From 1 February 2013 a new procedure for obtaining approval to acquire or increase a holding in a financial institution comes into operation.

The changes were introduced when on 4 December 2012 the National Commission for State Regulation of the Financial Services Markets (the "Financial Services Commission") adopted a regulation setting the procedure for obtaining its prior written approval when acquiring or increasing a substantial shareholding in a financial institution (except for banks and professional participants of the stock market) (the "Substantial Shareholding Regulation"). 

The Substantial Shareholding Regulation was adopted to implement the requirements of the Law of Ukraine “On Financial Services and State Regulation of the Financial Services Markets” whereby any resident or foreign legal entity, or any resident or foreign individual must obtain the prior written approval of the Financial Services Commission to directly or indirectly own, hold, or control various thresholds in a financial institution’s charter capital or voting rights in its governing body, i.e., 10% or more, 25% or more, 50% or more, or 75% or more.  At each threshold a new approval of the Financial Services Commission must be obtained.

Some of the financial and reputational eligibility criteria the Substantial Shareholding Regulation sets for an applicant may be difficult to satisfy in practice.   Thus, an applicant must provide the Financial Services Commission with:

      i.  an evaluation of the applicant’s ability to provide the financial institution with additional financial assistance in the future if necessary (it is unclear how to pass the “financial ability” test); and

     ii. indication of the financial leverage index for an applicant that is a legal entity, which must be less than 0.25 (it appears that certain financial services companies, e.g., insurance companies, may not be able to meet this criterion).

The Substantial Shareholding Regulation is a positive step forward in the development of the Ukrainian financial services market and aims to make the ownership structures of financial institutions more transparent.  However, its practical impact is yet to be seen and tested. 

Additional notes