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“The team was recently visible advising on a number of pharmaceutical cases. Sources agree that the team is “moving in the right direction” and are particularly impressed by its work in the pharmaceutical sector”.

 

Changes in the Foreign Exchange Market: What Is Changing for Citizens and Business Starting from February 7

07.02.2019

Oleksandr Kamsha, Attorney at Law, Insolvency Receiver

Source: Ekonomichna Pravda

The new law on currencies is of particular interest both to the entrepreneurs and to the general public. However, the advantages of deregulation will not be immediately felt.

On 7 February 2019, the Law On Currency and Foreign Currency Transactions came into force to replace the Decree of the Cabinet of Ministers of Ukraine On the System of Currency Regulation and Currency Control.

This Law is of particular interest to business and simplifies the life of ordinary people who transfer money abroad or within the country.

The National Bank published the list of resolutions defining the rules of game in the foreign exchange market.

The Law is not aimed to lift all restrictions, the changes will be gradual. This is done to study market reactions and to prevent uncontrolled consequences, such as excessive outflows of capital from Ukraine.

Such liberalization is to ensure the inflow of necessary capital to the country and partially resolve the issues related to the foreign debt servicing.

Changes affecting individuals

Starting from February 7 an online purchase of foreign currency by individuals is allowed within the limit of up to UAH 150 thousand equivalent per day.

It is highly likely that it will provoke a positive reaction from citizens who will no longer have to wait in line at the bank’s cash desk. The proposed software package will provide an opportunity to buy currency on the same business day.

It is fair to say that the convenience of using this service will depend on the number of people using it.

In addition, the limit for foreign currency transfer abroad without account opening is increased for individuals from UAH 15 thousand per year to UAH 150 thousand per year.

The foreign currency transferred from abroad for payment in cash to individuals without account opening can be paid to the recipient within one business day in the amount not exceeding UAH 150 thousand equivalent.

The aforementioned is based on the Law On Preventing and Counteracting to Legalization (Laundering) of the Proceeds of Crime, Terrorist Financing and Financing the Proliferation of Weapons of Mass Destruction.

At the same time, the Law left unchanged the limit for importing into Ukraine or exporting from Ukraine of currency and bank metals without a mandatory declaration at the customs authority, which should not exceed EUR 10 thousand.

Changes affecting legal entities

The situation with business is much more interesting.

The period for settlements under export-import contracts increased twice — from 180 to 365 days. In addition, the penalty for violation of this period, namely, a fine of 100% of the transaction amount and a sanction in the form of prohibition of foreign economic activity, is lifted.

This will definitely be of interest to the business, since it simplifies the economic activity and gives more time to close transactions. The abolition of the ‘unnecessary’ liability can be perceived only positively.

The currency control over export-import transactions up to UAH 150 thousand is canceled. Such deregulation does not apply in cases where the participant to or the ultimate beneficiary of the currency transaction is the aggressor or occupying state. Furthermore, this derestriction does not apply to currency transaction splitting.

However, this does not mean that after February 7 the banks will not require documents for transactions up to UAH 150 thousand. Banks will make decisions on foreign exchange transactions on their own. The new legislation gives them more freedom, but also obliges them to take more responsibility.

The individual licenses for currency transactions are canceled — they will be replaced by the system of electronic limits: EUR 2 million per year for legal entities and EUR 50 thousand per year for individuals.
However, the Resolution does not provide for an action plan in case one needs to perform a transaction after the yearly limit is reached. Most likely, one will need to address the National Bank here.

At the same time, the requirement for mandatory sale of foreign exchange earnings in the amount of 50% still remains. And it’s hard to guess when it will be canceled. The NBU promises to monitor the situation in the market and respond accordingly: either reduce the percentage of mandatory sales, or completely cancel the requirement.

Will the Law bring the promised liberalization? It’s a mistake to believe that it will immediately ensure the use all new tools, since banks will need to adapt to the new procedures. They will have to prepare their software and hardware, which will definitely take some time.

In addition, Article 12(1) of the Law may be considered controversial.

This provision provides for the introduction of remedies in the event of occurrence of “the signs of the unstable financial position of the banking system, deterioration in the Ukraine’s balance of payments, and the emergence of circumstances threatening the stability of the banking and (or) financial system of the state”.

Yet, the Law does not define these concepts and does not set forth the list of grounds and circumstances that may provoke the introduction of unsubstantiated prohibitions.

The Law introduces the principle of currency transactions based on the idea “everything which is not forbidden is allowed”. This way of foreign exchange market regulation is an international practice and serves the basis for the developed countries to make their financial markets more liberal.

In addition, the adoption of new legislation in the field of currency regulation and the provision of free capital flows fall within the framework of Ukraine’s commitments stipulated by the EU-Ukraine Association Agreement.

The Law On Currency and Foreign Currency Transactions and weakening of currency control are clearly necessary for Ukraine. The adoption of a uniform law simplifies the system of legislation regulating the currency market.

Instead of the outdated decree and 56 regulatory acts we get one law and eight NBU resolutions. The transition from currency control to currency supervision is likely to have positive outcome. Perhaps, in case of favorable economic conditions, we may hope for the abolition of next prohibitions.

 
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