New regulations of the National Bank of Ukraine: advanced shareholding disclosure rules & enhanced solvency requirements for UBOs

Following the adoption by the Parliament in March 2015 of the Law, which increased responsibility of persons related to a bank (the Law), the National Bank of Ukraine (the NBU) developed several regulations (Regulation No. 328 and Regulation No. 332 of 21 May 2015 and Regulation No. 357 of 4 June 2015 – collectively referred to as the Regulations) aiming at practical implementation of new requirements established by the Law.

To remind, the Law expanded the list of persons related to a bank as well as liability of such persons, set out new restrictions on transactions with related persons, introduced new requirements regarding disclosure of the banks' ownership structure and reconsidered the approach to obtaining approval for acquisition of a significant interest in a bank.

Being inspired by the IMF support of the targeted transparency of the Ukrainian banking system, the NBU has further developed most of the novelties established by the Law. In particular, the NBU changed the requirements to solvency of the ultimate beneficial owners of Ukrainian banks (the UBOs) and established new approaches to disclosure of bank shareholding structure.

New regulations – important takeaways:

Pragmatic approach to UBO solvency: to be cleared by the NBU, a UBO should have income exceeding the bank's regulatory capital

The NBU enhanced requirements to financial standing of the UBOs. Under the new rules, the UBO's income should be sufficient to ensure further capitalisation of the bank. In setting out the UBO income sufficiency test, the NBU linked the UBO's income to the bank's regulatory capital or its charter capital, in case it exceeds the regulatory capital.

Example: a person acquiring 50% shareholding in a bank with regulatory capital of UAH 500m should prove legitimate income in amount exceeding UAH 250m. Otherwise, such person will not obtain the NBU approval for the acquisition of a significant interest in such bank.

In case a bank claims absence of the UBO, the NBU may apply 'informal ownership concept' or inspect ten largest 'ultimate key stakeholders'

In case a bank’s shareholding structure does not reveal a clear link with a particular UBO, the NBU will most likely suspect such bank in having nominee shareholders acting in the interests of a real UBO. In such case, the NBU will be able:

• to apply the so-called 'informal ownership concept' in case the lack of information on the formal ownership in a bank. As a result, the NBU will be entitled to recognise a person having a significant or decisive influence over the bank's management and activity as an owner of a significant interest in such bank. To the moment, the NBU has already tested the informal ownership concept on several occasions. In particular, the NBU identified and imposed sanctions on several informal owners of a significant interest in Ukrainian banks. Furthermore, the NBU is planning to dramatically increase fines applicable to informal owners of a significant interest in a bank, who did not obtain the respective NBU approval; or
• to check financial standing of ten largest 'ultimate key stakeholders' – persons holding at least 2% shareholding in a legal entity in the bank's ownership chain and which do not themselves have key stakeholders (e.g., individuals or foreign public listed companies). If at least two ultimate key stakeholders holding more than 5% shareholding in a bank or one person holding ultimately at least 10% stake fail to prove sufficient financial standing, the NBU may designate ownership structure of a bank as "non-transparent".

Banks designated by the NBU as having non-transparent ownership structure may face serious adverse consequences. In particular, the NBU may refuse to grant a refinancing loan to such bank, prevent it from purchasing foreign currency or otherwise restrict banking operations. Business reputation of the managers of such bank may be seriously affected. In the worst-case scenario, the NBU may designate such bank as a "problematic" one.

New NBU approach requires investors to conduct thorough and careful structuring of acquisition of Ukrainian banks

The Regulations established new rules directly affecting the structures commonly used by lawyers when documenting an acquisition of a Ukrainian bank:

• New formula for calculation of indirect ownership in a bank. The formula should provide the NBU with additional instruments for identifying indirect owners of a significant interest in a bank. According to the Regulations, the NBU will use the formula in addition to the criterion of control.
• Ban on discretionary trust structures. Regulations designate the ownership structure of a bank as non-transparent if significant holding in a bank is transferred to a discretionary trust making it impossible to determine all owners of a significant interest in a bank.
• Certain exemptions for private investment vehicle structures. The NBU appreciated the fact that some private investment vehicles, such as limited partnerships, may find it difficult (if possible at all) to provide all documents and comply with formal requirements commonly applied by the NBU to the acquirers of a significant interest in a Ukrainian bank. Therefore, in case private investment vehicles meet the criteria envisaged by the Regulations, the NBU may exempt such vehicles from obligation to comply with all formal requirements.

Separate submission procedure for persons qualified as indirect owners of a significant interest in a bank following the adoption of the Law

As a result of application of the new rules set out by the Law, certain persons found themselves in a position where they de-facto became indirect owners of a significant interest in a bank irrespective of control over the direct owner of the bank. The Regulations addressed this situation and established a procedure for obtaining an approval by such persons. The NBU extended the final term for submission of required documents to the NBU until 8 July 2015.

For more information, please contact Vladimir Sayenko, Sergiy Kazmirchuk or Kateryna Zhebanova.