representative can not be considered independent.

The following functions are within exclusive authority of the bank’s council:

1) approval of the bank's strategy according to the key activities defined at the general meeting of bank’s participants;

2) approval of bank’s budget, including internal audit budget and business plan of bank’s development;

3) definition and approval of the risk management strategy and policy, the procedures of risk management, as well as risk list and its thresholds.

4) ensuring functionning of the internal control system of the bank and monitoring of its effectiveness;

5) control of the risk management system efficiency;

6) approval of the plan for recovering the activity of the bank;

7) definition of sources of capitalization and other types of financig of the bank;

8) definition of bank’s credit policy;

9) definiton of organizational structure of the bank, including internal audit;

10) approval of the internal regulations governing the activity of the structural subdivisions of the bank;

11) appointment and dismissal of the chairman and members of bank board, chief of internal audit;

12) control over bank’s board activity, offering suggestions on its improvement;

13) definition of working procedures and plans of internal audit and control over its activity;

14) designation of audit company to perform external audit, aproval of the terms and conditions of the agreement entered into with such audit company, setting the amount of payment for services;

15) analysis of the bank’s external audit report and preparation of recommendations to the General Meeting of Shareholders of the bank to make a decision on it;

16) control over elimination of deficiencies identified by the NBU and other state authorities performing within their competence the bank's activity, bank’s internal audit and the audit company, basing on the external audit results;

17) adopting the decisions on establishment of, participation in, reorganization and liquidation of subsidiaries, establishment of separate subdivisions of the bank, approval of their charters and regulations;

18) approval of terms and conditions of civil-law and labor agreements enterered into with the members of bank’s board and employees of internal audit, setting the amount of their compensation, including incentive and compensatory payments;

19) ensuring timely submission (publication) by the bank of the accurate information about its activities in accordance with the law;

20) the convocation to the general meeting of the bank’s participants, preparing the agenda of the general meeting of the bank's shareholders, deciding on the date of convocation to the general meeting;

21) informing about convocation to the general meeting of the bank’s participants according to the law;

22) taking the decision on the securities placement by the bank, except shares;

23) taking the decision on the buying back the securities placed by the bank, except shares;

24) taking the decision to sale the shares already purchased ba the bank;

25) resolution of issues on the participation of the bank in groups;

26) taking decisions on significant agreements in accordance with the law;

27) taking decision on choosing (replacement) of depository and / or clearing institution, approval of the terms and conditions of the agreement entered into with such institution, setting the amount of payment for services;

28) in cases provided by law, sending offer to shareholders to purchase their shares;

28 1) approving the procedure for operations with the bank’s related parties;

29) exercise of other powers under the charter.

Bank’s Council shall take steps to prevent and manage conflicts of interest in a bank.

The Bank’s Council shall be obliged to inform the NBU about conflicts of interest arising in the bank.

The Bank’s Council shall be obliged to ensure the efficient relations with the NBU.

The National Bank of Ukraine has a right to require termination of powers of a member of the bank’s council if he perform his functions improperly.

The NBU has the right to request the convocation of the extraordinary meeting of bank’s council.

The Bank shall be obliged to annually, not later than on April 30, and at the request of the NBU to provide to the  NBU, within its authority to perform the banking supervision, the information about the issues discussed at the meeting of the bank’s council and decisions made on them and a list of members of the bank’s council present at the meeting.

Article 40. Bank’s Board

The chairman of the board shall be at the head of the board of the bank, he manages the board’s activity and has a right to represent the bank without commission.

Deputy chairmen of the bank’s board shall be members of the bank’s board due to their official capacity.

The chairman of the bank’s board shall bear personal responsibility for the bank’s activity.

The chairman of the bank’s board has a right to participate in the meeting of the bank’s council with the right of the deliberative vote. The chairman of the board may not chair the structural subdivisions of the bank.

The following functions are within authority of the bank’s board:

1) ensuring the preparation of draft budget of the bank, bank's strategy and business plan of the bank’s development to be approved by the bank’s council;

2) realization of the bank’s strategy and business plan of the bank’s development;

3) definition of the form and setting the procedure of the monitoring of the bank’s activity;

4) realization of the strategy and policy of the risk management approved by the bank’s council, ensuring the implementation of the procedures of the risks detection, assessment, control and monitoring;

5) formation of the bank’s organizational structure defined by the Bank’s Council;

6) development of regulations governing the operation of structural divisions and subsidiaries of the bank according to the bank's development strategy;

7) ensuring the security of the IT systems of the bank and systems used for safekeeping of clients’ assets;

8) informing of the bank’s council about financial indicators of the bank’s activity, identified violations of the laws, the bank bylaws and about every weakening of financial standing of the bank or threat of such weakening, about the level of risks arising during bank’s activity.

9) resolution of other issues related to the management of the daily operations of the bank, except matters within the exclusive competence of the General Meeting of the Shareholders and the Bank's Council.

Article 41. Excluded

Article 42. Requirements to the Bank Managers

Managers of the bank shall be the Chairman, his/her Deputies and Members of the Bank Council, the Chairman, his/her Deputies and Members of the Board, Chief Accountant, his/her Deputies and Managers of separate bank subdivisions.

The managers of bank (except members of Bank's Council) shall be individuals who have:

1) higher education in economics, management (governance) or law;

2) not less than three years of work experience with the relevant occupation;

3) irreproachable business reputation.

The Bank's Council not less than for one-fourth should consist of individuals who have a higher education in economics or law. Other members of the Bank's Council should have higher education and education in management (governance). The members of Bank's Council shall have irreproachable business reputation. At least one member of the Bank's Council, who has a degree in economics or law, shall have at least three-year experience in the banking system in senior positions.

The fit and proper requirements to the bank managers and their business reputation shall be set by the NBU.

The chairman of the board of the bank and the chief accountant of the bank shall take office after the NBU gives its consent thereto in writing. Members of the Bank's Council and board within one month after the appointment (election) to the position shall provide to the NBU documents proving their professional skills and business reputation.

The Chairman, Members of the Board and Chief Accountant of the bank shall be prohibited to hold positions in other legal entities (except for subsidiaries, banking unions and associations).

The NBU has the right to receive for free from state authorities, other legal entities the information necessary to determine or confirm the business reputation of bank managers.

During 20 days from the date of receipt of the NBU request the state authorities, other legal entities shall provide the relevant information.

NBU shall have the right to demand the replacement of any of the bank managers if his professional skills and business reputation do not meet the requirements of this Law.

Bank managers shall be obliged to act in the interests of the bank, to comply with the law, charters and other documents of the bank.

Bank managers are responsible to the bank for damages caused to the bank by their actions (or inaction) in accordance with the law. If under this article the responsibility is borne by several persons, their responsibility to the bank is united.

Article 43. Obligations in Respect to Protection of Bank Interests

Bank managers, in exercising their duties under the present Law, shall act in the best interests of the bank and its clients, and shall place the bank’s interests before their own.

In particular, the bank managers shall:

1) demonstrate due professional care in the performance of their duties;

2) make decisions within the powers vested;

3) take no advantage of their professional status for their personal benefit;

4) ensure preservation and transfer of the bank property and documents when bank managers are dismissed.

Article 44. Risk Management

The bank shall create a comprehensive and adequate risk management system, which shall take into account the peculiarities of the bank activity, and requirements for risk management set by the National Bank of Ukraine  Risk management system shall ensure detection, identification assessment, monitoring and control over all types of risks at all organizational levels and estimation of capital adequacy to cover all types of risks.

The systemic bank taking into account the areas of its activity and pertaining risks shall be obliged to develop the plan of recovery of its activity in line with the requirements established by the NBU.

A bank shall be obliged to establish a permanent risk management unit which is responsible for the development and introduction of internal risk management regulations and processes according to the the strategy and policy of the risk management approved by the bank’s council.

The risk management unit shall be accountable to the Bank's Council and separated from the internal audit, units performing operations and units registering operations.

In order to ensure the risk management, the bank shall create permanent committees, in particular:

1) credit committee;

2) credit committee, assets and liabilities management committee.

A bank has a right, depending on the difficulty level and transaction volumes, to create other committees.

One person may not combine the post of chairman of the credit committee and the post of chairman of the risk management unit.

Article 45.Internal Audit of Bank

Banks shall establish the internal audit unit, which shall be a part of the internal control system.

NBU shall set the requirements for the professional training of internal audit staff.

The internal audit shall be accountable to the Bank's Council and report to it, acting on the basis of the regulation approved by the Bank's Council.

Organization and working procedures of the internal audit shall be set centrally by the parent bank for its subsidiaries. The internal audit function of the bank’s subsidiaries may be performed by internal audit of the parent bank.

