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For years consumer-facing organizations have been hard at work trying to dethrone traditional payment service providers (PSPs) – such as banks – as the only go-to entities for customers needing to execute a transaction.

These efforts have recently born fruit as a modern generation of payment companies has begun providing more efficient, hassle-free, and inexpensive services than those provided by traditional banks. These new companies offer various services, including account openings, transactions with electronic money, and simplified and cheaper payment processing. An even higher level of pro-customer convenience was achieved by introducing all-in-one account services (so-called account information services) and payment initiation services. Provision of such services gives service providers the right to access the payment platforms and account systems of the traditional payment service providers.

In the wake of these breakthroughs in the payment services market, the European Union has recently adopted a new framework document – the Revised Directive on Payment Services (PSD2) – to formally acknowledge and regulate payment services. This major step, which has been in the works for year, should bring more clarity and structure to the fierce but healthy competition between modern and more traditional payment service providers.

The preamble of the PSD2 establishes “a software bridge between the website of the merchant and the online banking platform of the payer’s account servicing payment service provider in order to initiate internet payments on the basis of a credit transfer.” What this means in practice is that the payment initiation service provider (PISP) becomes an additional party in the traditional online payment model, aiding the customer in communicating with the payment service provider servicing the customer’s account. Thus, the customer initiates the transaction via the PISP, which in turn passes the instruction to the payment service provider. This is very convenient for e-commerce as it allows for immediate payment for online goods.

According to the PSD2, account information services provide the payment service user with information on one or more payment accounts held with one or more other payment service providers via online interfaces. This allows the customer to obtain information about the accounts held at various payment service providers in one easily accessible and convenient dashboard-type interface.

The combined impact of account information and payment initiation services will profoundly transform the current payments ecosystem and lead to more efficient, convenient, flexible, and personalized online day-to-day payments. 

The PSD2 establishes a two-year implementation term, during which the member states will have to enact local regulations and transpose the provisions of the PSD2. During this transitional period member states, existing market players, and local regulators will need to keep an open mind and refrain from applying the traditional view to these new types of services, as the PSD2 explicitly obliges the member states to ensure that current market players do not neglect or obstruct the activities of this new wave of competitors. Because the PSD2 implementation is in its pre-alpha stage, there are not yet any specific technical guidelines or local regulations detailing how interactions between the new and old market players are to take place, so eager new market entrants (many of whom started providing these services before the PSD2 came into force) may find it challenging to provide account information and payment initiation services in the form the PSD2 requires. This should, however, not restrict modern payments market entrants from providing these new types of services to the extent allowed by current local regulation. The PSD2 itself clearly lays down an instruction greenlighting and legitimizing modern payment solutions, which is great news. This will undoubtedly speed up the gradual integration of these new services into the payments markets, which will in turn bring much-needed competition and innovations into the payment services market. This will be especially true for Lithuania, where for years banks have enjoyed a dominant position with regard to any and all services related to payments.

By Gediminas Dominas, Partner, and Sarunas Basijokas, Associate, Dominas & Partners

This Article was originally published in Issue 2.6. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

There has recently been a significant increase in the efforts made by some of the key players in the payment card business to dispose of their payment card portfolios.

This year the Czech Republic saw Erste Group Bank reach an agreement with Global Payments to establish a joint venture providing merchant acquiring and payment processing services to retailers, while Raiffeisenbank launched a strategic alliance with EVO Payments in the area of payment card acceptance. In this article we are going to look at one of the reasons for this increased transactional activity in the merchant acquiring business.

Merchant Acquiring Business

In a typical scenario of a payment processing business, “merchant acquiring” generally refers to a situation where a customer (i.e., a payment card holder) uses a credit or debit payment card to pay a merchant for goods or services. In order for this payment to occur, the bank that issued the payment card (usually referred to as the “issuing bank”) must process the payment with the bank that receives the payment on the merchant’s behalf (the “merchant acquiring bank”).

In order to generate and clear these transactions on a global scale between millions of customers and merchants, an intermediary (usually referred to as the “merchant acquirer”) enables the payment between the issuing bank and the merchant acquiring bank. Merchant acquirers are, therefore, payment service providers who facilitate the contact and the transaction between the issuing bank and the merchant acquiring bank. The merchant acquirer may be affiliated with the issuing bank, the merchant acquiring bank, a branch, or a separate independent entity.

