In furtherance of the FX reform, the National Bank of Ukraine (the “NBU”) has recently adopted the set of new regulations (the “Regulations”) which will become effective and operational as of 7 February 2019, together with the Law of Ukraine “On Foreign Currency and Foreign Exchange Transactions” (the “Law”).
The Regulations substitute the existing FX and currency control regulatory framework and are aimed at developing new approaches and practices of the Ukrainian FX market and cross-border funds transfers. It has been repeatedly declared in media sources that the goal of the Law as well as of the new Regulations is to liberalise the outdated and stringent currency control rules and regulations thus improving the investment climate and foreign economic relations. At the same time, the Regulations, in a nutshell, represent only the initial steps towards this goal and are expected to further develop and expand subject to Ukrainian economic and financial market upturn.
The set of Regulations comprise of eight key documents (regulations) numbered from No.1 to No.8 each governing certain aspect of FX and currency control regulatory framework. The list, however, is not limited to the aforesaid key regulations and the framework will be in time complemented with other regulations, some of which has been already presented and/or adopted.
Regulation No.1 provides for the general structure of the FX market and introduces updated rules for banks and financial institutions to carry out operations of sale and purchase of FX and banking metals, including, inter alia, operations with FX derivatives. The regulation, among other things, allows certain instruments (such as forward contracts and swaps) for hedging of currency risks.
Regulation No.2 covers a wide range of issues relating to FX purchase and conversion, transfer of funds abroad and FX settlements. The regulation envisages the risk-based approach which will apply to the aforesaid transactions and which will be initially limited by the mandatory requirements and restrictions established by the NBU (thresholds, types of transactions etc.)
Regulation No.3 envisages rules for cross-border cash movement carried out by individuals, companies and banks. Companies may move cash if such transactions are carried out in the course of their economic activities and subject to declaration to the Ukrainian customs authorities. The existing requirement to declare amounts exceeding € 10,000 by individuals when leaving or entering Ukraine remains in effect.
The NBU retains broad discretion to temporarily introduce safeguard measures aimed at stabilizing the financial situation in the event of crisis. The exhaustive list of such safeguard measures which may be introduced by the NBU is stipulated in Regulation No.4. and includes, among others, mandatory conversion of FX proceeds, introduction of mandatory periods for settlements under export and import operations, introduction of licensing requirements in respect of certain FX transactions.
Restrictions in effect
Regulation No.5 envisages a number of restrictions and safeguard measures applicable to FX transactions from 7 February 2019. Such measures and restrictions include the limit of UAH 150 000 for transfer of funds by individuals without opening of a current bank account, maximum 365-day period (comparing to the existing 180-day period) for settlements under export and import operations for the amounts over UAH 150 000. The NBU also retained such restriction as mandatory conversion of 50 % of FX proceeds received by legal entities (except for banks) and individual entrepreneurs in major foreign currencies. The regulation has been introduced as a set of temporary rules and restrictions, though, no specific period has been set for such restrictions.
Pursuant to Regulation No.6 loans granted to Ukrainian borrowers by foreign lenders will no longer be subject to registration with the NBU, instead Ukrainian banks will be required to inform the NBU of such loans and their details.
Instruction No.7 provides for rules on making settlements under export contracts or supply imported goods, services, etc. under import transactions, including controls vested with banks relating to compliance with such rules, especially the requirement of 365-day mandatory period for settlements.
Regulation No.8 introduces rules and procedures to be followed by banks and financial institutions in examining transactions of their clients for compliance with FX rules and regulations. A number of FX operations, including transactions below UAH 150 000, will be exempt from FX controls. However, subject to the risk-based approach, banks and financial institutions are vested with broad discretion to impose additional verification requirements and exercise extra caution in respect of any transactions which they may carry out.