Financial Crime World

Uzbekistan’s Senate Approves New Banking Law: A Major Milestone in Country’s Financial Sector Reforms

Tashkent, Uzbekistan - In a significant step forward for Uzbekistan’s financial sector reforms, the country’s Senate has approved a new banking law. This milestone represents the culmination of a year-long technical cooperation between the World Bank Group and the Central Bank of Uzbekistan (CBU) aimed at strengthening the country’s banking supervision framework.

Background

Uzbekistan’s financial sector has been undergoing significant reforms since 2017, with the goal of transitioning from a state-dominated financial sector to one that is more market-oriented. However, it soon became apparent that the legal framework underpinning CBU’s oversight over the banking sector was in dire need of reform.

A New Banking Law: Key Features

The new banking law represents a crucial milestone in Uzbekistan’s efforts to strengthen its financial sector supervision. Some key features of the new law include:

  • Establishment of a robust “gatekeeper function”: This will provide CBU with sufficient powers to ensure private investors meet common fit and proper standards, de facto ownership structures are well-understood and monitored continuously, and related party lending is contained.
  • Authority to exercise supervisory judgment: The new law grants CBU the authority to exercise supervisory judgment in fulfilling its mandate in the face of dynamically evolving banking risks. This represents a significant shift from the old legal framework, which prioritized compliance checks with administrative requirements over the mitigation of risks.

Impact and Relevance

The approval of the new banking law has had a galvanizing effect on financial sector reform in Uzbekistan, reaffirming the World Bank’s authority in financial sector policy. The reforms initiated in 2017 have focused on promoting market-oriented policies in the state-bank dominated financial sector.

Conclusion

The approval of the new banking law marks a significant milestone in Uzbekistan’s efforts to strengthen its financial sector supervision. The World Bank Group has played a crucial role in this process, providing technical assistance and expertise to help CBU establish a robust framework for banking supervision.