Within the payment processing transaction, the merchant acquiring bank is obliged to pay a fee (an “interchange fee”) to the issuing bank for the processing of the transaction which then becomes part of the fees charged to merchants by the merchant acquiring bank or the merchant acquirer. Interchange fees differ according to the type of card used. Ultimately, these charges are passed on to the end customers as they are ‘built in’ to the price of the goods or services.

Interchange Fees Regulation

Interchange fees are usually determined by multilateral agreements between banks or by the payment card schemes. These interchange fees have been the subject of some controversy in the past (most notably, the subject was dealt with in the judgment of the European Court of Justice in the Mastercard case in 2014), especially once merchants began including interchange fees in the final price of goods and services. The burden of payment of the interchange fee was then effectively placed on the shoulders of customers, who had no influence on the determination of its value. As a result, it was decided that a regulation of interchange fees should be implemented to ensure customer protection. 

The regulation took the form of the European Parliament and the Council Regulation No. 2015/751 on interchange fees for card-based payment transactions, issued on April 29, 2015 (the “Regulation”), which applies only to four-party payment card schemes where the issuing bank and acquiring bank are different entities. 

Pursuant to the Regulation, starting on December 9, 2015: (i) interchange fees on debit card payments shall be no higher than 0.2% of the value of the transaction; and (ii) interchange fees on credit card payments shall be no higher than 0.3% of the value of the transaction. The member states of the European Union may, however, pass further implementing legislation with regard to these maximum figures, such as allowing issuing banks to charge a weighted average interchange fee of no more than the equivalent of 0.2% of the annual average transaction value of all domestic debit card transactions within each payment card scheme. Member states may also define a lower weighted average interchange fee cap applicable to all domestic debit card transactions. 

As a result of the Regulation, issuing banks now face a potential reduction in their income from interchange fees. Moreover, issuing banks may struggle to remain competitive in the market of payment technology services, as entities specializing in card processing can benefit from economies of scale. Thus, an increasing number of issuing banks have concluded that selling a part of their “Merchant Acquiring” business to a card processing-specialized entity – which after the sale will be responsible for providing payment card services to merchants while maintaining the current quality of services provided by the issuing bank – seems like a workable response to the challenges imposed by the Regulation. 

By Pavla Kreckova, Partner, and Ivana Menhartova, Associate, CMS Prague

This Article was originally published in Issue 2.6. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Although the situation in the Ukrainian banking sector remains challenging, state officials have reported a level of macro-economic stability (while simultaneously acknowledging that it is short-term and dependent on a variety of factors).

For the first time since the beginning of 2014 the National Bank of Ukraine (the “NBU”) has reported an increase in foreign currency deposits in a number of Ukrainian banks. This year has seen several acquisitions of Ukrainian banks by foreign investors, including the 100% acquisition of the insolvent Astra bank by NCH Capital (from the USA) and the purchase of a 30% stake in Raiffeisen Bank Aval by the EBRD. Recently, Brown & Deer and Eco Food (from Hungary) announced the increase of their shareholding in Finance Bank, and the EBRD announced its plans to increase its stake in UkrSibbank. Obviously, it is too early to consider these developments as a turnaround of the banking sector, but according to some major players and market observers, they are definitely positive signs. 

The Ukrainian banking system is generally recognized as in need of fundamental changes. The reform efforts include withdrawing banking institutions from the market and adding regulatory requirements (such as, among others, those relating to disclosure of banks’ beneficial owners). 

With respect to currency exchange and cross-border capital movement transactions, the NBU has recently eased restrictions initially introduced back in the beginning of 2014 to limit the outflow of FX funds from the country. The market expected more substantial changes, but long-awaited liberalization is not likely to happen before next year. 

Below are the most significant of the measures introduced by the NBU likely to affect the position of a foreign party in transactions involving Ukrainian residents.

Restriction on Investment Repatriation 

Ukrainian banks are prohibited from transferring funds received by foreign investors as consideration for the shares and corporate (equity) rights in Ukrainian entities, or due to the reduction of authorized capital of Ukrainian entities or dividends. This affects M&A transactions, which at the moment need to be structured through off-shore holding companies to avoid an outflow of FX payments from Ukraine. 

Cross-Border Loan Limitations

Financing received by Ukrainian borrowers from abroad remains subject to a number of limitations. Until recently, these limitations also applied to cross-border financing provided by international financial organizations. 

