The Deposit Guarantee Fund will increase the board composition to 7 members and introduce a competition for the director position

Changes to corporate governance are being prepared in the system of deposit guarantees for individuals. The Verkhovna Rada has registered draft law No. 15269, which proposes to expand the administrative board, introduce a competition for the position of managing director, and strengthen internal control within the Fund.

The changes are related to the fact that the current management model of the Fund does not meet modern corporate governance requirements in the financial sector. Strengthening the Fund's corporate governance is foreseen by the memorandum of cooperation between Ukraine and the International Monetary Fund.

What the draft law will change

The draft law proposes amendments to the Law of Ukraine "On the System of Deposit Guarantee for Individuals."

It concerns increasing the composition of the Fund's administrative board from five to seven members. It will include two representatives each from the Cabinet of Ministers of Ukraine, the National Bank of Ukraine, and the relevant committee of the Verkhovna Rada, as well as the managing director of the Fund by position. At the same time, the requirements for members of the administrative board are significantly strengthened. It is envisaged that a person must meet the established criteria throughout the entire term of office.

Candidates will be preliminarily selected by a special personnel recruitment company, and the competition will be conducted by a separate commission with the participation of representatives of the administrative board. Representatives of international financial organizations with an advisory vote may also be involved in the commission's work.

In particular, members of the executive board cannot be persons associated with banks or companies that have contractual relations with the Fund or banks undergoing market exit procedures. Restrictions are established for persons with unexpunged convictions, significant tax debts, or alimony arrears. A ban on appointment in case of a potential conflict of interest is also prescribed.

A member of the Fund's administrative board will be appointed for a term of four years, which may be extended but not for more than one additional term. Meanwhile, the managing director of the Fund is part of the administrative board for the duration of their powers by position.

The document also changes the internal control system within the Fund. The administrative board will have the authority to oversee the internal control system, approve the auditing firm, appoint the head of the internal audit service, and agree on the appointments of deputy managing directors.

Additionally, the draft law introduces for the first time at the legislative level an audit committee of the administrative board. It will be an advisory body that evaluates the effectiveness of internal control and the reliability of the Fund's financial reporting. Besides members of the administrative board, independent experts may be part of it.

Among the innovations, the internal audit service will be accountable to the administrative board, and its head will be appointed and dismissed by the board. It is envisaged that internal audits will be conducted according to an annual plan in accordance with international internal audit standards.

The Deposit Guarantee Fund for individuals is obliged annually to ensure a full cycle of financial and management reporting, which includes:

• an annual activity report for the reporting period, annual financial statements, and a management report;
• the reliability of financial statements will be confirmed by an independent auditing firm approved by the Fund's administrative board;
• the publication of reports is also clearly regulated — financial statements, management reports, and audit opinions must be published on the Fund's official website no later than June 1 of the year following the reporting year, and the annual activity report no later than July 1.

The draft law also establishes that in case a bank is recognized as insolvent and its market exit begins, the Deposit Guarantee Fund must, before the end of the temporary administration, apply to the National Bank of Ukraine with a proposal to revoke the banking license and start the bank's liquidation.

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