Mongolia’s Financial Sector Set for Regulatory Overhaul
A Growing Industry Faces Increased Scrutiny
Ulaanbaatar, Mongolia - The Mongolian financial sector is undergoing significant changes as lawmakers implement new regulations to tighten controls on commercial and investment banks. With the sector growing rapidly in recent years, concerns about market stability and governance have prompted these measures.
A Growing Banking Sector
- Total assets and capital increased by 12.3% in 2022 to MNT 46 trillion (approximately USD 14 billion)
- Significant growth has raised concerns about market stability and governance
Changes Under the Banking Law
The Banking Law, amended in 2021, introduced new regulations for strategically important banks:
- Shareholding Limits: Capped at 20% per shareholder, either individually or jointly with related parties
- Public Listing: Mandated public listing on the stock market by June 30, 2023
Initial Public Offerings (IPOs) Exceed Expectations
Several banks have successfully listed on the Mongolian Stock Exchange, exceeding initial expectations. However, this move has also sparked concerns about increased scrutiny and regulation:
- “Influential shareholders” are now subject to approval from the Bank of Mongolia (Mongol Bank) for any changes in shareholding
- Defined as ultimate beneficial owners holding 5% or more shares in a bank, or those who can influence its policy, decisions, and management
Investment Banking Law Passed
The Investment Banking Law passed by parliament in January 2023 sets the stage for the establishment of investment banks in Mongolia:
- Licensing: Investment banks will be licensed by Mongol Bank
- Allowed Activities: Engage in activities such as issuing loans and guarantees, conducting payment settlements, and providing financial advice
- Restrictions: Foreign banks seeking to establish subsidiaries in Mongolia for investment banking purposes must meet licensing requirements set forth by the Financial Regulatory Commission (FRC) or Mongol Bank. Investment banks are also prohibited from engaging in non-investment activities.
A Crucial Role for Regulatory Bodies
As the Mongolian financial sector continues to evolve, regulatory bodies will play a crucial role in maintaining stability and promoting market growth:
- Maintaining Stability: Ensuring that new regulations do not stifle innovation while protecting against market instability
- Promoting Growth: Encouraging the development of investment banks and other financial institutions to support economic growth