On 20 July 2018, the Ukrainian President signed the long-awaited law "On introducing the amendments to certain laws of Ukraine on promoting the attraction of foreign investments” (“Law”) that gives all complying foreign financial institutions (“FFIs”) the possibility of becoming nominee securities account holders for their clients, and providing securities accounting and registration services in the Ukrainian capital market.
The law comes into forces on 24 November 2018.
The concept of global custody in capital markets addressed by the Law is a worldwide practice that allows an investor to remain the legal owner of securities that are held on the accounts opened and maintained in the name of nominees. This mechanism creates less administrative and financial pressure for cross-border investors since they no longer need to enter into direct contractual relationships with national custodians and go through time-consuming and expensive procedures to open and maintain individual securities account.
As a result, the Law allows foreign custodians to become financial intermediators, which is expected to make Ukraine more accessible to foreign investors.
The Nominee Holder
In order to obtain nominee securities account holder status (“Nominee Holder”), an FFI should:
- be registered in a member state of the European Union (EU) and/or be a member of the Financial Action Task Force (FATF);
- meet the requirements established by the National Securities and Stock Market Commission (“Regulator”);
- be authorised, according to the jurisdiction it was registered in, to provide securities accounting and title transfer registration services; and
- not originate from a country carrying out armed aggression against Ukraine and/or be directly or indirectly controlled by persons who are residents of such a country.
The following important regulatory details should be noted:
- A Nominee Holder opens nominee accounts with a Ukrainian custodian based on a provision of services agreement.
- Securities held in the nominee account cannot be seized if the Nominee Holder defaults.
- The Nominee Holder must comply with regulatory and legal disclosure obligations for the nominee account (e.g. providing information on the securities and their owners). Failure to comply with such obligations could lead to the suspension of operations for the nominee account until the violation is cured.
- Primary financial monitoring entities (e.g. custodians, banks, etc.) are entitled to carry out the following additional financial monitoring measures:
- collect and document information on the nature of a Nominee Holder’s activities including its reputation and previous involvement in money laundering, terrorist financing and the financing of weapons of mass destruction (“Prohibited Activities”);
- assess all measures taken by a Nominee Holder to combat Prohibited Activities;
- establish correspondent relations with FFIs; and
- ensure that the Nominee Holder undertakes appropriate identification, verification and examination of its clients.
The Law also creates the possibility for Ukrainian custodians to open securities accounts abroad with FFIs registered in the EU and/or with FFIs that are members of FATF, and provide their clients with accounting and registration services for securities of the foreign issuers.
Legislation: Law of Ukraine “On Amendments to Certain Legislative Acts on Facilitation of Foreign Investment” No. 2418-VIII dated 15 May 2018