The internal audit shall exercise the following functions:

1) checking and evaluation of the effectiveness of risk management systems, conformity of these systems to the volumes and types of operations performed by the bank, and the bank's internal control;

2) review of the process of capital adequacy assessment considering the bank’s risks;

3) monitoring of compliance of the bank managers and employees with the laws and internal regulations of the bank approved by the Bank's Council;

4) assessment of the information and technical support of governance and performance of operations;

5) review of compiling and correctness of the accounting and financial reporting;

6) review of the financial and economic activity of the bank;

7) analysis of the compliance of the bank’s employees with the qualifying requirements and the performance of their professional duties;

8) identification and examination of cases of abuse of authority by officials of the bank and conflicts of interest in the bank;

9) verification of the accuracy and timeliness of provision of information to the state authorities, performing the supervision of the bank within their competence;

10) other functions associated with supervision over activities of the bank.

Internal audit shall evaluate the types of bank’s activities, the implementation of which is ensured through engagement of legal persons and individuals on a contractual basis (outsourcing).

The internal audit as to the results of inspections shall prepare and submit to the Bank's Council the reports and proposals of remedial actions.

The bank shall be obliged, according to the procedure determined by the NBU regulations, submit to the NBU the report on the activity of internal audit and other documents related to the internal audit results.

The candidate for the position of the Head of Internal audit shall be agreed upon with the NBU.  The fit and proper requirements to the head of internal audit shall be set by the NBU.

The head of internal audit shall not be allowed to take positions in other banks.

Decision on the discharge of the head of internal audit shall be taken by the Bank's Council. Decision on the discharge of the head of internal audit not on his/her initiative shall be agreed upon with the NBU.

The head of internal audit has the right to request the convocation of the extraordinary meeting of bank’s council.

The Internal audit employees while performing their functions shall have the right to study the documents, information, written explanations on the issues of the bank’s activity, including all subdivisions of the bank irrespective of the country of their location, and affiliates of the bank, the right to access to the banking transaction automation system and to require the written explanations from bank managers and employees on matters arising during the audit and related to the audit results.

Article 46. Obligations to Inform the NBU

The Board of the bank shall, within 3 banking days, inform the NBU of the following:

1) dismissal of any manager (managers) of the bank and recommended nomination for this position;

2) changes in the legal address and location of the bank and its separate subdivisions;

3) losses in an amount that exceeds 15% of the bank’s capital;

4) capital decreasing to a level lower than that of the regulatory capital;

5) when there is at least one reason for classifying a bank as problem or insolvent, or for revoking the banking license and liquidating the bank;

6) termination of banking activities;

7) if a bank manager, an individual owner of qualifying holding, or a representative of a corporate holder of qualifying holding are notified about suspicion of criminal offence.

The National Bank shall have the right to define a list of other information which may be important for the banking supervision purposes, with which the NBU shall be furnished by the bank or an owner of qualifying holding.

Chapter 8. REQUIREMENTS TO BANK ACTIVITIES

Article 47. Types of Banking Activities

The bank is entitled to render the banking and other financial services (except those of the insurance area) as well as engage itself in other activities stipulated by this Article.

The bank has the right to perform the banking activities only upon obtaining the banking license by means of rendering the banking services.

The banking services include:

1) raising (attraction of) funds and investment metals of an unlimited number of legal entities and individuals on deposits;

2) opening and maintenance of customers’ current (correspondent) accounts including those in investment metals;

3) placing the funds and investment metals attracted on deposits, including on the current accounts, in the bank’s own name, under its own terms and on its own account.

Only banks are entitled to render banking services. The Central Securities Depository has the right to perform some banking operations on the basis of a limited banking license granted by the NBU in accordance with the established procedure.

Any bank is entitled to render the financial services to its customers (other than banks), including through entering into agent agreements with legal entities (commercial agents). The list of the financial services the bank is entitled to render to its customers (other than banks) through entering into agent agreements shall be compiled by the NBU. The bank shall inform the NBU of the agent agreements entered into by it. The NBU shall maintain the register of banks’ commercial agents and may establish requirements thereto. Banks may enter into agent agreements with the legal entities meeting the requirements established by the NBU.

In addition to rendering the financial services any bank is entitled to be engaged in the activities related to:

1) investments;

2) issue of its own securities;

3) issue, sale and drawing of lotteries;

4) custody of valuables and leasing of individual bank safes;

5) transportation of currency valuables and collection of funds;

6) maintenance of registers of registered securities holders (except own shares);

7) provision of consulting and information services with regard to the banking and other financial services.

Any bank may operate rendering the banking and other financial services in the national currency and only after obtainment of the respective banking license from the NBU - in a foreign currency.

Any bank is entitled to engage in any transactions necessary for rendering the banking and other financial services and for the bank’s operation.

Any bank is entitled to engage in a new business type or rendering a new type of the financial services (other than the banking ones) provided it complies with the requirements of the NBU regarding this type of business or service.

The bank shall inform the NBU not later than one month before the intended start of the new type of business or service (with the exception of the banking services) about its intention according the requirements and procedure determined by the NBU.

The NBU shall have the right to set forth additional requirements, including the requirements to raise the level of the regulatory capital of the bank or other economic ratios, related to a particular type of the activities and financial services the bank is entitled to, with the purpose of protecting the rights of depositors and other creditors.

Any bank may independently set the interest rates and commission fees on the services rendered.

Article 48. Restrictions on Bank Activities

Banks shall be prohibited from risky activities that pose a threat to the interests of depositors or other bank’s creditors.

The list of attributes, which the NBU uses as grounds to make a conclusion regarding bank’s risky activities posing  a threat to the interests of depositors or other bank’s creditors, shall be determined by a regulatory document of the NBU and published  in accordance with the procedure established by the law.

Banks shall be prohibited from carrying out activities in the sphere of material production, trade (with the exception of sale of the commemorative, jubilee and investment coins) and insurance, but may act as an insurance intermediary.

The specialized banks (with the exception of the savings bank) shall be prohibited from attracting deposits from individuals in amounts exceeding 5% of the bank’s capital.

The bank may own real estate whose total value shall not exceed 25 percent of the bank’s capital. This restriction does not cover the following:

1) premises that ensure technological performance of banking tasks;

2) property that has been transferred into the bank ownership owing to realization of pledge holder rights under the term of a contract of pledge.

3) property acquired by the bank in order to prevent losses, on condition that the bank shall alienate this property within one year from the moment of obtaining the ownership rights.

Bank’s are prohibited to take funds of individuals and directly disburse them as loans without showing them on assets and liabilities of a bank.

Article 49. Lending Operations

In this Article, the lending operations mean the operations, listed in paragraph 3 of the third part of Article 47 of the present Law, as well as:

1) performance of operations in the securities market on their own behalf;

2) granting guarantees, warranties and other liabilities in favor of third persons which envisage their execution in cash;

3) acquisition of the right to claim the fulfillment of liabilities in the cash form for the delivery of goods and rendering of services, accepting the risk of satisfying these claims and receipt of payments (factoring);

4) leasing.

Banks may enter into consortium crediting agreements in order to provide joint financing. Within the framework of such an agreement, the participating banks shall determine the terms of extending credit and appoint a bank responsible for implementation of the agreement. The member banks shall bear risks on the extended credit proportionally to their contributions to the consortium.

The bank shall have a subdivision exercising the functions of lending and management of crediting-related operations.

The banks shall be prohibited from granting loans directly or indirectly to acquire their own securities, shares of other banks and to extend subordinated debt to banks. The use of securities of their own issue as collateral may be possible only with the NBU permission.

The banks are prohibited from indirectly carrying out lending transactions with bank’s related parties.

When granting credits, the banks shall adhere to the general principles of lending, including the evaluation of creditworthiness of borrowers and the availability of collateral, and adhere to the requirements concerning risk concentration, established by the NBU.

The bank has the right to extend unsecured loans on condition that the economic ratios are met.

Granting of non-interest bearing credits is prohibited except in the cases specified by the law.

In case of untimely repayment of a loan and interest thereon, the bank shall have the right to issue an order on the forced payment of debt obligations, if this is envisaged by the agreement.

Article 50. Direct Investments by Banks

Banks shall carry out direct investments and operations with securities in conformity with the laws of Ukraine on securities and investment activity, and in accordance with the NBU regulations.

Banks shall have the right to make investments only on the basis of the written permission from the NBU, which is granted in accordance with the rules set forth by the latter.

Any bank whose regulatory capital completely meets the investment requirements established by NBU regulations shall have the right to make investments without the written permission in the following cases:

1) an investment in a financial institution does not exceed in the aggregate 1 percent of the bank’s authorized capital;

2) the investment is made in the authorized capital of the credit bureau licensed by the National Commission for the State Regulation of Financial Services Markets.

The notification procedure for the investment, mentioned in part 3 of this Article, shall be established by the NBU.

It is prohibited for banks to invest funds in a legal entity whose bylaws stipulate the full liability of its owners.

The direct and/or indirect participation of the bank in the authorized capital of any legal entity shall not exceed 15 percent of the bank’s authorized capital. The total investments of the bank shall not exceed 60% of its authorized capital.

The requirements of the sixth part of this Article shall not be applied in the event:

1) shares and other securities acquired by the bank to realize the right of collateral holder and not to be held by the bank for more than one year;

2) the investment is made in the authorized capital of a bank being a banking group participant;

3) securities have been obtained by the bank as a result of underwriting and have not been held by this bank for more than one year;

4) shares and other securities acquired by the bank at the expense and on behalf of its clients.