To begin with, Ukrainian borrowers are not allowed to repay loans before they are due by advancing an amount equal to the principal and any other payments due to foreign parties. This prohibition does not apply to banks borrowing funds to increase their capital. The NBU also allows Ukrainian borrowers to repay and discharge a loan out of funds received under another financing with a later repayment date. 

Furthermore, the NBU does not accept amendments to registered cross-border loan agreements relating to the change of either the borrower or the lender. Under Ukrainian currency control rules, the cross-border loans are subject to registration with the NBU prior to the disbursement of the funds to a Ukrainian borrower. The registration is also required for amendments changing the material terms of a loan –  including changing a party. In view of this limitation, foreign parties are prevented from assigning their claims under financing agreements with Ukrainian borrowers. 

The NBU does, however, allow a party to be replaced if the replacement: (i) results from liquidation or reorganization; (ii) is performed under an agreement in which the lender is an international financial organization; or (iii) relates to export-financing projects with the involvement of a foreign export credit agency. Where the borrowers and lenders are related parties, the NBU may take a special decision on registering amendments to the loan agreement providing for a change of party.

Other Restrictions

75% of foreign currency earnings are subject to mandatory exchange into Ukrainian hryvnia at the interbank market rate. The funds that must be exchanged include, among others, funds received as cross-border financing – except for those received from international financial organizations, or based on international agreements, or other grounds of rather limited application. 

Another restriction which could potentially effect agreements with foreign parties is the restriction on settlement by Ukrainian residents of cross-border debts denominated in hard currency (including euros, dollars, and rubles) by off-setting claims. As an exception, the NBU has recently allowed off-setting claims by the telecom providers for international roaming and traffic transmission services.

The NBU has also slightly eased its restriction on the purchase of foreign currency funds and making transfers abroad based on a license granted by the NBU. Now payments under USD 50,000 a month are allowed.

The regulatory authorities are expected to take measures to further liberalize some of these restrictive measures. Further information will become available on December 4, 2015 – the date until which the above limitations apply.

By Oksana Volynets, Senior Associate, Wolf Theiss

This Article was originally published in Issue 2.6. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Over the year that has just passed, those who had the privilege to occupy front row seats were able to observe the most recent trends in and the overall direction of the lending market in Romania.

As in previous years, multi-jurisdictional transactions continued to take a large slice of the pie on the local market. However, 2015 saw an increase in local finance activity in various sectors. Real estate has been picking up, for instance, with interesting projects of developers in need of financing logistics and office buildings. We have seen retail, production, and agriculture developing locally as well. 

Throughout 2015 we have assisted either lenders or borrowers in more than ten major financing deals in some of the most dynamic industries of the local market. For example, we provided legal advice to a major real estate investment fund active in Romania in several finance transactions – the most notable being a financing deal exceeding EUR 200 million. We have also advised bank consortiums in two separate deals aimed at financing the operations and development projects of local companies from the Energy and Construction sectors. 

We have noticed increasing confidence in Romanian law used as governing law and, while the concept of a Romanian law loan market association (LMA) has been on the market for a while, since the adoption of a new Civil Code in 2011 the finance documentation used in local deals has become even better adapted to Romanian law concepts.

On the back of a variety of alternatives to bank debt, such as mezzanine investors, equity, and capital markets funding (especially through corporate bond issues), companies acting as borrowers from banks are now more powerful in negotiating financing terms and covenants, and are able and willing to impose their own terms and even their own drafts of finance documents. Lenders are still cautious, as the court practice in respect of syndicated loans is still underdeveloped in Romania, especially following the entry into force of the New Romanian Civil Code.

We have been looking at covenants, undertakings, and representations in loan agreements from fresh angles. Thus, the rather extensive provisions of the 2011 Civil Code dedicated to loan and security agreements (as compared to previous legislation, which contained almost none), coupled with the new lender-borrower balance, have pushed parties to approach and tailor the LMA standard loan agreement even more to the Romanian realities. 

A good example of this change is the situation of negative undertakings. “… [T]he focus is shifting on the negative covenants – which had not been the subject of much debate before now– as borrowers demand more flexibility.” While limitations deriving from clauses such as negative-pledge or no-disposal are still required by lenders, borrowers tend to argue more for various carve-outs to such limitations or even to insist that such restrictions be deleted, as new Romanian law provides that these are unenforceable in certain situations. Another area of change is the emphasis that Romanian law is now putting on negotiation of clauses which would limit the flexibility or impose additional liability on one party to the benefit of the other party. Along these same lines, banks are now requiring borrowers to specifically state that they have negotiated and acknowledged those clauses which may be viewed as unusual or standard clauses in an interpretation under the New Civil Code.

