Having reviewed the NBU’s cassation appeal, the Supreme Court, composed of a panel of judges of the Cassation Administrative Court, including the reporting judge Albert Yezerov and judges Oleksandr Starodub and Semen Stetsenko, overturned the decisions of courts of previous instances and confirmed the legitimacy of NBU decisions to revoke the licenses of FINOD LLC and to exclude it from the State Register of Financial Institutions.
The Supreme Court’s ruling has entered into force and is final and not subject to appeal.
As stated in the Supreme Court’s ruling, the NBU’s powers to develop and approve regulations that are binding on financial services market participants, monitor their implementation, supervise (control) compliance by non-bank financial institutions with the terms and conditions of financial services provision, and apply enforcement measures are defined at the legislative level.
The Supreme Court has ruled that FINOD LLC failed to properly fulfill the requirements for submitting all necessary documents to the NBU, as stipulated in NBU Board Resolution No. 177 On Specifics of Registration and Licensing Procedures of Nonbank Financial Market Participants under Martial Law and Amending NBU Board Resolution No. 39 dated 6 March 2022 dated 12 August 2022 (hereinafter referred to as “Resolution No. 177”)
The panel of judges of the Supreme Court concluded that the courts of previous instances failed to take into account that the assessment of the financial standing of the qualifying holders, as well as the recognition of compliance of the financial standing in a non-bank financial institution with the requirements of Ukrainian laws, shall be carried out based on the review and analysis of all documents submitted by non-bank financial institutions, as stipulated in paragraph 1 of Resolution No. 177.
The Supreme Court noted that FINOD LLC’s failure to submit documents made it impossible for the NBU to consider whether the qualifying holders of FINOD LLC complied with the requirements of Ukrainian laws.
The Supreme Court’s ruling states that the impossibility of the NBU’s assessment of the financial/property standing of the direct and ultimate qualifying holders of a non-bank financial institution poses significant risks of delayed fulfillment or non-fulfillment of the institution’s obligations to clients and other creditors. Therefore, to achieve the objectives of state regulation of the financial services market, the NBU must respond to such violations.
“The Supreme Court’s ruling is important for ensuring the Ukrainian financial market’s transparency and stability. The NBU acts within the boundaries of the law, supervising non-bank financial institutions’ compliance with legislative requirements. Our position remains unchanged: NBFIs that fail to meet regulatory requirements cannot continue to operate, as doing so poses risks to clients and the financial market’s overall stability. The court has confirmed that the regulator’s decision to revoke the license from FINOD LLC and remove it from the financial institutions register was legitimate,” said Viktor Hryhorchuk, Head of the Litigation Office at the NBU’s Legal Department.
As part of a supervisory strategy for the non-bank financial services market, the NBU verifies whether qualifying holders comply with the property status requirements established by Resolution No. 177, Viktor Hryhorchuk said. Resolution No. 177 equipped the NBU with the tools to promptly respond to risks arising in the non-bank financial services market. These tools prevent the presence of nominal owners, ensure that the funds truly belong to the owner and are generated from market transactions and legitimate sources, verify that the ownership structure is transparent, and preclude situations where the owners will not be able to provide vital financial support to the institution as needed.
Enshrined in Ukrainian laws is also an approach whereby the ability of a financial service provider to do licensed business directly depends on whether the provider’s qualifying holders meet specific conditions for carrying out activities related to the provision of financial services. Failure by non-bank financial institutions to file documents in fulfillment of Resolution No. 177 requirements deprives the NBU of the opportunity to perform its lawful function of verifying a non-bank financial institution’s compliance with the established terms of financial services provision. This leads to the revocation of the NBFI’s license to pursue a financial services provision activity, Viktor Hryhorchuk said.
FINOD LLC was one of the largest operators in Ukraine’s currency exchange market. On 21 August 2023, the NBU revoked FINOD LLC’s licenses, and on 8 September 2023, removed FINOD LLC from the State Register of Financial Institutions