The National Bank of Ukraine (NBU) has strengthened requirements for banks that manage construction financing funds and banks engaged in fiduciary activity.

In particular, the NBU has revised its approach to determining specialized banks that conduct fiduciary management. A bank is assigned a status of a specialized bank if the value of transactions under fiduciary contracts equals to or exceeds 50% of the bank’s total assets.

Additionally, the NBU has imposed provisions the compliance with which will strengthen oversight of banks that manage construction financing funds in terms of the intended use of resources of such funds. These provisions introduce requirements for banks’ internal procedures. In particular, banks that manage construction financing funds are required to put into place an intrabank regulation that outlines monitoring procedures regarding:

• the documents necessary to provide financing of construction facilities, which will include information about a developer, their rights to use a land plot, the right to perform construction works, as well as contractor’s licenses
• the intended use of resources of construction financing funds by developers
• compliance with the established schedules and volumes of construction works performed
• compliance with the expenditure budget for financial the construction facility
• fulfilling the requirements of specifications with regard to the construction facility and investment objects
• measures undertaken by developers to eliminate the identified shortcomings.

The intrabank regulation must also include:

• Report formats from a developer, the scope and extent of details of which is designed to ensure fulfillment by the bank that manages construction financing funds of its responsibilities in terms of control over the intended use of funds’ resources by developers.
• Requirements as to the qualification of the personnel charged with control over the intended use of funds’ resources by developers.

The new requirements also stipulate the necessity to carry out audits every six months and provide the NBU with audit opinions regarding the intended use of resources of construction financing funds.

The relevant changes are provided for by NBU Board Resolution No. 92 dated 18 September 2017 On Amendments to the Rules on the Procedure for Regulating Bank Operations in Ukraine, which takes effect 30 days from the day following the day of its official publication, except for the provision regarding the determination of a specialized bank involved in fiduciary activity, which will come into force on 1 October 2018.

Banks, the volume of transactions of which under fiduciary contracts is above 50% of its total assets, shall submit to the NBU, within 30 days from the day this Resolution enters into force, a plan on bringing its activity in compliance with the requirements outlined for specialized banks that conduct fiduciary management during one year.