Draft Law of Ukraine No.3111 On Amendments to Some Laws and Regulations concerning establishment and maintenance of a Credit Register at the National Bank of Ukraine is pending consideration by the Verkhovna Rada of Ukraine.

The National Bank of Ukraine pushes for its speedy approval and enforcement as part of the financial sector reform.

“Two key commitments set out in the realm of today's reform process have called for the need to establish a Credit Registry.  First,  the quality transformation of Ukraine’s banking  sector has prompted an urgent need to streamline the instruments of banking supervision to lower credit risk, ensure  the security of banking transactions, protect the interests of bank depositors and other creditors, and enhance the banking system stability. Second, Ukraine has committed to establishing a Credit Registry under the Memorandum of Economic and Financial Policies entered into between the IMF and Ukraine under the Extended Fund Facility Arrangement,” said First Deputy Governor of the National Bank of Ukraine Oleksandr Pysaruk.

Under Draft Law No.3111, the Credit Registry mainly aims to monitor credit risk concentration, enhance the monitoring of large business groups, including those related to bank owners, and reduce the share of non-performing loans.

To this end, following the establishment of a Credit Registry, Draft Law No.3111 has authorized the National Bank of Ukraine to exercise the following mandate:  

• receive information from banks and provide them with information on a legal entity or an individual without the consent thereof;
• use information derived from the registry to perform banking regulation and supervision functions, including the consolidated supervision and risk management in banks.

At the same time, Draft Law No.3111 obliges banks to do the following: 

• submit information to be entered into the Credit Registry (this requirement shall also apply to banks that have been declared insolvent and banks under liquidation);
• notify a client that information thereon shall be submitted to the Credit Registry.

Banks shall have the right to use information derived from the Credit registry to reduce risks arising lending transactions.

Oleksandr Pysaruk underlined that it is common practice in developed countries with well-functioning market economies to maintain Credit registries, which serve as an indicative instrument for conducting a preliminary risk assessment in banks."

Thus, most countries across the world have what is called a public credit register. There are also private credit reference agencies operating in parallel with the Public credit register. The main difference between Public credit registers and credit reference agencies is that providing access to information stored in the database is legally binding rather than being subject to any arrangements. As a rule, public credit registers are run by central banks. 

In Ukraine, private credit reference agencies began operating in 2005, when the Law of Ukraine  On the Organization of Compilation and Circulation of Credit Histories  of Credit Histories was passed.  A model where private institutions operate in the competitive environment without the interference of the government in the circulation of credit report information lies at the core of private credit reference agencies.

In accordance with Draft Law No.3111, the establishment of a Credit Registry shall not mean that private credit reference agencies operating in Ukraine shall be liquidated. On the contrary, this draft law is intended to establish an important component of the information sharing framework, which is required for lending.

What is important is that this Draft Law is without prejudice to the domestic legislation in the area of personal data protection and banking secrecy.

Pursuant to Article 61 of the Law of Ukraine On Banks and Banking, a bank shall have the right provide information that contains bank secrecy to organizations to enable them to perform their duties (in this case this information shall be provided to the NBU to establish and maintain a Credit Registry) and shall not require seeking the person's consent to provide such information.

In accordance with the fifth part of Article 62 of the Law of Ukraine On Banks and Banking,  a bank shall have the right to provide the information, which constitutes the banking secrecy, to other banks and National Bank of Ukraine within the limits required to grant credits and bank guarantees.

Pursuant to Article 32 of the Constitution of Ukraine, and Article 11 of the Law of Ukraine On Information, collection, storage, use and dissemination of information about an individual without his/her consent is not permitted, except for those cases established by law, and solely in the interests of the   national security, economic welfare of the country and human rights’ protection.

Thus, the provisions set out in Draft Law No.3111 are fully consistent with the Ukrainian laws regulating legal relations in the sphere of personal data protection and banking secrecy, with regard to the provision by banks of information on transactions performed by legal entities and individuals that shall be entered into the Credit Registry without the consent of such persons.

Draft Law No.3111 entails amending the Laws of Ukraine On the National Bank of Ukraine and On Banks and Banking.