​The Parliament of Ukraine has adopted a draft law aimed to improve the operation of the financial sector in Ukraine

7/5/18

On July 5, the Parliament of Ukraine adopted the draft law 8331-d on amendments to certain legislative acts of Ukraine on the improvement of the operation of the financial sector in Ukraine.

What’s it about?

One of the priority areas for the Ministry of Finance of Ukraine is the reform of the state-owned banking sector.

The updated Principles of the strategic reform of the state-owned banking sector were approved at the meeting of the Cabinet of Ministers on February 21, 2018. They are based on the below priorities:

1. Implementation of strategies for selected banks aimed to restore their operation as stable and profitable business-oriented entities.
2. Improvement of the effectiveness of the management model for state-owned banks by improving corporate management, discipline and strategy implementation.
3. Implementation of an effective platform for the processing of bad loans to reduce pressure on the balance sheets of state-owned banks.
4. Implementation of plans for the withdrawal of the state from banks to increase their capitalization.

The process of the transformation of state-owned banks can only be implemented using a corporate management model based on best international standards. That is why representatives of international financial organisations (IMF, EBRD, World Bank and IFC) participated in the preparation of this draft law.

The draft law also proposes a new version for paragraph 7 of the Law of Ukraine “On Banks and Banking Operations”.

Purpose of the draft law:

- review of the principles and mechanisms of the corporate management at state-owned banks;
- adjustment of the above principles and mechanisms to the best international standards (EU, OECD, Basel Committee) through the build-up of a management system for state-owned banks isolated from political influence;
- build-up of supervisory boards mainly consisting of independent members.

Key regulations of the draft law:

- composition of the supervisory board - 9 member: 3 members shall represent the state (members of the relevant Parliament’s committee, the President and the Cabinet of Ministers); 6 members shall be independent representatives;

- to identify candidates for the supervisory board of a state-owned bank, the Cabinet of Ministers sets up a contest commission consisting of representatives of the relevant Parliament’s committee, the Parliament of Ukraine, the President and the Cabinet of Ministers;

- a list of criteria shall be defined for the independent members of the supervisory board and state representatives in state-owned banks’ supervisory boards;

- candidates for the positions of independent members of the supervisory board of a state-owned bank are selected in a contest conducted in a procedure set by the Cabinet of Ministers. They are only selected out of candidates who have passed an open contest conducted by an international head-hunting company having at least ten years of international operation experience.

What’s the benefit?

The draft law No. 8331-d adopted today (draft law on amendments to certain legislative acts of Ukraine on the improvement of the operation of the financial sector in Ukraine) shall make it possible to implement effective corporate management practices in state-owned banks.

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