The requirements set forth in parts 2 and 6 do not apply to activities of the investment banks.

Article 51. Bank Settlement Operations

In order to perform banking activity, banks shall open and service the correspondent accounts with the NBU, other banks in Ukraine and abroad, as well as banking accounts for legal entities and individuals in hryvnias and foreign currency.

Bank settlements shall be carried out in the cash and cashless form in accordance with the rules established by the NBU regulations.

The cashless settlements shall be carried out on the basis of settlement documents in a paper or/and electronic form.

As the payment instruments, banks in Ukraine may use the payment orders, payment requests, request orders, bills of exchange, cheques, banking payment cards and other debit and credit payment instruments used in international banking practice.

The payment instruments shall be properly prepared and contain data on the issuer, payment system where they are used, legal grounds for the settlement operation and, as a rule, holder of the payment instrument and fund recipient, value date, and other information necessary for effecting the settlement by the bank in full conformity with instructions of the account owner or the other initiator of the settlement operation stipulated by law.

In the course of the settlement operation, the bank shall check the accuracy and formal adequacy of the document.

When effecting payments under the agreements concluded by the enterprises, founded in the established order by the state authorities, government bodies of the Autonomous Republic of the Crimea or by local authorities, and empowered to receive the state funds, assume obligations thereunder and make payments, including by the state, state-established unitary and public utility enterprises as well as business partnerships in whose authorized capital the state or municipal portion of shares (stakes) exceeds 50 percent, and by their subsidiaries and enterprises or business partnerships in whose authorized capital 50 or more percent belong to the state, state-established unitary and public utility enterprises or business partnerships in whose authorized capital the state or municipal portion of shares (stakes) exceeds 50 percent as well as by amalgamations (associations) of such enterprises (business partnerships), the banks shall verify availability of the report on results of the procurement procedure and other documents that confirm meeting by such enterprises and business partnerships the requirements of the Law of Ukraine On Public Procurement.

Article 52. Bank’s Related Parties

For the purposes of this Law, the bank’s related parties shall be the following:

1) bank controllers;

2) the persons having a qualifying holding in the bank, and persons through which indirect ownership of the qualifying holding in the bank is exercised by such persons;

3) the bank managers, head of the internal audit service, chairmen and committee members of the bank;

4) the bank’s congenerous parties and affiliates including banking group participants;

5) the persons having a qualifying holding in the bank’s congenerous parties and affiliates;

6) the managers of legal entities and banks’ managers who are bank’s congenerous parties and affiliates, head of the internal audit service, chairmen and committee members of such persons;

7) the associated persons of the individuals specified in paragraphs 1-6 of this part;

8) the legal entities where the individuals mentioned in this part are managers or qualifying shareholders;

10) any person, through which a transaction is performed in the interests of the persons referred to in this part, and which is influenced during such transaction by persons referred to in this part, through labor, civil and other relations.

The bank must submit to the NBU information about the bank’s related parties according to the procedure defined in the NBU regulations.

In the course of its supervisory activities, the NBU may  identify individuals and legal entities specified in paragraphs 1-9 of part 1 of this Article as the bank’s related parties, provided they have characteristics defined by the regulations of the NBU and taking into account the nature of the relations, transactions and availability of other relations with the bank. The NBU shall notify the relevant bank of such decision no later than the next business day. This being the case, the person shall be considered the bank’s related party, unless the bank proves otherwise within 15 business days after the receipt of the notification from the NBU about identifying the person as a related party.

Following the procedure prescribed by the law, the person identified by the decision of the NBU as the bank’s related party or the bank itself may challenge, the NBU’s decision on identifying the person to be the bank’s related party, and in case of holding such person liable in accordance with the law - to challenge the grounds for such NBU decision on identifying the person to be the bank’s related party.

The agreements concluded with the related parties of the bank may not provide for conditions other than current market conditions.

The agreements concluded between the bank and related parties thereof, should they contain conditions other than current market conditions, shall be declared invalid since the moment of their conclusion.

The following conditions shall not be deemed current market conditions:

1) acceptance of collateral that is of a lower value than that required from other clients;

2) purchase of low-quality property or property at a higher price from a related party;

3) making an investment in securities of a related party which the bank would not have invested in other institution;

4) payment for goods or services from a related party at a price higher than usual, or under the circumstances when the same goods or services would never be procured from other party;

5) sale to a bank’s related party of the property that is of a lower value than the property which would have been received by the bank from the sale of such property to another person;

6) accrual of the lower than usual interest rates and commission fees for services provided to the related parties by the bank;

7) accrual of the bigger than usual interests on deposits, raised by the banks from the related parties.

It is prohibited for the bank to extend loans to any person with the purpose of repaying obligations of this person to the bank’s related party; acquiring assets of the bank’s related party with the exception of the products manufactured by the latter; acquiring the securities, placed or underwritten by the bank’s related party.

The NBU shall control the bank transactions with the bank’s related parties.

The NBU shall have the right to introduce restrictions for the bank transactions with the bank’s related parties.

Article 53. Ensuring Competition within the Banking System

It is prohibited for banks to conclude the agreements in order to limit competition and monopolize crediting terms, other banking services, and establishment of the interest rates and commission fees.

It is prohibited for the bank to set the interest rates and commission fees lower than the cost of services in this bank.

It is prohibited for the bank to take any other actions for introduction of the unfair competition to its practice.

Instances of the unfair competition in rendering any banking services or conducting operations by a bank shall be the grounds for prohibiting this bank from further providing such services or performing operations.

Article 54. Credibility of Advertising

Banks are prohibited from distributing any form of advertising that contains untrue information of their activity in the area of banking services.

The NBU has the right to apply coercive actions to the banks and other persons violating the requirements of this Article.

Chapter 9. BANK RELATIONS WITH CLIENTS

Article 55. Regulation of the Bank Relations with Clients

The relations between a bank and its clients are regulated by the laws of Ukraine, NBU regulations and agreements (contracts) between the clients and the bank.

The bank shall make every effort to avoid conflicts of interest of the bank employees and clients, and conflicts of interest of the bank clients.

The banks are prohibited from demanding that clients acquire any product or service from the bank or from a bank’s affiliate or related party as a mandatory condition to render banking services.

The banks are prohibited from changing unilaterally the terms and conditions of the agreements (contracts) concluded with their clients, in particular to increase the interest rate under the loan agreements or decrease it under the deposit agreements (except the demand deposits), excepted the cases envisaged by law.

A bank acting as a proxy, agent or other representative/intermediary may take funds of individuals on behalf of the third parties (including nonbank financial institutions), only after the individuals are informed in writing that such funds will not be considered a bank deposit and will not be guaranteed under the Law of Ukraine On Households Deposit Guarantee System.

Article 56. Right of Clients to Information

The client shall be entitled to have access to the information on bank’s activities. The banks shall furnish with the following information upon the request of clients:

1) data, which are subject to mandatory disclosure, on financial indicators of the bank’s activities and its economic position;

2) the list of bank managers and its separated subdivisions, as well as legal entities and individuals, which hold the qualifying holding in the bank;

3) the list of services rendered by the bank;

4) the price of banking services;

5) other information and consultations pertaining to rendering the banking services;

6) data on the number of bank shares (stakes) owned by the executive body members of the bank and, on a scale determined by the NBU, on the persons whose share within the bank authorized capital exceeds 5%.

Each bank shall regularly place on the bank web site the updated information about the owners of the qualifying holdings in the bank on a scale determined by the NBU.

Article 57. Insurance of Households’ Deposits

Household deposits shall be guaranteed in the order, and to the extent, stipulated by the Ukrainian legislation.

The deposits of individuals in the State Savings Bank shall be guaranteed by the State.

Article 58. Bank's Responsibility for its Obligations

The bank shall be liable for its obligations with all its assets in accordance with the laws of Ukraine.

A bank shall not be liable for the failure to fulfill its obligations, or the failure to fulfill its obligations in due time, if the NBU has decided to impose limitations on bank’s activities, or an authorized government body has stopped transactions with the bank’s accounts, or seized the bank’s own funds.

The bank participants shall be liable for the bank‘s obligations in accordance with the laws of Ukraine and the by-laws of the bank.

Qualifying shareholders in a bank shall be obliged to take timely measures to prevent the bank’s insolvency.

The bank’s related party shall bear civil, administrative and criminal responsibility for violating the requirements of the law, including the NBU regulations, conducting risky operations that threaten the interests of depositors or other creditors of the bank and for bringing the bank to insolvency.

The bank’s related party, the acts or omissions of which resulted in damaging the bank through its fault, shall be liable with its property. If the bank’s related party caused damage to the bank through its acts or omissions while another bank’s related party received the property benefit directly or indirectly as a result of those acts or omissions, such parties shall be jointly liable for the damage caused to the bank.

Article 59. Arrest, Suspension and Termination of Operations with Accounts

Property and other funds of a bank, placed in its accounts, as well as funds and other valuables of legal entities and individuals, placed with the bank, may be arrested (seized) only upon the decision of state enforcement agent, private enforcement agent or court decision on charging funds or arrest according to the procedure established by law. The property and funds may be released from the arrest by a decision of state enforcement agent, private enforcement agent or by a court decision.

