Compliance with Legal Certainty in the Regulation of Escrow Account Regimes of an Insolvent Bank: Legal Argumentation in Overcoming Interdisciplinary Gaps

Abstract

The article seeks legal arguments for the fair protection of the rights of participants in relations arising during the liquidation procedure of an insolvent bank. This includes both civil law relations involving escrow account holders and public policy relations involving banking regulatory authorities. The study defines the legal nature of relations regarding the opening and operation of conditional storage (escrow) accounts, the legal regime of funds held in such accounts, and delineates the civil (private) and financial (public) principles of regulating such legal relationships, particularly within the bank liquidation process.

The author examines the rights of bank creditors—escrow account holders—and the obligations of the bank (liquidator) regarding the return of funds, specifically through the lens of compliance with the principle of legal certainty.

The study concludes that there are significant gaps in the regulatory framework governing the fulfillment of obligations under escrow account agreements between the bank, the account holder, and the liquidator. These gaps are identified both in the specialized Law "On the System of Guaranteeing Deposits of Individuals" and in the bylaws of the Deposit Guarantee Fund and the National Bank of Ukraine. Specifically:

• The law does not explicitly define exceptions regarding the inclusion or exclusion of escrow account funds from the bank's liquidation estate;
• There is no established mechanism for the priority return of funds from an escrow account to the beneficiary or account holder directly by the liquidator in cases where the bank failed to fulfill its repayment obligations prior to the commencement of liquidation;
• The bank's obligations regarding the depositing (safekeeping) of funds held in escrow accounts remain undefined.

The current state of legal regulation in this area demonstrates a violation of the principle of legal certainty. Given the requirements of Article 19, Part 2 of the Constitution of Ukraine, the performance of duties by the liquidator (the Deposit Guarantee Fund) regarding the maintenance of the escrow account regime is substantially hindered. Consequently, the legislator must specify the mechanism for returning such funds to the rightful owner. It is proposed to amend Part 2 of Article 50 of the Law of Ukraine 'On the Household Deposit Guarantee System' regarding the exclusion of funds held in escrow accounts from the bank's liquidation estate.