The increased intensity of investigations (whether regulatory, fiscal, or even criminal) carried out by Romanian authorities and of litigation cases involving large corporates before Romanian courts have made banks and clients alike reconsider some of the LMA standard clauses, such as material-adverse-effect clauses or representations, undertakings, and events of default triggered by such investigations or court cases.

As always, banks are particularly interested in preserving rights to transfer loans, but whereas previously such provisions would be subject to little if any debate, recently borrowers have become more and more interested in the precise type of entities to whom the banks would be entitled to transfer their receivables. More precisely, in the context of a large number of portfolio transactions or debt restructuring schemes, borrowers are more and more careful and more reluctant to accept investment funds replacing their creditors of choice. 

The Romanian legal system is still subject to ongoing change, with courts being more and more involved in contractual disputes or analyses of commercial contractual structures, creating jurisprudence. At the same time, new proposals of laws that would affect the Romanian retail banking market are currently being debated and can indirectly affect the behavior and approach of banks towards traditional corporate lending in the near future.

By Andreea Sisman, Counsel, and Diana Moroianu, Associate, Clifford Chance Badea

This Article was originally published in Issue 2.6. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Slovenian banks have not yet fully recovered from the significant losses they suffered during the financial crisis.

The high debt leverage of the corporate sector, a substantial involvement of the state in the economy, and inadequate risk management and corporate governance were the main shortcomings of the sector prior to the crisis, which led to a sudden increase of non-performing loans (NPLs) in banks. NPLs, together with deteriorating collateral values, quickly impaired capital bases and market confidence. The Slovenian banks, in particular the state-owned banks, suffered considerable losses and have shrunk their balance sheets significantly. The stress tests in 2013 identified capital deficits of up to EUR 4.8 billion. 

In order to stabilize the banking sector and to increase confidence, four banks (NLB, NKBM, Abanka, and Banka Celje) were bailed out by the Republic of Slovenia in accordance with EU state aid rules. Another two banks (Factor and Probanka) were put into a controlled liquidation under state control. Additionally, the Republic of Slovenia established a “bad” bank – the Bank Assets Management Company (BAMC) – to which the state-owned banks transferred their impaired assets (e.g., NPL’s and shares of companies in financial difficulties).

These measures have had a significant impact on the Slovenian banking sector. All banks that receive state aid are limited in their ability to engage with the market and have been or are to be privatized in the near future. NKBM has already been sold to the U.S. investment firm Apollo and the EBRD; the largest Slovenian bank, NLB, should be privatized by the end of 2017; and a merged bank of Abanka and Banka Celje needs to be privatized by the end of 2019. State aid to Factor and Probanka has been granted under the condition that they exit the market by the end of 2016. Current plans envisage an acquisition of Factor bank by the BAMC, and another “bad” bank, specialized for restructuring of small and medium enterprises, is to be established on Probanka’s platform.

Consolidation of the banking sector, however, is not only visible in relation to the state-owned banks. Almost a half of Gorenjska banka is for sale, since one of the shareholders lost its license to hold the shares due to his own insolvency. Other foreign banks operating in Slovenia are also leaving the market or looking for a new investor because they were not able to acquire enough market share for economy of scale mechanisms to be effective. Raiffeisen has recently been sold to Biser Bidco, run by an affiliate Apollo, a buyer of NKBM. Hypo has been sold, and Sberbank is looking for an investor.

Consolidation of the banking sector, however, is not visible only in relation to the state-owned banks. Almost a half of Gorenjska banka is for sale, since one of the shareholders lost its license to hold the shares due to his own insolvency. Other foreign banks operating in Slovenia are also leaving the market or looking for a new investor because they were not able to acquire enough market share for economy-of-scale mechanisms to be effective. Hypo has already been sold, and Sberbank and Raiffeisen are looking for an investor.

The BAMC, on the other hand, is expanding its influence on the Slovenian financial market. Since the significant part of non-performing loans to the corporate sector has been transferred to the BAMC, it has been involved in almost all recent restructuring processes. When the companies found themselves in financial difficulties, the BAMC was one of the first entities not to proceed with the restructuring, either by selling their NPLs or by initiating bankruptcy proceedings for non-prosperous debtors.