The suspension of debit operations of a bank on its accounts as well as debit operations on accounts of legal entities and individuals may take place only in the case of seizing in accordance with Part 1 of this article except the cases envisaged by the Law of Ukraine “On Prevention and Counteraction of Legalization (Laundering) of Proceeds from Crime or Terrorism Financing”. The suspension of debit operations shall be effected within the amount of the funds seized except for the cases when the arrest is imposed without setting such an amount.

Property or funds of a bank, as well as seized funds or other valuables of legal entities or individuals in a bank, shall be placed under the management (transferred to the accounts) of the National Agency for Identification, Recovery and Management of Assets Derived from Corruption and Other Crimes within one business day since the bank receives from the National Agency a claim and copies of a prosecutor’s request and decision of examining magistrate, court decision on asset seizure.

It is prohibited to arrest (seize) the correspondent accounts of the bank.

The NBU shall charge the correspondent accounts of a bank at the request of the Household Deposit Guarantee Fund only in instances stipulated by the Law of Ukraine “On Household Deposit Guarantee Schemes”.

Chapter 10. Banking Secrecy and Confidentiality of Information

Article 60. Bank Secrecy

The information on activities and financial position of a client, which has become known to the bank in the course of servicing the client and maintaining relations with the client or to third parties through rendering services to the bank shall be the banking secrecy.

Particularly, banking secrecy comprises:

1) information of clients' banking accounts, including the correspondent accounts of banks with the NBU;

2) operations effected in favor or upon instructions of the client, and contracts executed by the client;

3) financial and economic position of clients;

4) security systems of the bank and clients;

5) information on organizational and legal structure of corporate clients (legal entities), their managers and areas of activities;

6) information on client’s commercial activities or commercial secrets, any project, inventions, product samples, and other commercial information;

7) information on the reporting of a specific bank, with the exception of the publicly disclosed information;

8) codes used by banks to protect data.

The information on banks or clients collected in the process of banking supervision shall be subject to the banking secrecy.

The information about banks or clients obtained by the NBU according to an international treaty or under the principle of reciprocity from a banking supervision authority of other country for the purposes of banking supervision and AML or combating the financing of terrorism is a banking secret.

The provisions of this Article do not cover the general information subject to publication. The list of information subject to the mandatory publication shall be defined by the NBU and additionally by the bank itself upon its discretion.

The NBU shall issue regulations on safekeeping, protection, usage and disclosure of the information that constitutes the bank secrecy and provide the guidelines on application of these regulations.

Article 61. Obligations as to Protecting the Banking Secrets

The banks shall ensure the protection of banking secrets by means of:

1) limiting the number of persons who have access to the information that constitutes the banking secret;

2) organizing special handling and processing of the documents containing banking secrets;

3) using technical means to prevent unauthorized access to the electronic and other information carriers;

4) application of the provisions aimed at protecting the banking secrecy which envisage responsibility for its disclosure in the agreements and contracts concluded between the bank and its client.

When hired, bank employees shall sign a commitment to keep the banking secrets confidential. Managers and employees of banks shall not disclose confidential information that has become known to them during the exercise of their official duties, or use it for their own benefit or for the benefit of any third parties.

A bank has the right to provide information that contains banking secrets to private individuals and organizations to enable them to perform their duties, or render services to the bank, pursuant to agreements entered into between such individuals (organizations) and the bank, including information about assignment of claim right to a client, provided that the duties, and/or services, specified in the agreements pertain to the activities the bank performs, in accordance with Article 47 hereof.

Public authorities, legal entities and individuals which, in exercising their legally established functions or in rendering services to a bank, directly or indirectly obtained the information containing bank secrecy in accordance with the procedure prescribed by the law, shall be required to ensure safety of such information, shall not disclose or use it for their own benefit or for the benefit of the third parties.

If losses are inflicted on the bank or on its clients due to the leak of information on the bank or its clients from the bodies authorized to exercise the banking supervision functions, the bodies guilty of such disclosure shall reimburse these losses.

Article 62. Procedure for Disclosing Banking Secrets

Information on legal entities and individuals, which constitutes banking secrets, shall be disclosed by banks:

1) in response to a letter of inquiry or by written permission of the respective legal entity or individual;

2) by the decision of court;

3) to the Office of Public Prosecutor, the Security Service of Ukraine, the State Bureau of Investigation, the National Police, the National Anti-corruption Bureau of Ukraine and the Antimonopoly Committee of Ukraine – at their written request concerning transactions with an accounts of a certain legal entity or an sole proprietorship during a specified period of time;

4) to the central government agency implementing state tax policy:

a) at its written request on existence of bank accounts;

b) subparagraph “b” of paragraph 4 of the first part of Article 62 has been deleted

c) subparagraph “c” of paragraph 4 of the first part of Article 62 has been deleted 

5) to the central government agency implementing a state policy in the area of prevention and counteraction to legalization (laundering) of proceeds from crime or terrorism financing at this agency request regarding financial operations (transactions) connected with the financial operations (transactions) that have become an object of financial monitoring (analysis) in accordance with the laws related to prevention and counteraction to legalization (laundering) of proceeds from crime or terrorism financing as well as with participants in stated operations (transactions);

6) to state enforcement agencies and private enforcement agents at their written request concerning enforcement of court judgments and decisions subject to enforcement in accordance with the Law of Ukraine On Enforcement Proceeding with regard to the existence and/or state of a debtor’s accounts; flow of funds and transactions with a debtor’s account during a specified period of time; as well as information on the debtor’s custodial services contracts or safe deposit box agreements with a bank.

7) to the National Securities and Stock Market Commission in case of individual submission by a bank of information about a bank as an issuer and administrative data in accordance with the laws concerning securities and stock market;

8) by court order to the National Anti-corruption Agency concerning accounts, account balances and transactions of certain legal entity, individual or individual entrepreneur in accordance with the Law of Ukraine On Prevention of Corruption;

9) to other banks in the cases provided for by this Law and the Law of Ukraine On Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime, Terrorism Financing and Financing of Weapons of Mass Destruction;

10) to the National Agency of Ukraine for identifying, tracing and management of assets derived from corruption and other crimes, upon its written request in connection with identifying and tracing assets which may be seized in criminal proceedings, -  on the availability and state of accounts, transactions on the accounts of a particular legal entity, individual or individual entrepreneur;

10) to the central government agency formulating the state financial policy, upon its written request received during the budgeting process, for the purposes of verification and validation of the information submitted by individuals for accrual and receipt of social payments, benefits, subsidies, pensions, wages, and other payments to be effected at the expenses of state and local budgets, Pension Fund of Ukraine and other funds of obligatory state social insurance; for this purpose and for effecting payments in full and in timely manner, the information is disclosed about the accounts opened in their names (current, credit, deposit accounts etc.), their transactions and balances. In case of accrual and receipt of social payments, benefits, subsidies assigned to a family or a household, information is disclosed about each family member or a household.

The request of the respective state agency for obtaining the information that contains banking secrets shall:

1) be presented on a letterhead of the established form of the state body;

2) be signed by the manager (or deputy manager) of the state body and bear an official seal;

3) contain the reasons stipulated by this Law to obtain such information;

4) carry references to the provisions of the Law, in accordance with which the state body has the right to obtain such information.

The bank shall issue statements of accounts (deposits) in the event of death of their owners to persons specified by the owner of the account (deposit) in his/her bequest for the bank, to state notary offices or private notaries, and foreign consulate offices on inheritance issues on accounts (deposits) of deceased owners of accounts (deposits).

The bank is prohibited from providing information on clients of another bank, even if their names are mentioned in documents, agreements and operations of the client.

The bank shall have the right to provide the information, which constitutes the banking secret, to other banks and NBU within the limits required to grant credits and bank guarantees.

The bank is entitled to disclose the information containing the banking secret to the person (including the person that is authorized to act on behalf of the state) in whose favour the bank assets and liabilities are to be alienated when taking the actions envisaged by the program of financial rehabilitation of the bank or during the liquidation procedure. The NBU is entitled to furnish the central government agency responsible for development of the state financial policy with the information containing the banking secrets about the banks in whose capitalization the state is to participate.

Restrictions with regard to obtaining the information containing banking secrets, which are stipulated by this article, shall not apply to employees of the NBU or persons authorized by them, who, within the powers provided by the Law of Ukraine “On the NBU,” exercise functions of banking supervision or foreign exchange control.

The restrictions on obtaining bank secrets specified in this article shall not apply to the staff of the Household Deposit Guarantee Fund when they exercise their normal duties and powers set forth in the Law of Ukraine “On Household Deposit Guarantee Schemes”.

The NBU shall have the right to provide the Household Deposit Guarantee Fund with information about banks, or their customers, which is obtained in the course of banking supervision and is considered bank secrecy, in instances stipulated by the Law of Ukraine “On Household Deposit Guarantee Schemes”.

