Date of publication: 30 September 2015
Maksym Kopeychykov, Attorney at Law, Partner
Not long ago, the Verkhovna Rada adopted the Law “On amendments to some legislative acts of Ukraine concerning improvement of deposit guarantee system and withdrawal of insolvent banks from the market”. The relevance of the additional legal regulation in this sector is obvious. According to the data of the Deposit Guarantee Fund (the Fund), the decisions on introduction of interim administration or liquidation were approved with regard to 57 banks.
Urgency does not mean hard work
Before the local elections the lawmakers decided to show how they “care” about the bank’s depositors. As a result, they adopted a populist law that eliminates the effect of a number of civil law and procedural law rules in the banking sector. In addition, it is contrary to the actual interests of millions of citizens and thousands of legal entities.
There have already been the attempts to present adoption of the law as “a step on the way to Europe” and “an effective measure to ensure protection of investors”. In fact, the law can be described more as a regulation, which potentially can significantly increase the corruption component in the banking sector.
What is important:
- The National Bank (through the Fund) has an additional opportunity to influence the bank owners through the threat of introduction of interim administration, during which the audit and the actual cancellation of contracts concluded by the bank can be conducted;
- At the legislative level, the major lenders are actually deprived of the possibility to obtain money deposited with the bank;
- The Fund, which is not even a state body, in its sole discretion determines the procedure for declaring transactions null and void. Formalization of this procedure will significantly complicate the judicial appeal of even not quite lawful actions of the Fund’s authorized persons.
Now each and every owner of banks (except, perhaps, one or two, and banks with foreign, not Russian, capital), for sure, sleep light. The interim administration may be introduced even in the solvent bank, which complies with all regulations. The example is the Bank National Credit, when under the pretext of minor violations the interim administration was introduced in the bank. From the effective date of the law, the National Bank received an additional, more effective instrument of pressure on the banks’ shareholders, which can be applied by the Fund’s entities to the disloyal owners of financial institutions.
Further, adoption of this law did not make easier life of large depositors and other VIP-clients, who, in fact, provide the main resource for work of the banks. With the entry into force of the law they are actually deprived of the opportunity to acquire assets of the bank, which can become troubled. They also are no longer able to fulfill the obligations of third parties for their funds held in accounts in the financial institution. In the new conditions the Fund, which is not even a state body, becomes the sole administrator of the assets of the banking institution. The equivalent of “Lord and master” for all creditors shaping the future and deciding whom to forgive, and whom to punish. A few state agencies have the powers similar to those of the Fund. Perhaps only the powers of the Antimonopoly Committee are envisaged just as carefully and with a clear dominance of interests of the public agency over business entities.
The law can truly be called revolutionary, as well as many other initiatives of the National Bank in the last few months, because the “rules of the game” change radically. And, of course, like the vast majority of revolutions, it brings immediate benefit only to those who led or initiated it. The effect of Article 124 of the Constitution of Ukraine regarding extension of jurisdiction of the courts to all legal relations in the state is restricted significantly. The people’s deputies for some reason decided that the Fund is more trustworthy than the Ukrainian courts and restricted applicability of interim remedies to the Fund and its assets. It will be impossible to seize money of the Fund as part of securing the claims, while there will be no such restrictions in the reverse order (at the suit of the authorized persons of the Fund to the borrowers).
This description is only a part of the novelties of the main part of the law, which took effect since 12 August. Increased distrust in the banking system will be a natural reaction of business representatives and large depositors to the adoption of the law. And the clients reluctant to work with the big banks with foreign capital will try to “transfer to cash” at least temporarily. Cash in this case means not money at all, but namely cash. It means even more increased shadow turnover, less money paid to the taxmen, and restoration of the habit of putting free money in the bank will take many months, if not years. This is the case when the declared good intentions can lead to a total crisis of the banking system, and thereafter – to its tough monopolization.