Uncontrolled liquidation of banks: what Hetmantsev proposes in the draft law on the Deposit Guarantee Fund

The draft law "On Amendments to Certain Legislative Acts of Ukraine on the Settlement of Certain Issues of the Deposit Guarantee Fund, the National Bank of Ukraine and Joint Investment Institutions" (No. 13007) authored by the chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, Danylo Hetmantsev, violates the legislation on the protection of depositors' rights and access to public information, UNN reports.

No right to property and no possibility of judicial appeal

In the explanatory note to the draft law, Hetmantsev states that the document was developed to minimize the risks of possible shocks caused by the special conditions of the Ukrainian economy during the period of martial law in Ukraine, to ensure the stability and reliability of the banking system of Ukraine by improving the regulatory framework for effective response to bank insolvency, minimizing the risks of possible panic in society.

In addition, according to him, the draft law is aimed at increasing the level of protection of depositors and creditors of banks, improving the processes of removing insolvent banks from the market and liquidating banks, as well as implementing modern international practices aimed at ensuring the stability of the financial system of Ukraine.

However, a closer look at the document reveals that the adoption of this draft law could, on the contrary, become a severe blow to the country's economic stability. Hiding behind the requirements of the International Monetary Fund (IMF), Hetmantsev is trying to lobby for a significant expansion of the powers of the Deposit Guarantee Fund (DGF) and make it completely "manual". His legislative initiative contains provisions that contradict the Constitution of Ukraine, which not only limit the rights of depositors, but also create potential corruption schemes for managing the assets of liquidated banks.

The document, among other things, effectively deprives depositors, shareholders and creditors of their property rights and makes it impossible for them to appeal to the court against the actions of the DGF during the liquidation of the bank, which violates the Constitution of Ukraine. 

A loss of confidence in the deposit guarantee institution could lead to a massive outflow of deposits, which would have a negative impact on the economy as a whole. In addition, such changes in the banking sector will scare away investors, which will significantly worsen the investment climate in the country.

Depriving depositors of protection in the event of bank liquidation

In addition to violating the Constitution of Ukraine, Hetmantsev's draft law also contradicts the Law of Ukraine "On Protection of Consumer Rights". According to this law, the state guarantees consumers protection of their rights and interests when entering into contracts and in the process of fulfilling their obligations. Consumers also have the right to receive complete, accurate and timely information about the service and the terms of its performance. And public authorities cannot make decisions that worsen the position of consumers compared to the current legislation.

Mr. Hetmantsev's legislative initiative proposes a significant restriction on the right of depositors and creditors to effectively protect their funds in the event of bank liquidation. If the bank is liquidated, depositors will not be able to appeal the DGF's decision and seek fair compensation.

If the draft law is adopted, liquidation procedures will be carried out by the Deposit Guarantee Fund without sufficient transparency, which creates conditions for abuse and non-transparent distribution of assets. It is possible that there will be situations when a bank in liquidation transfers assets to third parties without repaying its obligations to depositors.

The legislative changes to the legislation on the DGF's activities proposed by Hetmantsev will ultimately lead to uncertainty and risks of delays in payments to depositors, shareholders and creditors of a bank in liquidation. In addition, depositors will not be able to receive clear information on the terms, conditions and mechanism for the return of their funds.

It is also possible that the timing of warranty payments may be blurred through bureaucratic mechanisms, which will delay the process of refunding money for years.

If this bill is passed by the parliament, thousands of depositors may face problems in getting their money back, and the government will have a tool for uncontrolled redistribution of assets of banks that are being liquidated.

 Restrictions on access to public information

Another law that Hetmantsev proposes to violate in his initiative is the Law on Access to Public Information. It guarantees that everyone has the right to access public information held by public authorities. Government agencies are obliged to ensure openness, transparency and accessibility of information about their activities. Restrictions on access to information are allowed only on legal grounds and cannot be used to conceal information about human rights violations.

However, the draft law authored by Hetmantsev restricts access to information on the transfer of bank assets, as it allows the DGF and the NBU to restrict access to information on the liquidation processes of banks.

The lack of open information on the management of the assets of the bank being liquidated complicates public control. This may facilitate abuse and manipulation in the distribution of assets.

The work of the Deposit Guarantee Fund will become non-transparent, and citizens will not be able to obtain information about the use of their funds and will not be able to respond in a timely manner to possible violations. In addition, litigation over the DGF's misconduct will be complicated by the lack of information.

All of this creates enormous corruption risks in the process of bank liquidation. Ultimately, this will lead to a decline in confidence in the financial system and state institutions on the part of both Ukrainians and foreign investors. 

Therefore, Hetmantsev's draft law contains serious violations of Ukrainian legislation, which could lead to a significant restriction of depositors' rights, increased corruption risks and a decrease in transparency in the financial sector. If passed, thousands of depositors may lose their funds without recourse, and the authorities will have additional leverage to manage the assets of liquidated banks in a non-transparent manner. The investment climate in Ukraine will deteriorate significantly, which will have an extremely negative impact on economic stability.