Ukraine: Turn Upside Down The Currency Legislation

Last Updated: 8 July 2019
Article by Kateryna Breduliak
Most Read Contributor in Ukraine, August 2019

Framework for liberalization

The new system of currency regulation was launched with putting into effect the long-awaited Law of Ukraine “On Currency and Currency Transactions” (Law), which finally replaced the Decree of the Cabinet of Ministers of Ukraine “On the System of Currency Regulation” from 1993. As a result, the National Bank of Ukraine (NBU) Resolution dated February 5, 2019, No. 31 rescinded the 252 NBU acts in the area of currency regulation.

Now the new system is presented only by 8 (eight) NBU's Resolutions:

Resolution No.1 “On Approval the Regulation on the Structure of the Currency Market of Ukraine, the Terms and Procedure for Trading Currency and Bank Metals on the Currency Market of Ukraine”;

Resolution No.2 “On Approval the Regulation on the Exercise of Currency Values”;

Resolution No.3 “On Approval the Regulation on the Transboundary Re-allocation of Currency Values”;

Resolution No.4 “On Approval the Regulation on the List of Protection Measures, the Procedure and Criteria of Launching, Extension and Early Termination”;

Resolution No. 5 “On Approval the Regulations on Protection Measures and Determining the Procedure for the Implementation of Specific Currency Transactions”;

Resolution No.6 “On Approval the Regulation on the Procedure of Providing Banks with Information to the National Bank of Ukraine on Contracts which provide residents with execution of debt obligations to non-resident creditors for borrowed residents by credits, loans”;

Resolution No.7 “On Approval the Instruction on the Procedure of Currency Bank Supervision for the Compliance of the Residents with the Limit Periods of Payment for Export and Import Transactions”;

Resolution No.8: “On Approval the Regulation on the Procedure for the Analysis and Verification of Documents (Information) on Currency Transactions by Authorized Institutions” and

+ 2 additional technical documents:

Resolution No.10 dated January 2, 2019 “On Approval the Rules of Functioning of the System Confirming Agreement on Currency Market of Ukraine”;

Resolution No.16 dated January 4, 2019 “On the Document for the Record and Registration of Currency Transactions “.

With the introduction of currency reform presented by 30 currency derogations. The main ones:

Increasing:

  • limit payment for export-import contracts from 180 to 365 days;
  • the limit on the transfer the currency abroad without opening an account for individuals from 15 to 150 thousand UAH;
  • the limit on the purchase of bank metals up to 150 thousand UAH. per a day

Canceling:

  • currency supervision of export-import transaction up to UAH 150 thousand;
  • individual licenses for currency transactions – replacement for e-limits (2 million euros/year for legal entities, 50 thousand euro for individual persons);
  • sanctions in the form of termination of foreign economic activities for violating the terms of settlements;
  • restrictions on early repayment of external obligations;
  • procedure for registration of external loans

Permitting:

  • free use the accounts by legal entities abroad;
  • conclusion the currency forward agreements for hedging of export-import and debt transactions;
  • transactions with non-residents legal entities in banks of Ukraine;
  • online – purchase of currency by individual persons (limit up to 150 thousand UAH / day)
  • and so on.

Despite so many currency derogations, it should be noted that they did not have a significant impact on the financial market. Today, there are quiet low volumes of investment abroad in the framework of e-limits and the repatriation of dividend.

What is the news on currency market in Ukraine?

From June 20, 2019, the norm obligating to sell 30% of currency in the interbank foreign exchange market does not apply. For SMEs and large businesses, such changes may facilitate an active use of derivative financial instruments (forwards, futures, options, swaps). Bankers also hope for improvements: the business will be more active in bringing currency to Ukraine, because now it will be possible to withdraw currency at any time. At the same time, in such a situation, it will become much more difficult to predict the dollar rate, and the volumes of currency in the market.

After reducing the rate of compulsory sale of foreign currency by a business from 50% to 30% from March 1, 2019, SMEs and large businesses already sold up to 90% of currency. Thus, the abolition of the obligatory sale of currency will not fundamentally affect the business activity. It should be mentioned such an abolition of this restriction will allow companies to save money from bank expenses and exchange differences.

On May 08, 2019, the NBU Resolution No. 66 of May 7, 201 “On Amendments to the Provisions on Protection Measures and Determining the Procedure for the Execution of Certain Transactions in Foreign Currency” came into force.

Within the limits of currency liberalization, the NBU has increased the limit on repatriation of dividends from 7 to 12 million euros a month. The size of the limit will not be critical to maintain macro-financial stability, but will only improve the investment climate in Ukraine.

This is the second increase in the limit this year. In February 2019, the NBU, along with the introduction of currency relaxation, already increased the limit on the repatriation of dividends from $ 7 million USA $ 7 million Euro in a month.

Also, on April 4, 2019, the NBU Resolution No. 56 dated April 01, 2019, which introduced amendments to the Instruction No. 492, came into force. Banks have the right to open current, deposit and escrow accounts not only for residents of Ukraine but also for non-residents: legal entities, representative offices in Ukraine, investment funds and asset management companies acting on behalf of such investment funds, individuals.

In addition, on April 4, 2019, the NBU Resolution No. 58 dated April 2, 2019, which amends the Resolution on the implementation by banks of financial monitoring, the purpose of which is to minimize the risks of using the Ukrainian banking system for money laundering schemes.

Further to currency liberalization, the NBU relieves market participants of securities from the need to obtain licenses for foreign exchange transactions. Therefore, the NBU cancels the need to obtain such licenses, moreover, it canceled such licenses of stock market participants and PJSC “National Depository of Ukraine”, which were issued earlier.

For insurance companies that provide life insurance service simplified the requirements for receiving them. To obtain a license, life insurers must have a minimum equity capital of at least UAH 45 million (earlier this amount was UAH 300 million). The relevant amendments were approved by the NBU Resolution No. 65 of May 7, 2019, “On Approval of the Amendments to the Regulation on the Procedure for Granting to Non-Bank Financial Institutions, Postal Operators of Licenses for the Execution of Foreign Currency Transactions”.

The NBU continues to reissue general licenses for foreign exchange operations for new licenses in accordance with the Law on Currency and Currency Transactions, which will operate indefinitely, whereas earlier the general currency exchange licenses were issued for a term of up to 3 years.

It should be noted that the Law also provides for the possibility of obtaining a license for postal operators.

What is going further?

Thus, the NBU has created conditions for business in Ukraine in the direction of capital flows and increase the foreign investment growth. However, the Parliament’s adoption of draft laws is aimed to improve the quality of regulation of the non-bank financial market to international standards (the Law on "SPLIT") and prevention of capital flight from Ukraine (the Law on prevention BEPS). Free movement of capital without any currency restrictions is also an obligation under the Association Agreement between Ukraine and the EU.

As before, the NBU focuses on preventing money laundering and tax evasion. The liberalization of currency legislation may be associated with the risk of using money laundering schemes. And under currency control would be all operations with currency values that exceed the threshold of financial monitoring. And the intentions of investors in 2019-2020 will be influenced not only by the free currency movement, but also by the level of corruption in the country, the rule of law and business experience.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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