The NBU shall have the right to disclose information on a bank or a bank’s related party, which is obtained in the course of banking supervision and is considered bank secrecy, to state authorities, authorized to carry out pre-trial investigation in case of violation of the legislation with signs of a criminal offense.

For the enforcement purposes, the NBU shall have the right to provide the state enforcement service with its decisions on applying to the bank or a foreign bank branch of the measures of influence in a form of a fine, which are considered as enforcement documents pursuant to this Law and which contain the information constituting bank secrecy. In this case, the state enforcement service shall have the right to disclose the information containing bank secrecy obtained from the NBU to the participants of the enforcement proceedings and to the persons involved in carrying out enforcement actions.

The Household Deposit Guarantee Fund shall have the right to disclose bank secrets pertaining to an insolvent bank, which it has placed under a provisional administration, or liquidation, to a successor bank, bridge bank, investor purchasing the insolvent or bridge bank, or to other parties involved in the provisional administration, or liquidation. These entities shall be obliged not to disclose the obtained information to other parties.

In accordance with an international treaty of Ukraine or under the principle of reciprocity, the NBU has the right to provide information received from supervision activity to the banking supervision authority of another country and to receive such information from the banking supervision body of another country. The information provided (received) may be used exclusively for the purposes of banking supervision or prevention of legalization (laundering) of proceeds of crime or terrorism financing.

Provisions of the second and fourth parts of this Article shall not apply to the cases of providing the information to the central executive authority implementing the state policy in the area of prevention and counteraction to legalization (laundering) of the proceeds from crime, terrorism financing and financing of weapons of mass destruction in cases envisaged by the law, as well as information on opening (closing) of tax payers’ accounts to the bodies of revenues and duties in accordance with Article 69 of the Tax Code of Ukraine.

The persons found guilty of violating the procedure for disclosing and using banking secrets, shall bear responsibility in accordance with the laws of Ukraine.

Chapter 11. Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime, Terrorism Financing and Financing of Weapons of Mass Destruction

Article 63. Prevention of Legalization (Laundering) of the Proceeds from Crime, Terrorism Financing and Financing of Weapons of Mass Destruction

When supervising bank activities, the NBU shall perform inspection of banks’ compliance with the laws governing relations in the area of prevention of legalization (laundering) of the proceeds from crime, terrorism financing and financing of weapons of mass destruction as well as of sufficiency of the measures aimed at the prevention and counteraction of legalization (laundering) of the proceeds from crime and terrorism financing.

Article 64. Know Your Customer (KYC) Requirement

Banks shall be prohibited from

opening and maintaining any anonymous (numbered) accounts;

establishing correspondent relations with shell banks, non-resident banks and other non-resident financial institutions that maintain correspondent relations with shell banks;

entering into contractual relations (conducting foreign exchange transactions, financial transactions with precious metals, cash (cash funds) with legal entities or individual customers:

if doubts arise that such a person is acting not in their own name;

included in the list of persons connected with the terrorism or being under the international sanctions;

in other cases envisaged by law.

Pursuant to requirements of the laws of Ukraine, banks shall identify and verify the following persons:

customers (except for banks registered in Ukraine) establishing accounts with the bank;

customers performing the financial transactions subject to the financial monitoring;

customers (persons) in case of suspicion that their financial transaction(s) can be connected with terrorism financing or financing weapons of mass destruction;

customers conducting transfers without opening an account in an amount of at least UAH 15,000.00 or the equivalent, including in foreign currency, precious metals, other assets and units of value, but less than UAH 150,000.00 or the equivalent, including foreign currency, precious metals, other assets and units of value;

customers performing cash transactions without establishing an account for an amount equal to or exceeding UAH 150,000.00 or an amount equivalent thereto in a foreign currency, precious metals and other assets;

Customers lending money to the bank in the form of a subordinate debt;

customers concluding loan agreements with the bank, as well as agreements on custody of valuables and on leasing of individual bank safes;

persons (other than banks registered in Ukraine) with which the bank as a professional securities market participant concludes agreements for professional activity at the securities market (stock market). Since the conclusion of the agreement, such person shall be the customer of the bank;

persons authorized to act on behalf of the above customers/persons (customer’s representative);

customers (persons) established in the NBU regulation on financial monitoring.

The bank shall identify and verify the customer (person, customer’s representative) and take the measures in accordance with the laws regulating relations in the area of prevention of legalization (laundering) of proceeds from crime, terrorism financing and financing of weapons of mass destruction, before opening an account to the customer, concluding agreements or carrying out financial transactions, mentioned in part two of this Article.

A bank shall have the right to require, and the customer (person, customer’s representative) shall be obliged to submit the documents and statements necessary for identification and/or verification (including establishment of identification data of ultimate beneficial owners (controllers), analysis and identification of financial transactions subject to financial monitoring and other documents and statements specified in the applicable laws required by the bank in order to comply with the current laws  regulating relations in the area of prevention of legalization(laundering) of proceeds from crime, terrorism financing and financing weapons of mass destruction.

Should the customer (person, customer’s representative) fail to provide the documents necessary for identification and/or verification (including establishment of identification data of final beneficial owners (controllers), analysis and detection of financial transactions subject to financial monitoring, the account shall not be opened and the agreements (financial transactions) mentioned in part two of this Article shall not be concluded (conducted).

The bank shall have the right to refuse to enter (maintain) into contractual relations (including by way of cancellation of contractual relations) or conduct financial transaction should it establish an unacceptably high level of risk of the customer based on the results of risk (re)assessment.

The bank shall be entitled to request the information with regard to identification of the customer (including managers of the customer, which is a legal entity, or of the customer’s representative), learning the customer, clarification of information on the customer, profound inspection of the customer from public authorities, public registrars, banks and other legal entities, as well as to perform actions aimed at obtaining the information from other sources.

The bank shall undertake to request from public authorities, public registrars, banks and other legal entities information (official documents) required (necessary) for assessing compliance of a financial transaction with its [the bank’s] business substance and  financial position.

The aforementioned public authorities, public registrars, banks and other legal entities shall undertake to provide such information to the bank for free within ten business days from the date the request is received.

Article 65. Excluded

Section ²V. BANKING ACTIVITY REGULATION. BANKING SUPERVISION

Chapter 12. AUTHORITY OF THE NATIONAL BANK OF UKRAINE AS TO BANKING REGULATION AND SUPERVISION

Article 66. Forms of Banking Activity Regulation

State regulation of banking activity shall be performed by the NBU in the following forms:

I. Administrative regulation:

1) registration of banks and licensing of their activity;

2) establishment of requirements and limitations for activity of the banks;

3) enforcement of administrative or financial sanctions;

4) supervision over activity of banks;

5) recommendations in respect to activity of the banks.

II. Indicative regulation:

1) setting the mandatory economic ratios;

2) determining reserve requirements to banks;

3) defining deductions to the provisions against risks from banking operations with assets;

4) defining the interest rate policy;

5) refinancing of banks;

6) correspondent relations;

7) management of gold and foreign exchange reserves, including the currency interventions;

8) operations with securities in the open market;

9) import and export of capital.

Article 67. Purpose, Organization, Grounds and Scope of the Supervision

The purpose of banking supervision is stability of the banking system and protection of interests of depositors and creditors of the bank as to the safekeeping of client’s funds on banking accounts.

Supervisory activity of the NBU shall cover all banks, their separate subdivisions, affiliates and congenerous parties of the banks, banking groups, participants therein on the territory of Ukraine and abroad, establishments of foreign banks in Ukraine, as well as other legal entities and individuals in their compliance with the requirements of this Law as to performing banking activity.

For the purpose of banking supervision the NBU is entitled to receive from public authorities and other persons the information, including confidential, regarding the financial/property standing of the bank founders and persons that purchase or increase a qualifying holding in the bank, their business reputation, sources of the funds to be used for formation of the bank authorized capital.

During 20 days from the date of receipt of the NBU request the state authorities and other persons shall furnish NBU with the suitable information.

When performing the banking supervision the NBU is entitled to require the banks and their managers, banking groups, participants therein to eliminate breaches of the banking laws, comply with the NBU regulations with the purpose of avoiding or surmounting the undesirable consequences that could place in jeopardy safety of the funds committed to the trust of such banks or harm due performance of banking. If the NBU, when exercising its banking supervision function, has determined that a bank has no efficient, and/or adequate, risk management processes, the bank shall be obliged, at the request of the NBU, and without delay, to develop a set of corrective actions and submit it to the NBU for approval.

The NBU is entitled to introduce a special mode of control over activities of a bank and to appoint the bank’s curator. The special control mode is an additional instrument of banking supervision. During the provisional administration of a bank or the special mode of control over a bank the NBU is entitled to forbid the bank to make use of the direct correspondent accounts for settlements and/or demand the bank to settle only through a consolidated correspondent account.

The bank’s curator shall have the right to require from the bank management to eliminate banking law breaches, meet the requirements of the NBU regulatory documents, provide clarifications on issues regarding observance of banking laws and regulatory documents of the NBU in writing, fulfill the requirements and restrictions on the banks’ activities imposed by the NBU as well as to eliminate breaches while carrying out any bank’s transactions. The requirements to the bank management shall be in the written form only.

