New Ukraine’s Fintech legislation: Embracing Innovations

This year, Ukraine’s Law on Payment Services (“LPS”) Enters into force and marks a new chapter in the country’s economic business environment and regulation. LPS introduces description, framework for operation and regulation of modern financial technologies, including electronic money, payment networks and Central Bank Digital Currency (CBDC) in the territory of Ukraine.

The new law ensures better security and efficiency in the provision of financial services by adapting it to similar laws in the EU. Harmonization of Ukrainian legislation with EU legislation is of high priority for Ukraine since the country was officially granted EU candidate status on 24 June 2022, confirming Ukraine’s European perspective.

The Ukrainian legislators have set up LPS with the revised Payment Services Directive (Directive (EU) 2015/2366), also known as PSD2, which regulates payment services in the EU, as well as with the e-Money Directive (Directive 2000/46 / EC), known as EMD, which regulates electronic payment systems in the EU.

Under the new law, the main regulatory function in the payment service sphere is assigned to the National Bank of Ukraine, which will issue licenses to market participants for their operations.

The range of payment service providers is expanding and their activities and permitted operations are now clearly defined. In particular, nine types of payment service providers are prescribed by LPS:

1. banks;

2. payment institutions (PI), including small payment institutions (SPI);

Branches of foreign payment institutions;

4. electronic money institutions (EMI);

5. financial institutions entitled to provide payment services;

6. postal operators;

7. non-financial payment service providers;

8. National Bank of Ukraine;

9. state authorities, local self-governing bodies.

Non-bank payment service providers, which include PI, SPI, EMI postal operators, will be allowed to open payment accounts and issued payment cards and electronic money.

The new types of payment services that LPS introduces are:

1. services for crediting and debiting cash to user accounts, as well as all services related to the opening, maintenance and closing of accounts (excluding electronic wallets);

2. services for withdrawing cash from user accounts, as well as all services related to the opening, maintenance and closing of accounts (excluding electronic wallets);

3. services for performing payment operations with the user’s own funds from / to the user’s account (excluding payment operations with electronic money), including:

• performing a credit transfer;
• performing a debit transfer;
• perform another payment transaction, including the use of payment instruments;

4. services for performing payment operations from / to the user’s account (except for payment operations with electronic money), provided that the funds for the execution of the payment operation are provided to the user by the payment service provider on credit terms, also apply:

• performing a credit transfer;
• performing a debit transfer;
• performing another payment transaction, including the use of payment instruments;

5. services for issuing payment instruments and / or procuring payment instruments;

6. money transfer services without opening an account;

7. services for issuing electronic money and performing payment operations with these, including opening and maintaining electronic wallets.

LPS also provides non-financial payment services that include:

1. payment transaction initiation services;

2. services for providing account information.

Established minimum requirements for share capital depend on the payment services offered by the company under LPS. The requirements are as follows:

• UAH 1 million – for the provision of payment transaction initiation services or money transfer services without opening an account;
• UAH 3 million – for the provision of payment transaction initiation services and money transfer services without opening an account or one of the financial payment services provided in points 1-5 above of the types of payment services that LPS introduces;
• UAH 5 million – for the delivery of several financial payment services set out in points 1-6 above of the types of payment services that LPS introduces, or for a
  postal operatorregardless of the number and types of payment services it intends to offer;
• UAH 10 million – for payment services for issuance and execution of payment transactions with
  electronic money.

In accordance with the LPS, the National Bank of Ukraine will create a regulatory sandbox environment for testing services, technologies and tools based on innovative technologies. After the end of the test period, the participant in the regulatory sandbox will have the right to continue operating after obtaining the relevant license. In addition, the law provides a deadline of up to 2 years for participants in the sandbox, where simplification or non-application of certain requirements laid down by law may be permitted. The licensing procedure for sandbox participants may also be less stringent.

LPS also establishes the system of open banking, which is a network between financial service providers that provides access to different payment accounts of a client in a single account, and facilitates the administration of several accounts.

The new legislation will create a safer, healthier and up-to-date legal environment for financial technology companies in Ukraine that will improve the quality of the country’s fintech regime by providing better business opportunities, as well as making more features of modern innovative technologies in the financial industry available to Ukrainian customers.

LPS will serve as an impetus for healthy competition, better industry prices, innovation, legality and expanding the range of financial services.