Slovenia has become visible on the map of financial investors, and several foreign financial funds have participated in the purchase of NPLs. When the buyers are foreign entities, the contracts governing the transfer of loans are often governed by foreign law (or for example Loan Market Association standard terms), which is a valid option in accordance with Rome I Regulation. However, Slovenian law (with Slovenian formal requirements) should be respected in relation to the debtor and for most transfers of security associated with the claims in question. 

Typical assets given as collateral include real estate, shares, inventory (stock), production equipment, trade receivables, assets in bank accounts, and trademarks. Security assets are usually pledges, save for trade receivables which are very often transferred into fiduciary ownership. Collateral enforcement is completed fairly quickly since (under particular circumstances) judicial enforcement may be avoided. Recently, even real estate can be sold out of court, provided that the loan agreement has been concluded in a form of directly enforceable notarial deed. Such form (notarial deed with direct enforceability) is required also for an out-of-court sale of pledged movables and shares of limited liability companies. A directly enforceable notarial deed is no longer required to enforce pledged securities of joint stock companies, as the Law on Financial Collateral has loosened the formality requirements. 

Despite several boosts from the government, as well as fresh capital from foreign investors, the Slovenian banking sector has not yet fully recovered after the financial crisis. The main reason for this is a corporate sector which has not yet returned to its feet after so many companies went bankrupt. So far, however, banks are not facing losses but are (when not restricted by state aid) actively gaining market share.

By Uros Ilic, Managing Partner, and Suzana Boncina Jamsek, Senior Associate, ODI Law Firm

This Article was originally published in Issue 2.6. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The banking and financial industry is one of the most successful sectors of Kosovo’s young and fragile economy. While this sector is in its infancy, it has continuously shown stability, growth, and profits. The best way to understand Kosovo’s banking and financial industry is to address its three primary components: banking, insurance, and securities.

First, banks (and other financial institutions) are the primary and most powerful segment of the industry. The sector is comprised primarily of two types of financial institutions: banks and microfinance institutions (“MFI”), with the latter group containing both privately owned and non-profit NGOs. The market is fairly saturated with commercial banks offering a limited set of financial products, with a primary focus on taking deposits, providing small to medium loans, and offering basic banking services (a couple of the bigger banks operating in Kosovo have also recently begun offering leasing products for homeowners and those purchasing vehicles and/or machinery). Several of the many MFIs in Kosovo have gathered capital that is commensurate to that of banks in the country. Most of the MFIs were established immediately after the war in Kosovo ended and provide micro-loans to those with difficulty getting access to credit, often with interest rates that surpass 20% annually. In fact, the banking sector (both banks and MFIs alike) receives regular criticism for alleged predatory lending, especially in view of interest rates that range from between 10% to sometimes more than 24%, as well as high (and surprisingly uniform) administrative fees for bank services. Some argue that this remains possible partly because the Kosovo Competition Authority – the agency charged with regulating competition in Kosovo – is seriously dysfunctional and does not have the capacity or the infrastructure to carry out its functions. 

The primary and only regulator for the entire sector is the Central Bank of the Republic of Kosovo (the “CBK” or “Regulator”). The Regulator implements applicable legislation and engages in a regular examination of banks to ensure full compliance. The Kosovo government’s recent attempt to revamp banking legislation has met some difficulty due to the fact that the main law regulating financial institutions in Kosovo – the Law on Banks, Microfinance Institutions, and Non-Banking Financial Institutions – suffered a major blow when the Constitutional Court of the Republic of Kosovo declared portions addressing MFIs as unconstitutional, thereby hampering the Government’s endeavors to liquidate and privatize non-profit MFIs. This has left MFIs operating with little legislative guidance as to their operations, and the Regulator in the position of scrambling to enact secondary legislation to fill the void. Overall, the legislation regulating financial institutions in Kosovo remains fairly basic and does not much address problems brought to the surface by the 2008 crisis or the recommendations made by Basel III. 

Second, the insurance industry in Kosovo is primarily focused on providing a limited set of products: car insurance and limited health insurance. Recently, some insurance companies have also begun offering limited life insurance and property insurance products. More sophisticated insurance products are not offered in Kosovo, despite the need, which means there is great opportunity for growth. Insurance companies in Kosovo are also regulated by the CBK, which regularly examines them to insure not only capital requirement compliance, but also – among other things – consumer satisfaction and claim compensation, which at times were somewhat problematic for some insurance companies. The legislation regulating the insurance companies is fairly basic and slightly outdated, but the CBK has made some efforts to address legislative deficiencies by enacting secondary legislation. 