According to the requirements set out in regulatory documents of the NBU, the bank’s curator shall have the right to obtain from depositors and other bank’s creditors the information necessary for the control over the status of liabilities fulfilment by the bank.

In the course of banking supervision, the NBU may use services of other institutions under separate agreements.

In case the banking license is revoked, the NBU informs thereof the relevant bodies of other countries, where this bank has had branches or correspondent and other accounts.

The NBU may carry out the banking supervision in the form of on-site inspections and off-site supervision.

In the course of off-site supervision the NBU is entitled to demand in writing copies of documents of any bank as well as written explanations regarding its activities.

The bank in question shall furnish the NBU at the written request thereof with the suitable information and copies of the documents.

When considering application of enforcement measures to a bank, the NBU may invite the Board Chairman or the Council Chairman of the bank to provide explanations.

In the course of supervision over the institutions, which carry out banking activity in other countries, the NBU shall co-operate with the relevant bodies of those countries. Notifications sent by the relevant bodies of other countries, may only be used for the following purposes:

to check a license of an institution for carrying out activity;

to check the right for carrying out the banking activity;

when exercising its supervision function the NBU shall cooperate with other authorities regulating the markets of financial services in Ukraine as well as with the respective authorities of other countries engaged in the supervision. The cooperation shall take place on the basis of concluded agreements, memorandums or in other forms.

Chapter 13. ACCOUNTING, REPORTING AND AUDITING

Article 68. General Principles of Accounting and Reporting in the Banks

The banks shall organize accounting in accordance with the internal accounting policy, developed on the basis of the rules and regulations established by the NBU in accordance with the International Accounting Standards.

The accounting shall ensure a timely and full reflection of all the banking operations and provide true information to users on the status of assets and liabilities, financial performance and changes therein.

The financial statements of every bank shall show the results of its activity for the reporting period.

Article 69. Reporting of Banks

Any bank is obliged to submit to the NBU its financial statements and statistical reporting on its activity, operations, liquidity, solvency, profitability as well as the information of its affiliates with the aim to assess the bank’s financial standing.

The NBU has the right to request a bank/banking group to submit the consolidated and sub-consolidated reporting.

The NBU shall prescribe the following for the banks/banking groups:

1) reporting forms and methodology for their compilation;

2) frequency and time frame for submission of the reports;

3) structure of explanatory notes;

4) minimum disclosure requirements and terms;

5) methods of compilation of the consolidated and sub-consolidated reporting.

In certain cases the NBU is entitled to require the banks and banking groups to submit ad hoc and preliminary reporting.

Each owner of the qualifying holding in the bank, who is a legal entity, shall submit an annual report to the NBU within the defined term on its activity. The report shall contain the following information:

1) types of activity carried out by the legal entity;

2) information on the economic entities, in which this legal entity's participation exceeds 10 percent, in particular: the name and address of the legal entity, size of the stake (share) owned by this person, and types of activity;

3) balance sheet and income statement of that entity as at the end of the last fiscal year audited by external auditor (audit firm).

The NBU has the right to request the submission of other periodical reports or information from the bank’s qualifying holding owner in order to supervise the security and stability of the bank’s financial position and to ensure adherence to the provisions of this Law.

The fiscal year of any bank is a calendar year beginning on January 1st.

Any bank shall, during a month following the reporting period, publish on the bank’s web site as well as distribute at the bank’s premises accessible for customers, including the depositors, the quarterly balance sheet and financial performance report together with the explanatory notes thereto, the list whereof is determined by the NBU.

The bank shall publish the auditor’s report and audited thereby annual financial reports and annual consolidated financial reports containing:

1) balance sheet;

2) profit and loss statement;

3) statement of cash flows;

4) statement of changes in equity;

5) notes to the reports, the list whereof is determined by the NBU.

Any bank shall, before April 30 of the year following the reporting one, publish the annual financial reporting and annual consolidated financial reporting together with the auditor’s report as well as other information, in the scale defined by the NBU, about the bank’s qualifying holding owners in periodicals and/or as separate prints or else in the Internet.

The bank shall, on its own initiative or under the requisition of the NBU, during one month after the publication, negate the unreliable financial reporting (annual financial reports and/or annual consolidated financial reports) published, in the same way as it has been distributed.

The chairman of the board and accountant-general of the bank shall be liable in accordance with the laws of Ukraine for publication of the corrupt (incomplete) financial reporting and violation of the procedure of denial of such reports.

The banking group responsible person shall disclose the auditor’s conclusion and the annual consolidated reporting of the banking group audited by an audit firm no later than on 1 June of the year following the reporting one. The composition of the reporting and disclosure procedure according to the procedure shall be determined by the NBU based on the requirements of the part nine of this Article.

Article 70. External Audit of Banks

Each bank shall ensure the annual audit of financial statements, consolidated financial statements and other information on financial and economic activities by the auditor (audit firm) in accordance with the laws of Ukraine, including the NBU regulations, rules and standards of audit approved by the Audit Chamber of Ukraine according to the International Standards on Auditing and Ethics.

Audit of banks may be effected by an auditor (audit firm) entered in the Register of Auditors entitled to audit the banks (hereinafter - Register of Auditors) maintained by the NBU.

The procedure of maintenance of and entry into the Register of Auditors shall be established by the NBU regulations.

The Register of Auditors shall be annually published on the official website of the NBU.

Both the bank and auditor shall submit to the NBU at its request the explanations, including in writing, concerning the external audit of the bank.

The NBU has the right to request the bank to broaden the audit scope according to the procedure and extent determined by regulations of the NBU.

Any bank is entitled to conclude agreements on audit of the annual financial reporting and consolidated financial reporting with the same auditor, but not more than seven consecutive years.

The bank shall, according to the procedure and requirements determined by the NBU regulations, submit to the NBU the auditor’s opinion and other documents related to the audit.

The auditor (audit firm) shall notify the NBU of material distortions in financial statements indicators, violations and operational deficiencies detected during the audit and provision of audit services, which could result in the bank insolvency, including of material losses of the bank regulatory capital.

The bank’s managers shall provide conditions for the external audit of the bank in compliance with the requirements of the laws of Ukraine and, at the auditor’s request, submit the reports on inspections done by the NBU as well as those of the external and internal audit of the bank.

The auditor shall, at the request of the NBU, submit to the latter and authorized persons thereof the auditor’s working documents related to the bank audit according to the procedure established by the NBU regulations.

The auditor shall not be responsible for disclosure of information to the NBU in the cases defined in this Article.

Chapter 14. BANK INSPECTIONS

Article 71. Bank Inspections

Each bank shall be a subject to inspections by the persons authorized by the NBU.

The inspections shall be performed with the purpose of identifying the level of safety and stability of the bank’s operations, reliability of the bank’s reporting and compliance with the Ukrainian laws on banks and banking and the NBU regulations.

Any inspection shall be performed in accordance with the schedule, approved by the NBU. The scheduled inspection shall be conducted not more than once a year. The NBU shall inform the bank of conducting the scheduled inspection not later than in ten days prior to its beginning.

The banks shall ensure appropriate conditions for the bank inspection and free access to all premises of the bank in working hours to the persons authorized by the NBU to inspect the bank.

The bank managers and employees shall free of charge open access to the automated system of bank transactions to the authorized NBU personnel, as well as provide them with information, documents and written explanations on bank’s activities and, should any violation of the legislation of Ukraine on banks and banking, including the NBU regulations, have been detected, also with copies of the documents according to the procedure established by the NBU.

The NBU may take a decision to perform an unscheduled inspection of the bank, if sound grounds for doing so exist. Such a decision shall be signed by the NBU Governor or by the person, authorised by the Governor.

The authorized by the NBU persons are entitled to receive from the bank information, documents and copies thereof, written explanations on bank activity issues as well as to withdraw copies of the documents testifying to violations of the laws of Ukraine, including the regulations of the NBU.

Inspection results may not be disclosed to third parties, except for the Household Deposit Guarantee Fund, if such reports contain no information about breaches of the law.

In the course of inspections of banks, the persons authorized by the NBU shall be entitled to inspect any reporting of any affiliate of the bank and any congenerous person thereof with regard to their relationships with the bank for the purpose of determining the effect of such relationship on the bank position. For inspection purposes, the affiliates and congenerous persons of the bank shall facilitate the NBU efforts in line with this Article provisions and in the same manner as applied to the banks.

The NBU shall have the right to engage staff of the Household Deposit Guarantee Fund for inspections of a problem bank.

Article 72. Examinations and Inspections of Persons Subject to the NBU Supervision

The NBU has the right to inspect the persons subject to the NBU supervision in order to check for the compliance with the legislation on banking activity. In the course of these inspections, the NBU has the right to demand any information from these persons needed for the inspection. The persons being inspected shall submit to the NBU the required information within the period of time defined by the NBU.

The owners of a qualifying holding in a bank and banking group participants shall belong to the persons subject to inspections of the NBU.

A person (entity) in respect of which there is information that he/she/it has conducted or conducts banking activity without a license may also be subject to the NBU inspection.

