Ukraine introducing new sweeping sanctions on russian financial sector

President Volodymyr Zelensky submitted on Wednesday, February 22, a resolution approving the National Security Defense Council's decision to apply sectoral economic sanctions on russia's financial institutions to the Ukrainian parliament, Verkhovna Rada of Ukraine.

According to the text of the document published on the website of the Ukrainian parliament, the NSDC decided to apply special sectoral economic sanctions for 50 years to all banks registered and located in the russian federation, including:

• russia's central bank;
• non-bank credit organizations;
• operators of payment systems;
• professional stock market participants;
• insurance companies;
• investment funds;
• other financial institutions that are registered and provide services in russia.

They include the suspension of transactions with assets belonging to russian financial institutions; prohibition of establishing business relations, including correspondence; prohibition of concluding agreements and making investments in favor of russian financial institutions. The purchase of securities and other financial instruments issued by financial institutions in russia is also prohibited, except alienation of securities in favor of the state of Ukraine.

Sanctions also foresee:

• suspension of economic and financial obligations in favor of financial institutions of russia,
• suspension of service of electronic means of payment (transfers, making calculations, and issuing cash) issued by russian financial institutions.

The decree also provides for the National Bank to cancel the registration and prohibit new registrations of the international payment system with a russian financial institution as the operator and its participants. It is also forbidden for individuals and legal entities to take actions that lead to the violation and avoidance of the imposed restrictions.

According to the Ministry of Economy of Ukraine, the sanctions package aims to increase pressure on the russian banking system. Specifically, the sanctions target bank managers working for the russian military-industrial complex and servicing the russian occupation forces. The full list of individuals subject to sanctions is in the annex to the decision.

Proposals for relevant restrictions were considered and recommended for submission to the National Security and Ukraine's Defense Ministry, the Interdepartmental Working Group on implementing State Sanctions Policy under the chairmanship of First Vice Prime Minister and Minister of Economy of Ukraine Yulia Svyridenko.

"In coordination with Western partners, we are increasing pressure on the banking system of the aggressor state. Among the proposed sanctions are mirrored restrictions previously introduced, in particular, by the United States and Great Britain," the minister said in a statement. "Sanctions against bank managers who work for the russian military-industrial complex, serve occupation forces, etc."

She added that the renewal of sanctions against the moscow stock exchange was also important. From now on, in accordance with the current amendments to the law "On Sanctions," the blocking of MICEX-RTS assets applies to assets that the exchange disposes of indirectly.

The moscow stock exchange is effectively a monopoly on the russian market for capital markets services and products. Among the owners of the moscow stock exchange are russia's central bank (11.7%), Sberbank of russia (10%), and the VEB.rf state corporation (8.4%). According to the consolidated annual report, in 2021, the moscow stock exchange paid 6,884.2 million russian rubles in income tax to the state budget of russia and invested about 110 billion russian rubles in bonds of russia.