Last but not least is the securities leg of the banking and finance sector. With regard to stocks, other than the Law on Business Organizations – which permits the issuance of common and preferred stock – transactions in stocks in Kosovo remain largely unregulated. Moreover, there is no exchange in Kosovo, so transactions are private in nature. In the last couple of years, the Government of Kosovo has begun issuing a limited number of short-term bonds, but even these lacked proper underlying legislation and did not generate much interest from potential investors. In short, securities in Kosovo are barely regulated, if at all, and require legislative attention soon, especially in view of companies that have grown rapidly and will require proper legislation to raise necessary capital and prevent manipulative practices that may materially affect the investing market. 

In sum, Kosovo presents a banking and financial sector that is very stable but in the early stages of its existence. Much remains to be done to bring this sector up to European and/or international standards. However, the performance of the players in this field has been stable and profitable, and provides optimistic trends for those wanting to venture in. 

By Korab Sejdiu, Founder and Managing Director, Sejdiu & Qerkini

This Article was originally published in Issue 2.6. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Following the trend set by fellow members of the Eurasian Economic Union Russia and Kazakhstan, Belarus is currently expanding the competences of its National Bank. This should lead to formation of a “mega-regulator” in the Belarusian financial market. The countries of the EEU intend to create a single financial market in the future and therefore harmonize their legislation.

The National Bank took charge of microfinancing and leasing markets in 2014 and the forfeiting market in 2015. Starting from 2016 the National Bank will be responsible for the Forex market and potentially also the insurance and securities markets. Appointment of the National Bank as new supervisor has been followed by amendments in various key regulations.

Microfinancing 

Before 2014 there was no regulation of microfinancing activities in Belarus, and loans were often granted without the financial standing of the borrower being checked, while interest rates could exceed 700% per year. Eventually, activities of organizations other than banks and non-bank credit and financial organizations (NCFOs) granting unsecured loans on a regular basis were substantially restricted. Currently, only pawnshops and several types of non-commercial companies (consumer co-operatives and funds) are allowed to provide micro-loans (loans up to 15,000 Belarusian ‘basic units’ – about EUR 140,000 on the day of the agreement), more often than twice a month. A company must be included in the National Bank register in order to conduct micro-lending operations. 

Leasing

Since 2014, Belarusian finance lessors must be registered with the National Bank and have a share capital equivalent to at least EUR 50,000. These requirements do not apply if during a calendar year a finance lessor concludes fewer than three lease agreements or the total value of leased assets does not exceed 10,000 basic units (about EUR 93,000). They also do not apply to foreign companies running finance lease businesses through permanent establishments and companies entitled to conduct finance leases according to decisions of the President of the Republic of Belarus. Banks and NCFOs also have the right to operate this business without being included in the register.

From the beginning of 2015 lease payments that are part of a finance lessor’s remuneration (income) and investment expenses are exempt from VAT, excluding investment expenses reimbursed from the cost of a leased asset.

Forfeiting

Since May 21, 2015, Belarusian exporters may accept bills of exchange as payment under export contracts. Such bills of exchange should be issued or confirmed by foreign banks having at least two of the following ratings: 

• Long-Term Foreign Currency Rating by Fitch Ratings or Standard&Poor’s not lower than BB- for banks of Russia, Kazakhstan, and Armenia and not lower than BBB- for other foreign banks; or
• Long-Term Foreign Currency Bank Deposits Rating by Moody’s Investors Service not lower than Ba3 for banks of Russia, Kazakhstan, and Armenia and not lower than Baa3 for other foreign banks.

Activities on bill discounting may be performed by the banks, NCFOs, and legal entities having a share capital not less than EUR 50,000. If an entity wishes to discount bills more than once a year, it must be registered with the National Bank.

FOREX operations

On March 7, 2016, a new regulation on Forex operations in Belarus will come into force. The activities of Forex companies in Belarus were not regulated before, and there was no explicit definition of Forex operations as off-exchange transactions. This created a risk that these operations would be classified as bets, claims related to which are not subject to judicial protection in Belarus. 