Article 73. Enforcement Measures

In case a bank or other persons (entities), whose activities the NBU is entitled to inspect under this Law, violate Ukrainian banking laws, legislation on prevention and counteraction to legalization (laundering) of the proceeds from crime, terrorism financing and financing weapons of mass destruction, under NBU’s regulations or its requirements set forth under Article 66 of the Law, or perform activities that pose threats to the interests of depositors or other creditors, or if a bank or its qualifying shareholders are subjected by intergovernmental unions or international institutions to sanctions which pose a threat to the depositors or other creditors of the bank and/or banking system stability, the NBU shall have the right to apply the following corrective actions, which are commensurate with the extent of the violation or the seriousness of the threats posed:

1) issue a written warning;

2) call a general meeting of shareholders, a meeting of the Bank’s Council, and a meeting of the Bank’s Board;

3) enter into a written agreement with the bank under which the bank, or an entity specified in the agreement, undertakes to take corrective action, improve the financial health of the bank, enhance the efficiency, and/or adequacy, of the bank’s risk management processes;

4) suspend payment of dividends or the distribution of the capital in any other form;

5) impose increased individual economic ratios for the bank in question;

6) increase the loan loss provisions and allowances for other assets;

7) limitation, termination or suspension of some transactions performed by the bank, including transactions with the bank’s related parties;

8) impose a ban on granting unsecured loans;

9) impose fines on:

second indent of paragraph 9 of the first part of Article 73 excluded

bank under the regulations approved by the NBU Board but only in an amount not more than one percent of the registered authorized capital;

bank that failed to fulfil the requirement of the bank curator in the amount from two to three thousand of non-taxable minimum household incomes;

qualifying holding owners of the bank for non-fulfilment of the obligations on provision of the required financial support to the bank under measures taken to bring a problem bank in compliance with the law in a amount from five to ten thousand of non-taxable minimum household incomes;

a person that acquired or increased the qualifying holding in a bank, should they have violated the requirements of Article 34 hereof regarding purchase or increase of the qualifying holding in the bank, in an amount of up to 10 percent of:

the nominal value of the purchased shares (stakes) of the bank, if the person acquired or increased direct qualifying holding in a bank;

nominal value of shares (stakes) owned by shareholder (participant) of the bank through which the person acquired or increased the qualifying holding in the bank, if the person acquired or increased the indirect qualifying holding in the bank.

The fine for violation of the procedure for acquisition or increase of the qualifying holding in the bank shall be imposed on the person, which acquired or increased the qualifying holding in the bank or to any person in the bank ownership structure through which such person acquired or increased the qualifying holding in the bank.

10) temporary prohibition for the qualifying holding owner to use of his/her/its voting rights until elimination of the violation (provisional prohibition of the use of voting rights);

11) suspend temporarily a bank’s official from his/her office until they take corrective action;

11 1) revoke a general license for foreign exchange operations;

12) declare the bank problem or insolvent;

13) revoke the banking licence and liquidate the bank.

Provisional prohibition of the use of voting rights shall be applied through banning the use of the voting rights by:

direct qualifying holding owner – corresponding to the bank’s shares (stakes) belonging to the qualifying holder or, provided the procedure for acquiring or increasing the qualifying holding in the bank was violated, to the bank’s shares (stakes) purchased by the qualifying shareholder;

indirect qualifying holding owner – corresponding to the shares (stakes) belonging to the bank’s shareholder (participant) through whom the person acquired or increased the qualifying holding in the bank.

The provisional prohibition of the use of voting rights may be applied in addition to other measures provided for by part one hereof.

If the provisional prohibition of the use of voting rights is applied, the NBU shall appoint an authorized representative to whom voting rights of relative shares (stakes) and the right to engage in any way in bank management shall be transferred.

The NBU is not entitled to appoint as such an authorized person any owner of a qualifying holding in the bank.

The authorized person shall, in the process of the voting, act in the interests of the competent and prudential management of the bank. The authorized person shall, during the whole period of his/her status validity, meet the requirements set by this Law and regulations of the NBU regarding the irreproachable business reputation.

The person suspended from office or temporarily prohibited to use the voting rights of the purchased shares (stakes) on the basis of the NBU order, may be reinstated in office or in the voting rights under purchased shares (stakes) only on the basis of the NBU decision.

In case of violation of the requirements of this Law, NBU regulations, by the banking group, its responsible person or other banking group participants, their engagement in risky activities menacing bank depositors’ interests, existence of the banking group structure that renders the consolidated supervision impossible, the NBU is entitled to apply the enforcement measures, adequate for the violation, prescribed by the first part of this Article or any of the listed below:

1) prescription of higher economic ratios, limits and restrictions with regard to some types of operations for the banking group;

2) prohibition to conduct transactions the parties whereof are the bank and other banking group participants;

3) request to the bank to alienate the shares of participation in the authorized capital of subsidiaries, associate companies being the banking group members, to terminate the agreements on the basis whereof, in case of formal ownership absence, the decisive influence is exerted on the management and/or activities of these persons.

In case of violation of the requirements of this Law, NBU regulations by the non-banking financial institutions being the banking group members, the NBU is entitled to address the authorities overseeing such persons’ activities with the request on application of adequate enforcement measures to these persons.

Article 74. Procedure for enforcement measures

The procedure for applying the enforcement measures specified in Article 73 hereof shall be set by the NBU regulations.

The amounts of financial sanctions that are imposed on banks and other legal entities subject to supervision by the NBU shall be established by Ukrainian laws and NBU regulations.

Enforcement measures under Article 73 hereof may be applied by the NBU to banks, foreign bank branches or individuals within six months from the date of detection of the violation, but no later than three years from the date of its commitment.

Enforcement measures for violation of the legislation on prevention and counteraction to legalization (laundering) of the proceeds from crime, terrorism financing and financing of weapons of mass destruction may be applied by the NBU to banks and foreign banks’ branches within six months from the date of detection of the violation, but no later than three years from the date of its commitment.

Decision of the NBU to apply a enforcement measure in a form of a fine is an enforcement document and shall enter into force from the date of its approval. In case of failure to meet the requirements of such decision, the NBU shall direct it to the State Enforcement Service for enforcement purposes.

SECTION V.
PROBLEM AND INSOLVENT BANK BANK LIQUIDATION

Chapter 15
REASONS FOR DECLARING A BANK A PROBLEM OR INSOLVENT BANK

Declaring a Bank a Problem Bank

The NBU shall be  obligated to declare a bank a problem bank if there is at one of the following reasons to do so:

1) the bank, over a reporting month have decreased by 5 percent or more:

daily amount of regulatory capital below the minimum level of the regulatory capital set by the regulations of the NBU - five times or more and / or

regulatory capital adequacy ratio below the regulatory requirement set by the regulations of the NBU - two or more times;

2) the bank has failed to satisfy the claim of a depositor, or another creditor, which is five or more working days overdue, and/or there were facts of bank customers documents unrecorded in the accounting which were not satisfied by a bank within the terms set by the laws of Ukraine;

3) the bank regularly violates anti-money laundering and counter-terrorism financing laws;

4) the bank, over a reporting month have decreased by 5 percent or more of one or more liquidity ratios below the minimum required level set by the regulations of the NBU which are calculated:

in case of ratios calculated on a daily basis - five times or more;

every ten days - two times and more;

4 1) amount of adversely classified assets of a bank (except remedial bank) is 40 percent or more of total assets, which are used for assessing risks and making provisions, as set forth in the NBU regulations;

5) the bank has no adequate or efficient internal control and/or risk management systems, which poses a threat to the interests of depositors and other creditors;

6) systemic submission and/or disclosure of unreliable information or reporting with the purpose of concealing the bank’s real financial standing, including its operations with bank’s related parties.

The NBU has the right to classify a bank as a problem bank for other valid reasons specified in its regulations.

The principle of banking secrecy shall be applied to decisions taken by the NBU to declare a bank a problem bank.

A problem bank shall be prohibited to use direct correspondent accounts in domestic and foreign currencies for payments. payments shall be done solely through consolidated correspondent account at the NBU.

This norm shall not apply to the operations of fulfilling liabilities within international and domestic payment and settlement systems and operations with securities effected in compliance with the laws.

A problem bank shall be obligated, over a period not longer than 180 days, to align its activities with the applicable laws, including NBU regulations.

A problem bank shall be obligated, over a period not longer than seven days, to notify the NBU of the actions to be taken to align its activities with the applicable laws, and at the request of the NBU, keep it informed of the progress achieved.

The NBU, over a period not longer than 180 days from the date the bank was declared a problem bank, has the right to either declare that the bank’s activities comply with the applicable laws, or declare the bank insolvent.

The NBU is obligated, not later than 180 days from the date the bank was declared a problem bank, to either declare that the bank’s activities comply with the applicable laws, or declare the bank insolvent.

