Financial Crime World

Mongolia Enacts Banking Compliance Reforms with New Amendments to Banking Law

Strengthening Banking Regulations and Promoting Financial Stability in Mongolia

Ulaanbaatar, MONGOLIA - On February 25, the Mongolian Parliament enacted a series of amendments to the country’s Banking Law aimed at strengthening banking regulations and promoting financial stability.

Key Changes to the Banking Law

  • Systemically Important Banks: The Bank of Mongolia (BoM) will now have the authority to determine which banks are considered systemically important based on various factors such as assets, debt ratio, transaction flow, banking activities, and relevance in the financial system.
  • Shareholder Limitations: A 20% ceiling limit has been introduced on shareholder ownership in commercial banks, with banks required to meet this requirement by December 31, 2023. Banks are also prohibited from creating security interests over their shares and securities holdings.
  • Corporate Form Requirements: Commercial banks must be converted to joint-stock companies by June 30, 2022. Systemically important banks will undergo an initial public offering (IPO) in the securities market, while other banks will operate as closed joint-stock companies.
  • Creditor Claims Ranking: The amendments revise the ranking of creditors’ claims in the event of a bank’s liquidation, prioritizing employee compensation, individual and legal entity uninsured savings and current account funds, and government claims over secured and unsecured creditor claims.

Expected Outcomes

The reforms are expected to promote financial stability and increase investor confidence in the Mongolian banking sector. However, some experts have raised concerns about the potential impact on small banks and the need for further clarification on certain provisions.

Implementation and Next Steps

  • The Bank of Mongolia (BoM) and the Financial Regulatory Committee (FRC) will play a crucial role in implementing these changes and reforms.
  • Joint procedures are expected to be adopted to guide the re-organization of banks and changes in their share capital and shareholder structure.