Publication date: 11.07.2024
Liability for violation of banking services rules
Banking is the backbone of any country's financial system, ensuring economic stability, consumer confidence and support for business. To ensure an adequate level of services and protect the rights of banking consumers, it is important that banks comply with established rules and standards. In case of violation of these rules, liability is envisaged, which may take various forms and degrees. In this article, we will consider the main aspects of liability for violation of banking services rules, the regulatory framework, types of liability and the procedure for bringing to liability.
Regulatory and legal framework
The provision of banking services in Ukraine is regulated by several key legal acts:
TheLaw of Ukraine On Banks and Banking Activities:
- The main law governing the activities of banks in Ukraine sets out the requirements for the organisation and conduct of banking operations, the rights and obligations of banks and their customers, and liability for violations of the law in this area.
TheLaw of Ukraine "On Financial Services and State Regulation of Financial Services Markets":
- Defines the legal framework for the provision of financial services, including banking services, establishes requirements for financial institutions, the procedure for licensing and control over their activities.
Law of Ukraine "On Protection of Consumer Rights":
- Defines the legal framework for the protection of consumers of financial services, establishes consumer rights, obligations of service providers and the procedure for handling consumer complaints.
Civil Code of Ukraine (CCU):
- Regulates contractual relations between banks and their customers, defines the rights and obligations of the parties, and mechanisms for consumer protection.
Code of Administrative Offences (CAO):
- Provides for administrative liability for violations of the requirements of the banking services legislation, non-compliance with standards and rules of activity in the financial markets.
Criminal Code of Ukraine (CCU):
- Establishes criminal liability for offences in the banking sector, including fraud, misrepresentation of clients and other offences.
National Bank of Ukraine (NBU):
- The central bank that supervises and controls the activities of banks, establishes regulations, regulates banking activities and imposes sanctions for violations of the law.
Key breaches of the banking services rules
The main violations of the rules for the provision of banking services may include:
Illegal activities:
- Provision of banking services without an appropriate licence or permit, which is a violation of the law and subject to administrative or criminal liability.
Failure to complywith information disclosure requirements:
- Failure to provide or provide inaccurate, incomplete or false information about banking services, contractual terms, risks, etc.
Fraud and abuse:
- The use of unfair methods to gain profit, including manipulation of information, misappropriation of customer funds, etc.
Conflict of interest:
- Failure to disclose a conflict of interest that could influence a client's decision or use confidential information for personal gain.
Failure to comply with therequirements for the protection of customer funds:
- Violation of the rules for storing and managing customer funds, which may lead to loss or misuse.
Violation ofconsumer rights:
- Failure to comply with the terms of the agreement, failure to provide or delay in the provision of services, unlawful charging of fees and other actions that violate the rights of customers.
Types of liability for violation of banking services rules
Violations of the rules for the provision of banking services may result in various types of liability: administrative, civil and criminal.
Administrative liability:
- Administrative liability is incurred for violations of the requirements of the banking services legislation, non-compliance with standards and rules of operation. Sanctions may include fines, warnings, and temporary suspension of the bank's operations. Such violations are subject to fines in the amount of 10 to 200 tax-free minimum incomes, and in case of repeated violations - up to 500 tax-free minimum incomes.
Civil liability:
- Civil liability is incurred in the event of material or moral damage to customers as a result of improper provision of banking services. Customers have the right to seek compensation through the courts. Liability may include compensation for pecuniary damage (lost money, lost profits, etc.) and non-pecuniary damage (psychological stress, humiliation).
Criminal liability:
- Criminal liability is incurred for committing crimes in the field of banking services, such as fraud, misrepresentation of clients, which led to serious consequences for the financial condition of clients or the economy. Sanctions may include fines, imprisonment, and prohibition to engage in certain activities. Such violations are punishable by fines of 500 to 2,000 tax-free minimum incomes or imprisonment for up to 10 years.
Procedure for bringing to liability
The procedure for bringing banks and their employees to liability for violations of the rules for the provision of banking services depends on the type of violation and the form of liability:
Administrative procedure:
- Administrative offences may be detected during inspections by regulatory authorities (the National Bank of Ukraine, the State Financial Monitoring Service) or following customer complaints. In case of violations, an administrative report is drawn up and reviewed by the competent authority. After reviewing the protocol, a decision is made to impose administrative sanctions.
Civil procedure:
- In the event of material or moral damage, clients may file a lawsuit for damages. The court examines evidence of improper provision of banking services, hears witnesses, and conducts expert examinations to determine the amount of damage. The court makes a decision on compensation for damages.
Criminal procedure:
- In the event of a crime in the banking sector, victims or other interested parties may file a criminal complaint with law enforcement authorities. Law enforcement agencies conduct investigations, collect evidence, and question witnesses and suspects. If the fact of a crime is established, the case is referred to the court for consideration
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