On 22 December 2018, the National Bank of Ukraine (the National Bank, NBU) adopted resolution of the NBU Board "On Approval of the Regulation on Bank Licensing" No. 149 (the Resolution No. 149) that has been under development for almost two years. According to the regulator's representatives, the new act aims to transit from a formalistic to a risk-oriented approach in all matters relating to bank licensing. Regulation No. 149 is effective from 29 December 2018.
Key novelties of Resolution №149
NBU decision-making principles
In line with European Union legislation, the National Bank for the first time established limits on its discretion while exercising the powers envisaged by Resolution No. 149, by introducing the following principles:
- consistency of substance and form (assessment of deals, operations, circumstances and events should be carried out by the NBU in view of their economic and legal substance as well as their nature);
- proportionality of regulatory requirements to terms and conditions of a particular situation, namely the size of a bank, types of performed activities and related risks, financial standing of a bank and its shareholders with qualifying holdings;
- combination of principles of legal certainty for applicants and reasonable doubts of the National Bank (the NBU is entitled to request clarifications, explanations and additional documents as to be confident in the applicant's compliance with all legal requirements);
- comprehensive analysis of the applicant for the purpose of taking decisions on the application.
In addition to the above principles, the National Bank is also entitled to rely on its professional judgment based on information obtained from various sources. For example, the regulator may resort to its professional judgment to release the applicant from submission of some documents without proper legalization, to recognise the applicant's flawless business reputation regardless of the lack of formal compliance with the requirements of Resolution No. 149, to ascertain facts of the applicant's financial difficulties, etc.
Assessment of business reputation of individuals and legal entities
Resolution No. 149 introduces significant changes regarding the criteria of assessing the business reputation of individuals and legal entities, the procedural aspects of their assessment, and enshrines the concept of flawless business reputation assumption. The main changes in the business reputation assessment are as follows:
- the period for recognition of flawed business reputation for sanctioned persons extended from 3 to 10 years after exclusion from the sanction list;
- approaches for recognition of flawed business reputation in case of failure to fulfil tax obligations are differentiated. In particular, a significant violation is separately distinguishable if it exceeds 100 minimum official salaries. In such cases, the sign is applied not only during the violation period, but also 3 years after its termination;
- amount of overdue financial obligations considered by the regulator as a sign of flawed business reputation is increased (from 50 thousand up to 300 thousand hryvnias for individuals; from 300 thousand up to 3 million hryvnias for legal entities);
- some signs of flawed business reputation were added and clarified, namely how the business reputation may be recognised as flawed in case of:
- violation of certain requirements of foreign criminal and labour legislation (and not only Ukrainian as before);
- failure to fulfil assumed obligations, including those set forth in guarantee letters provided to the National Bank, over the past three years;
- time limit for recognition of flawed business reputation for persons associated with an insolvent bank no longer exists (previously this sign applied for 10 years).
On a separate note, Resolution No. 149 also sets out a detailed procedure granting the applicant, in most cases, the right to provide reasonable explanations to the NBU on the grounds for release from the application of flawed business reputation criteria. At the same time, if the NBU considers such explanations as insufficient and decides to assign flawed business reputation, the applicant loses the right to re-apply to the NBU for at least one year.
Assessment of the financial standing of applicants
New Resolution No. 149 has significantly revised the criteria for the financial (property) standing assessment of applicants, as well as developed in detail provisions of assessment methodology, namely:
- the previously mentioned proportionality principle as well as the professional judgment of the NBU gives the latter the option (in certain cases) either to "close their eyes" to certain inconsistencies of the applicant with the established requirements, or to recognize the financial standing as unsatisfactory despite meeting all requirements;
- assessment criteria are distinguished depending on the subject of assessment (in other words, the criteria are different for legal entities — acquirers of bank shares, intermediate companies, consolidating (holding) companies and ultimate beneficiary owners — both legal entities and individuals);
- the following new criteria for assessment were introduced: for legal entities — financial stability and signs of unsatisfactory financial standing, for individuals — solvency;
- the approach to determine adequacy of own funds of the ultimate beneficiary owner was changed and is now defined as the largest of the following indicators (proportionate to the amount of a proposed acquisition):
- regulatory capital of the bank;
- minimum regulatory capital established by the NBU;
- price of direct/indirect acquisition of shares of the bank;
- the methodology of determining the amount of own funds for legal entities and individuals, as well as the requirement to submit the necessary documents confirming the grounds for receiving funds (property) for the formation of the charter capital of a legal entity were introduced;
- the fact that a company accumulated losses or exists for less than three years is no longer considered as grounds for designating the applicant as having unsatisfactory financial standing. Instead, the focus of the assessment is shifted to assessment of whether the company follow its core lines of business or not;
- it is possible for individuals to not confirm sources of funds in relation to property acquired more than 15 years before the date of applying to the NBU (only if certain criteria are met).
Other important changes
In addition to the above changes, the National Bank has also improved:
- procedure for the approval of the acquisition (increase) of a qualifying holding in the bank – among other things, special terms were set for approval in cases of intra-group restructuring, acquisition (increase) of qualifying holding under a power of attorney, or an asset management agreement;
- assessment criteria for bank managers – additional requirements were imposed on bank managers and independent directors; the list of cases for mandatory testing and interviewing with the NBU has been extended;
- procedures concerning the opening of standalone units of banks, as well as launching new lines of business.
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