Financial Crime World

MONGOLIA SEES SIGNIFICANT CHANGES TO BANKING REGULATIONS WITH NEW AMENDMENTS

Decentralizing Commercial Bank Ownership and Enhancing Stability

Ulaanbaatar, MONGOLIA - The Parliament of Mongolia has enacted the Law on Amendments to the Banking Law of Mongolia, introducing significant changes to the banking sector aimed at decentralizing commercial bank ownership and ensuring adequate balance between ownership-management-control.

Key Changes to the Banking Sector

The amendments bring forth several key changes that will impact the banking sector in Mongolia:

Expanded Definition of Systemically Important Banks

  • The Bank of Mongolia (BoM) is given the authority to determine which banks are considered systemic, taking into account factors such as:
    • Asset size
    • Debt ratio
    • Transaction flow
    • Relevance in the financial system

20% Ceiling on Shareholder Ownership

  • The amount of shares and securities owned by any individual or affiliated person in a bank is capped at 20% of total issued shares.
  • Banks must meet this requirement by December 31st, 2023.
  • Banks are prohibited from creating security interests over their shares.

Commercial Banks Required to Operate as Joint Stock Companies

  • All commercial banks are required to operate as joint stock companies by June 30th, 2022.
  • Systematically important banks must organize initial public offerings (IPOs) in the securities market and trade common shares.
  • Other banks will be required to operate as closed joint stock companies.

Changes to Claims Ranking in Event of Bank Liquidation

  • An expanded list of claims and their rankings is introduced in the event of a bank’s liquidation:
    • Compensation for employees ranks higher than BoM receiver and operational expenses.
    • Uninsured savings and current account funds of individuals and legal entities rank higher than those insured by the insurer.

Implementation and Next Steps

The implementation of these changes will require collaboration between the BoM and the Financial Regulatory Committee (FRC) to ensure a smooth transition and achievement of expected results. The expanded ranking of creditors’ claims is seen as a significant step towards increasing customer confidence in banks, but raises uncertainty around government claims ranking higher than other creditors.

Conclusion

The amendments to the Banking Law of Mongolia mark an important shift towards decentralizing commercial bank ownership and enhancing stability in the banking sector. As these changes take effect, it will be essential for stakeholders to monitor their progress and impact on the financial system.