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Is The National Bank Of Ukraine That Liberal


Galyna Melnyk, lawyer at Ilyashev & Partners Law Firm
Source: Ekonomichna Pravda

The National Bank made public the draft law intended to significantly liberalize foreign exchange operations. The question is whether this draft is indeed that liberal.

The National Bank has recently published for consideration the long-awaited draft of currency law.

This draft is supposed to terminate the obsolete Decree of the Cabinet of Ministers of Ukraine on the system of currency regulation and a number of other rules of foreign exchange legislation that imposed significant limitations on foreign exchange operations.

The main declared objective of the draft law directly envisaged in its Preamble and Art. 1 – is the implementation of unconstrained settlement of foreign exchange operations.

Further we will discuss the main novelties of the abovementioned draft law: whether they are indeed that liberal as the National Bank announces.

Yes, the draft does not mention, in other words cancels, individual NBU licenses, which appear to be the main obstacle for the Ukrainian citizens and companies to keep their money on foreign accounts, to purchase the shares in foreign companies and the overseas real estate, to incorporate business abroad.

The draft mentions only the licenses for banks, other financial institutions and postal services operators. As a matter of fact such licenses are the permits for the conduct of specific professional activities in financial services market.

These licenses have no relation to foreign exchange operations of citizens and companies, the licensing for which is terminated by the draft law.

The draft also establishes the freedom of assets’ transfer overseas and the settlement of foreign exchange operations in general. Such provisions actually implement the principle “everything that is not forbidden is allowed”.

Effective foreign exchange laws rely upon another principle: everything that is not mandatory is forbidden.

The provision of the draft law envisaging that currency regulation issues shall be resolved solely on the basis of this law looks very promising. In other words, at first sight the draft aims at the limitation of the National Bank’s authorities to impose foreign exchange restrictions at its own discretion.

Currently the National Bank extensively uses such authorities. It reduces the due dates for import-export operations, forbids the transfers overseas under certain operations as well as early repayment of loans by nonresidents. Moreover, this list may be significantly extended.

Unfortunately, the draft law retains such authorities of the NBU drawing a veil over them as “protection measures”. Thus, Article 5 of the draft envisages that the regulator is authorized as provided by law to impose protection measures including different regimes of foreign exchange operations for different entities.

Article 13 of the draft specifies such measures in an open list granting the NBU the carte blanche in this area.

Among these measures — mandatory sale of foreign currency, limitation of due dates under foreign economic contracts, capital flow restrictions, implementation of special permits for separate foreign exchange operations, ban on assets withdrawal from the accounts, absolute prohibition of separate foreign exchange operations.

At the same time the grounds for these measures’ imposition are quite vague: “the signs of unstable state of the banking system, pressure on pay balance, the emergence of circumstances that threaten the stability of the banking system”.

Technically the draft law limits the discretion of the NBU when imposing these measures by the necessary obtainment of the approval of the Financial Stability Council and by the term of imposition, which does not exceed six months.

Nevertheless, taking into account the fact that the President of Ukraine participates in the appointment of the Head of the NBU and in the designation of the status of the Financial Stability Council we may be sure that these bodies will come to terms with each other regarding the initiation of certain foreign exchange restrictions.

Certainly, nothing forbids the National Bank to extend the protection measures each six months, technically complying with their terms envisaged by the draft law. Moreover, the National Bank has been actively using the practice of extending the “temporary” foreign exchange restrictions since spring of 2014.

In such a way, the long-awaited liberalization in practice completely depends on the position of the National Bank, on which the law confers broad authorities to regulate foreign exchange issues and to set forth the restrictions.

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