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New Law to Make Credit Unions More Resilient and Widen the Range of Financial Services They Provide

New Law to Make Credit Unions More Resilient and Widen the Range of Financial Services They Provide

The National Bank of Ukraine welcomes the adoption of the new wording of the Law of Ukraine On Credit Unions by the Ukrainian parliament on 14 July 2023.

"We are grateful to the parliament for the adoption of the Law On Credit Unions. First, the new law and the updated regulation in this area are in line with the best global practices. Second, new approaches to regulating credit unions will undoubtedly help improve their resilience and effectiveness of their operations," emphasized First Deputy Governor of the NBU Kateryna Rozhkova.

So what will change for credit unions and their members?

New members

The new wording of the law On Credit Unions widens the list of persons who can become members of credit unions.

Apart from private individuals, legal entities will be allowed to become credit union members. They include farming businesses, apartment building co-owners associations, cooperatives, and microbusinesses.

New capital requirements that focus on stability

The new law improves requirements for the capital structure of credit unions.

In particular, credit unions will be able to increase their capital from a wider number of sources, and requirements will be set for regulatory capital components – both tier 1 and tier 2.

Reinforcing credit union management systems

The legislation will include new requirements for the systems of corporate governance and internal control at credit unions. The powers will be clearly divided between management bodies – the general meeting, the supervisory board, and the management board (or the single management body). The law also imposes restrictions on combining some functions in order to avoid potential conflicts of interest.

In addition, the law sets impeccable business reputation and fit and proper requirements for credit unions’ top managers. The NBU will approve appointment of senior management of important credit unions and joint credit unions.

In fact, the new requirements for management systems will help prevent the concentration of all management processes on a limited circle of persons. This will reduce risks for credit unions’ financial standing and protect interests of their members.

New licensing rules and new opportunities

To replace the two-step procedure of entering the market, the law enables credit unions to receive their licenses and be registered in the relevant register at the same time.

Moreover, now credit unions do not need to obtain several licenses for various types of financial services, as they will conduct their operations based on the credit union license.

The law differentiates between a standard and a simplified license. Based on the standard license, a credit union may provide financial services to lend and to raise from its members funds and investment metals that are subject to return and are not share contributions. They can only issue loans based on the simplified license. At the same time, if they wish, credit unions may provide guarantee services, currency valuables trading services, and some financial payment services. 

In addition, credit unions will be able to also provide complementary, intermediary, and consulting services in order to engage individuals in using financial services.

Licensing requirements for credit unions will be updated accordingly: requirements will be tighter for standard licenses.

Option to outsource some functions

Credit unions will be able to outsource some of their functions. At the same time, they are obliged to inform the NBU about it.

The new wording of the Law of Ukraine On Credit Unions becomes valid on the next day after being published and takes full effect on 1 January 2024.

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