Ukraine: FX Restrictions Extended

On 13 December 2016, the National Bank of Ukraine (the "NBU") issued Regulation No. 410 "On Regulating the Situation in the Monetary and Foreign Currency Markets of Ukraine" ("Regulation 410"), effective from 16 December 2016. The Regulation extends the FX restrictions introduced by Regulation No. 386 of the NBU dated 14 September 2016.

In contrast to previous regulations issued by the NBU concerning FX restrictions adopted for a 3-month period, Regulation 410 will be in effect for an unlimited term until cancelled by the NBU. This only does not apply to two restrictions, namely the mandatory sale of 65% of the proceeds in a foreign currency and the maximum 120-day term for the return of foreign currency proceeds, which are to be effective until 14 June 2017. 

According to the NBU, setting an unlimited validity period for the FX restrictions shall not be viewed as its unwillingness to encourage further liberalisation. Instead, the NBU has confirmed its intention to gradually soften and abolish such restrictions in accordance with the concept of the new model of currency control that it presented earlier in December, along with a road map on its implementation.

The following key FX restrictions have been extended:

• a maximum 120-day term for the return of foreign currency proceeds under export contracts after the supply of goods/services outside of Ukraine and the same maximum 120-day term for the supply of goods/services after making an advance payment abroad by residents under import contracts;
• a mandatory sale of 65% of the proceeds in a foreign currency transferred by non-residents to Ukrainian bank accounts (with certain exceptions including, but not being limited to, loans from international finance institutions where Ukraine is a member; loans involving foreign export credit agencies; funds transferred by a non-resident as security for participation in a state procurement or privatization of a state property; foreign investments etc.);
• a prohibition of early repayment of loans in a foreign currency (with certain exceptions);
• a prohibition on the purchase and transfer abroad of foreign currency in order to (i) pay dividends to non-residents (with the exception of the payment of dividends distributed for 2014-2015, subject to certain limitations); (ii) pay the purchase price to a non-resident following the sale by the non-resident of shares or a participatory interest in a Ukrainian company; (iii) pay to a non-resident following a decrease in a Ukrainian company’s charter capital or a withdrawal by a non-resident from a Ukrainian company; (iv) pay the purchase price to a non-resident for the securities issued by Ukrainian companies (except for the sale of debt securities by a non-resident at a stock exchange and the sale of state bonds at and outside the stock exchange);
• a prohibition of payments abroad under the individual licences previously issued by the NBU (with certain exceptions including, but not being limited to, the placement of funds by legal entities on a bank account abroad; the payment by a Ukrainian guarantor (surety) to a lender which is an international finance institution or foreign export credit agency; the payment by Ukrainian legal entities of membership fees for a non-resident legal entity);
• a requirement for Ukrainian banks to limit the withdrawal of cash in a foreign currency from bank accounts up to the equivalent of UAH 250,000 per day;
• a requirement for Ukrainian banks to continue exercising control over export operations in case of set-off by the parties (with certain exceptions); and
• a prohibition on the banks to buy foreign currency for its clients (except for individuals) if the clients have their own funds in foreign currency in their accounts (with certain exceptions).

Legislation:

Regulation of the National Bank of Ukraine No. 410 "On Regulating the Situation in the Monetary and Foreign Currency Markets of Ukraine" dated 13 December 2016.

Authors:

Vitaliy Radchenko, Partner, Vitaliy.Radchenko@cms-cmck.com

Kateryna Chechulina, Senior Associate, Kateryna.Chechulina@cms-cmck.com