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Bank secrecy: greater freedom to disclose confidential data
Author: Svitlana Poroschuk and Oleh Furmanchuk
Source: International Law Office Newsletter. - 2011. - 6 May
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On June 17 2011 a number of amendments to the Law on Banks and Banking Activities will enter into force. The amendments, which were passed by Parliament on February 15 2011, change the rules of disclosure surrounding bank secrecy, including the disclosure of clients' personal data to third parties. The new rules establish the right of Ukrainian banks to provide such confidential information to parties that provide services to banks in relation to banking activities without the clients' prior consent.

At present, information covered by bank secrecy rules may be disclosed to such third parties only with the client's written consent or by court order. An exception within the law allows banks to disclose information to the extent necessary for granting loans or bank guarantees. Such information may also be disclosed, within certain limits, to apublic prosecutor's office and to other specified state authorities, including the National Bank of Ukraine.

The amendments have not yet been tested in practice, but they are expected to have the benefit of allowing Ukrainian banks to disclose necessary information to parties that work closely with them, such as auditors, legal counsel and debt recovery agents. As the law previously required prior consent when transferring confidential information, the National Bank of Ukraine recommended obtaining a prior catch-all authorisation from clients for any such disclosure. This approach was widely used and many banks included this provision in their underlying agreements with clients.

However, the amendments will significantly reduce the legal risks involved, making clear provision in legislation rather than requiring banks to rely on an agreement that a client or other interested party may subsequently seek to challenge in court.

The negative side of the amendments is that banks have discretion to transfer information covered by bank secrecy to 'third parties' (as defined in the legislation), but this could result in the further unrestricted transfer of personal data in violation of the client's privacy rights.

The National Bank of Ukraine has three months from the entry into force of the amendments in which to make the relevant changes to its implementing regulations on bank secrecy.