Operations by Belarusian clients with foreign Forex companies drew the concern of Belarusian officials not only because of the capital outflow and unpaid taxes, but also because the interests of Belarusian residents were not protected.

After the new regulation enters into force only following companies will be entitled to perform Forex operations in Belarus: the National Forex Center (a company in which the state’s share is more than 50%), banks, NCFOs, and Belarusian Forex companies. 

Belarusian Forex companies will be registered with the National Bank. Specific requirements for these companies include, for example, a minimum share capital of BYR 2 billion (about EUR 100,000) and the obligation to meet safe operating standards and keep internal control and risk management systems. Forex companies shall form enforcement capital to ensure the repayment of margin security to the clients. This capital will not be included in the debtor’s assets in case of a Forex company’s bankruptcy and may be used only to satisfy the claims of clients. The repayment of the margin security will also be guaranteed by the National Forex Center. 

Personal income received under agreements on Forex operations with Belarusian Forex companies, banks, or NCFOs is exempt from personal income tax until March 1, 2019. The corporate income tax rate for Belarusian Forex companies and the National Forex Center received from Forex operations will be reduced by 50% within the same time frame. 

By Kiryl Apanasevich, Partner, and Hanna Volchak, Associate, Sorainen Law Firm

This Article was originally published in Issue 2.6. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Jeantet — the French firm that took over Gide’s offices in Ukraine and Hungary this past November — has advised The Wurth Group on its acquisition of Rexel’s electrical wholesale operations in Poland, Slovakia, and Estonia. Clifford Chance advised the Rexel Group — which is active in the wholesale of electrical supplies — on the deal.

The acquired operations accounted for sales of EUR 153 million in 2015. The completion of the transaction remains subject to approval by the relevant competition authorities.

The Jeantet team assisting Wurth in the transaction consisted of Partners Karl Hepp de Sevelinges and Bertrand Barrier and Associate Ruben Koslar.

The Clifford Chance team in Paris consisted of Partners Fabrice Cohen and Alexandre Lagarrigue, Counsel Marianne Pezant, and Associate Isaure Sander. The Clifford Chance Warsaw team was led by Partner Nick Fletcher, assisted by Counsel Wojciech Polz and Senior Associate Aleksandra Lis. The Clifford Chance Prague team consisted of Partner Alex Cook and Associates Stanislav Holec and Michal Jendzelovsky.

Editor’s Note: Following the publication of this article, Raidla Ellex has announced that it advised the Wurth Group on Estonian aspects of their acquisition. The team was led by Partner Sven Papp, who was supported by Associates Reet Saks, Gerda Liik, Martin Maesalu, and Gerly Lohmus, and Lawyers Sven Bottcher and Triin Tiru.

Liniya Prava has advised Mobile TeleSystems (MTS)  on its binding agreement to acquire — through its wholly-owned subsidiaries — 100% of the NVision Group for RUB 15 billion (approximately EUR 175 million) from subsidiaries of Sistema.

The NVision Group is the owner and the vendor of MTS’s billing system and one of the Russia’s largest system integrators and contractors of complex IT solutions.

The transaction was completed in two stages. In the first, MTS acquired 100% stocks of Russia’s CJSC Sitronics Telecom Solutions and the Czech Republic’s NVision Czech Republic a.s. — both 100% subsidiaries of the JSC NVision Group. Then, in December 2015, MTS purchased 100% of JSC NVision Group itself.

According to Liniya Prava, its team led the legal review of the Russian companies and coordinated 10 foreign legal firms in preparing reports on the foreign companies for purposes of obtaining the approval of antitrust agencies in Uzbekistan and Pakistan.

Following its advice to the Ukrainian Redevelopment Fund (URF) on its November 2015 acquisition of a significant equity stake in Ciklum Holding Limited, Aequo has now successfully advised the URF on Ukrainian merger control issues related to the acquisition, including obtaining merger clearance and concerted actions approvals from the Antimonopoly Committee of Ukraine.

The Ukrainian Redevelopment Fund is a private investment vehicle that focuses on special situations and private equity investments in Ukraine and companies with significant operations in Ukraine. As part of its investment process, the fund endeavours to make targeted investments that have the potential to promote economic and social development in Ukraine

Aequo’s team was led by Managing Partner Denis Lysenko (who chairs the firm’s Antitrust & Competition practice group) and Counsel Sergey Denisenko, supported by Associates Anna Litvinova and Igor Kalaida.