On 31 March 2016 a draft law "On Amendments to Certain Legal Acts (regarding Regulated Markets and Derivatives)" (the "Draft Law") was adopted by the Ukrainian Parliament in the first reading. The Draft Law amends, inter alia, the Civil Code of Ukraine and introduces the escrow mechanism. The mechanism is to be put into use by the banks acting as escrow agents.
The Draft Law allows Ukrainian banks to keep the funds in the client's special (escrow) account (the client or a third party may transfer the funds to the account) until said funds have been released, upon certain agreed conditions, for the benefit of the client or a third party beneficiary. The release is made against the submission of documents confirming fulfilment of the agreed conditions. Unless otherwise provided by the escrow agreement, the bank should only assess the external characteristics of the documents submitted. Until release the funds in the client's special (escrow) account are frozen and neither client nor third party beneficiary may dispose of the funds. The escrow agreement may, however, allow for disposal of funds by the client or a third party beneficiary and provide for a limit to the level of disposal.
The escrow mechanism is a concept unknown to the Ukrainian legal system so far. However, parties to a transaction often find it an acceptable and convenient solution to minimise or reduce risks. Therefore, currently the parties enter into an escrow agreement governed by a foreign law and involve a foreign bank or notary as an escrow agent.
The Draft Law should pass the second reading and then be signed by the President of Ukraine, which will bring it into force after promulgation. Draft laws are usually commented upon and amended between the readings, so the Draft Law after the second reading may be different to the current version. The National Bank of Ukraine is expected to amend and develop subordinate legislation in order to make the escrow mechanism work.