Uzbekistan’s Senate Approves New Banking Law: A Major Milestone in Financial Sector Reforms
Tashkent, Uzbekistan - A Significant Step Towards Modernizing the Financial Sector
The Uzbekistan Senate has approved a new banking law, marking a major milestone in the country’s financial sector reforms. This significant step towards modernization is the culmination of a year-long technical cooperation between the World Bank Group (WBG) and the Central Bank of Uzbekistan’s (CBU) banking supervision department.
A Year-Long Collaboration
The new banking law represents the outcome of a year-long collaboration between the WBG and CBU. The WBG team reviewed an initial draft of the law and identified several weaknesses, offering support in drafting a revised version that promotes an orderly transformation and sound development of the financial sector.
Overcoming Challenges
One of the key challenges was establishing a robust “gatekeeper function” to ensure private investors meet common fit and proper standards, de facto ownership structures are well-understood, and related-party lending is contained. The WBG team also prioritized legally allowing the CBU to exercise supervisory judgment in fulfilling its mandate, shielding it from political and industry pressures.
Key Features of the New Banking Law
- Upholds fundamental concepts and principles that promote financial stability and depositor protection
- Establishes a robust “gatekeeper function” to ensure private investors meet common fit and proper standards
- Allows the CBU to exercise supervisory judgment in fulfilling its mandate, shielding it from political and industry pressures
- Prioritizes legally containing related-party lending
Impact on Uzbekistan’s Financial Sector Reforms
The passage of this new banking law marks a significant step forward for Uzbekistan’s financial sector reforms. These reforms aim to transition from a state-dominated banking sector to one that is more market-oriented and allows for private investment.
Next Steps
The World Bank Group is now energized to build on the interest shown by Uzbek policymakers in financial sector reform. The new law represents a major milestone in Uzbekistan’s journey towards a more stable and transparent banking system.
Highlights of the Collaboration
- Technical discussions with the CBU’s supervision department to explain international best practices for banking supervision
- Sensitization of the CBU to the challenges associated with transitioning from a state-dominated sector
- Complete redrafting of every article of the new law under a project funded by the WBG’s Financial Sector Advisory Center (FinSAC)