Article 76. Declaring a Bank Insolvent

The NBU is obligated to declare a bank insolvent if there is at one of the following reasons to do so:

1) the bank has failed to align its activities with the applicable laws, including NBU regulations, after it was declared a problem bank, but not later than 180 after the declaration date;

2) the bank’s regulatory capital, or capital ratios, have decreased to one third of the minimum amount stipulated by the applicable law, and/or NBU regulations;

3) the bank has failed, for five working days running, to fulfill 2% or more of its liabilities before depositors and other creditors and/or to put in the bookkeeping records the documents of bank’s clients that were not performed by the bank in due time, as required  by the law, after the bank was declared a problem bank;

4) paragraph 4 of the first part of Article 76 excluded

5) after being declared a problem bank, the bank has performed transactions (except for interest rate accrual on deposits, payment to bank clients of salaries, alimony, pensions, scholarship, other social and government transfers) and executed (re-executed) agreements, whereby the liabilities before individuals within the guaranteed redemption amount increase owing to reduced liabilities before the individuals exceeding the guaranteed redemption amount and/or liabilities before individuals not to be redeemed by the DGF, and/or liabilities before legal entities;

6) the bank declared as a problem bank has failed to fulfill the orders or decisions of the NBU (including those related to applying enforcement measures/sanctions) and/or requirements of the NBU to eliminate violations of the banking laws and NBU regulations within the term specified by the NBU.

The NBU shall, not later than the day following the day a bank was declared insolvent, notify the Household Deposit Guarantee Fund of the declaration in order to enable the latter to take actions stipulated in the Law of Ukraine On Household Deposit Guarantee Schemes.

The NBU shall not supervise tha bank under a provisional administration, under liquidation, shall only receive reports, as appropriate.

The NBU shall supervise the bridge bank, established pursuant to part 18 article 42 of Law of Ukraine “On Household Deposit Guarantee Schemes”, according to the NBU regulations.

The NBU shall resume supervising the bank on the day it receives a notification from the Household Deposit Guarantee Fund on the termination of powers of the supervisor of the Household Deposit Guarantee Fund due to bringing the bank's activities in compliance with banking laws of Ukraine concerning compliance with capital and liquidity ratios.

Chapter 16
BANK LIQUIDATION

Article 77. Grounds for Revoking the Banking License and Liquidating the Bank

A bank may be liquidated:

1) by a decision of its owners;

2) if the National Bank revokes the license on its initiative, or at the request of the Household Deposit Guarantee Fund.

The NBU has the right to revoke the banking license if:

1) It has established that documents submitted by the bank to obtain a banking license contained inadequate information;

2) The bank has not effected any banking transaction within a year since the day it was issued a license;

3) There was detected a repeated breach by a bank of the laws covering the issues of anti-money laundering, combating terrorist financing, and the proliferation of weapons of mass destruction.

The NBU shall make a decision to revoke the banking license and liquidate the bank, at the request of the Household Deposit Guarantee Fund, within five days from the day of receipt of the request.

The order of revoking the banking license of the bank that is being liquidated by a decision of its owners shall be determined in the NBU regulations.

The NBU shall, not later than the day following the day it made a decision to revoke the banking license and liquidate the bank, shall notify the bank and the Household Deposit Guarantee Fund of its decision.

The Household Deposit Guarantee Fund, on the day it received the NBU’ decision to liquidate a bank, acquires the right of the bank’s liquidator, and commences the procedure of its liquidation pursuant to the Law of Ukraine “On Household Deposit Guarantee Schemes”.

The liquidation of a bank shall be deemed completed, and the bank shall be deemed liquidated, from the day a relevant entry was made into the Uniform state register of legal entities and individual entrepreneurs.

The NBU shall make an entry to the State Register of Banks that a bank has been liquidated on the basis of a decision made by the Household Deposit Guarantee Fund regarding the approval of a liquidation balance and the liquidator’s report.

Article 78. Shareholders Voluntary Bank Liquidation

Liquidation of bank by a decision of its owners shall be effected in accordance with the procedure provided in the laws on liquidation of entities unless the NBU has found reasons to declare the bank a problem or insolvent bank after receipt of the owners decision on liquidation of banks.

Owners of the bank shall have the right to start liquidation procedure by the decision of General Meeting of Shareholders only after the NBU has agreed upon it and the banking license has been revoked.

If the bank under voluntary liquidation has been declared by the NBU a problem bank or an insolvent bank, the NBU and the Household Deposit Guarantee Fund shall apply to the bank measures stipulated by this Law and the Law of Ukraine “On Household Deposit Guarantee Schemes”.

SECTION VI.
CHALLENGING THE NATIONAL BANK OF UKRAINE DECISIONS

Article 79. Challenging the NBU Decisions

A bank or other persons under the NBU supervision have the right, according to the procedure specified by the law, to challenge in a court the decisions, actions or omissions (inactivity) of the NBU or its employees.

Section VII. FINAL PROVISIONS

1. The present Law shall come into effect from the date of its publication.

The NBU shall have the right to set transitional terms for fulfillment of the provisions provided for by this Law, if this allows banks to comply with the requirements of this Law, these terms shall not exceed, however, the general deadlines envisaged by the present Law requirements.

Banks established during the period prior the effective date of this Law shall, within two years, bring their activities in compliance with this Law.

Within a year from the effective date of the present Law, the NBU shall re-issue licenses to the banks in line with the classification of operations provided for by this Law.

Provisions of the present Law shall apply to the bank establishment procedures, the granting of a license to perform bank operations initiated and not completed prior to the entry into effect of this Law.

A bank liquidation procedure initiated before the effective date of the present Law shall be completed pursuant to the rules set by this Law and the regulations of the NBU adopted in accordance with this Law.

2. Before legislation is brought in compliance with this Law, laws and regulations shall be applied to the extent they do not contradict this Law.

3. Within six months from the publication of this Law, the Cabinet of Ministers of Ukraine and the NBU shall:

prepare and submit to the Verkhovna Rada of Ukraine their proposals in respect of bringing laws of Ukraine in compliance with this Law;

bring their regulations in compliance with this Law;

ensure adoption of the regulations needed for the implementation of this Law;

ensure that the ministries and other central government agencies bring their regulatory documents in compliance with this Law.

4. The following documents shall be declared null and void:

Law of Ukraine On Banks and Banking (Vidomosti Verkhovnoi Rady USSR, 1991, No. 25, p. 281; (Vidomosti Verkhovnoi Rady Ukrainy, 1992, No. 20, p. 276, No. 47, p. 644, No. 48, p. 656; 1993, No.10, p. 76, No. 11, p. 83, No. 19, p. 209, No. 24, p. 272, No. 26, p. 277, No. 29, p. 307, p. 308; 1994, No.12, p. 60, No. 27, p. 222; 1995, No.14, p. 90, p. 93, No. 21, p. 154; 1996, No.3, p. 11, No. 7, p. 28; 1997, No.3, p. 7, No. 4, p. 24, No. 8, p. 63; 1998, No.10, p. 36, No. 14, p. 61, No. 26, p. 149; 1999, No.37, p. 334, 2000, No.35, p. 282);

paragraph 11, Section I of the Law of Ukraine On Amendments to Certain Laws of Ukraine due to Adoption of the Laws of Ukraine ‘On the State Enforcement Agency’ and ‘On the Enforcement Procedures’ No. 2056-III of 19 October 2000;

Article 62 of the Law of Ukraine On the National Bank of Ukraine (Vidomosti Verkhovnoi Rady Ukrainy, 1999, No. 29, p. 238; 2000, No. 42, p. 351);

Resolution of the Verkhovna Rada of Ukraine On the Procedure to Enact the Law of Ukraine ‘On Banks and Banking’ (Vidomosti Verkhovnoi Rady USSR, 1991, No. 25, p. 282; Vidomosti Verkhovnoi Rady Ukrainy, 1994, No. 52, p. 467).

5. While the Law of Ukraine On Financial Restructuring is in effect, Article 62 hereof shall be applied taking into account that, in accordance with the Law of Ukraine On Financial Restructuring, the banks participating in the financial restructuring procedure are allowed to disclose information that includes bank secrets with regard to a debtor, its surety (property guarantor) and debtor’s related parties, without their consent, to other participants of the financial restructuring and to the bodies facilitating the financial restructuring procedure (supervisory council, secretariat, arbitration committee (arbitrator).

6. For the term of validity of the Restructuring Plans approved in accordance with the Law of Ukraine On Financial Restructuring, the NBU shall not apply enforcement measures for the failure to maintain the following ratios and limits: short-term liquidity ratio, single counterparty exposure limit, investment ratio and FX position limit, if this failure is a result of bank’s participation in accordance with the Law of Ukraine On Financial Restructuring in financial restructuring procedure.

7. While the Law of Ukraine On Financial Restructuring is in effect, the NBU shall apply  to the banks sanctions for the breach of this Law provided for in Article 30 of the Law of Ukraine On Financial Restructuring in the manner prescribed thereby.

8. When restructuring debtor’s liabilities in accordance with the Law of Ukraine On Financial Restructuring, a bank may set interest rates and commission fees at the level lower than the cost of banking services in the bank.

 President of Ukraine 

Leonid Kuchma 

Kyiv
7 December 2000
No. 2121-III

  

 



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