8 September 2014
Legal alert: Restrictions on Foreign Currency Transactions and Mandatory Sale of Foreign Currency Revenues

At the end of August – beginning of September 2014 the National Bank of Ukraine (the “NBU”) has adopted new resolutions aimed at stabilisation of the situation on Ukrainian foreign exchange market and in banking and financial sector.

FX mandatory sale

Effective as of 21 August 2014, the NBU has adopted Resolution No. 515 “On Settlement of the Situation on Ukrainian Foreign Exchange Market” (the “Resolution 515”) imposing temporary requirement for mandatory conversion of 100% of foreign currency revenues into UAH.

The aforementioned mandatory sale requirement applies to foreign currencies of the first group of foreign currencies classifier[1] and to RUR, and extends almost to all money transfers into Ukraine (as well as money transfers into foreign bank account of Ukrainian residents opened on the basis of the NBU licence) for the benefit of legal entities (either resident or non-resident) and private entrepreneurs, including payments for goods, works and services and foreign investments subject to certain exceptions. In particular, such requirement will not apply to certain foreign currency revenues, including, among others, (i) FX funds received under the loan agreements executed pursuant to international treaties of Ukraine; (ii) FX funds credited on correspondent accounts of foreign banks opened with Ukrainian banks; and (iii) deposits in foreign currency received by Ukrainian banks from foreign banks.

On 28 August 2014 Resolution 515 was amended providing for the following: (1) the aforementioned sale of FX funds may not be made on the date of receipt of such funds and shall be made by banks only on the next business day after crediting of such FX funds to the respective interim account; (2) NBU has confirmed that due to the requirement of mandatory sale of FX proceeds, export operations may not be settled by way of set-off; and (3) Ukrainian banks are prohibited from granting FX denominated loans to their clients unless the purpose of such loans is performance by the clients of their foreign economic obligations.

The Resolution 515 shall remain effective until 21 November 2014.

New restrictions on FX transactions

Effective as of 2 September 2014, the NBU has adopted Resolution No. 540 “On Introduction of Additional Measures for Stabilisation of Ukrainian Monetary and Foreign Currency Markets” (the “Resolution 540”) introducing certain restrictions on transactions in foreign currency as well as measures enhancing stability of banking and financial activities. The Resolution 540 replaced the previous expired NBU Resolution No. 328 “On Regulation of Activity of Financial Institutions and Carrying out of Foreign Currency Transactions” (the “Resolution 328”) governing the similar issues. The Resolution 540 has extended most of, and introduced certain new, restrictions which were set out by the Resolution 328, in particular:

FX purchase restrictions

According to the Resolution 540, Ukrainian residents are prohibited from any early repayment of any loans, credits or financial aid raised from foreign lenders/donors in any foreign currency (including in case of entry into any amendment agreement shortening maturity of any such borrowings). Such prohibition applies to early repayment by Ukrainian residents of principal, interest and any other payment obligations under credit, loan, facility arrangements and/or financial aid agreements, in each case with foreign lenders/donors. In addition, NBU will not register any amendments to such agreements to the extent such amendments provide for reduction of the tenor or early repayment of a loan.

The NBU has preserved a monthly limit of the total amount of foreign currency that may be purchased by an individual for the purposes of transfers of FX abroad under any non-commercial transactions. For Ukrainian residents, such limit currently amounts to an equivalent of UAH 15,000 (without provision of supporting documentation) and to UAH 150,000 (subject to provision of supporting documentation). Non-resident individuals may transfer FX funds abroad within the abovementioned limits subject to provision of supporting documentation, irrespective of the amount of transfer. The aforesaid limits, however, do not apply to certain types of non-commercial transactions, such as, among others, payment for education abroad, medical treatment abroad, legal, notarial and other foreign authorities expenses (including payment of taxes, duties and other mandatory payments), and transfer of FX funds purchased for UAH received as salary by foreign residents employed in Ukraine.

Withdrawal of cash from bank accounts

The NBU has preserved the requirement for the banks not to disburse to their clients any foreign currency funds (in cash) in excess of an equivalent of UAH 15 000 per day per one client calculated at the official FX exchange rate established by the NBU. This requirement applies to withdrawal of cash from current and deposit accounts regardless of number of accounts of a client in the respective bank and irrespective whether such withdrawal is made in Ukraine or outside of Ukraine.

This restriction on FX cash funds withdrawal does not apply to instances where Ukrainian companies, entrepreneurs and representative offices of foreign companies cover/reimburse business trip expenses of their respective employees.

Additionally, any disbursement of cash funds within Ukraine under electronic means of payment, whether issued by residents or non-residents, may be made only in UAH. Foreign currency transferred to any individual from abroad to be disbursed in cash without opening of an account may be disbursed only in UAH.

According to the Resolution 540, Ukrainian banks should limit the withdrawal of cash funds in UAH from current and deposit accounts of clients to 150 000 UAH per one day per client. Such restrictions do not apply to withdrawal of cash funds for payment of salary, business trip expenses, pensions and other social payments, and repayments from current and deposit account provided that such accounts have been credited by cash and such repayments should not exceed the amount of such credited cash.

Banking regulations

The requirement regarding early repayment by the banks of foreign currency denominated deposits in UAH remains in force. The NBU has also extended the suspension of any issuance of savings (deposit) certificates by Ukrainian banks. Payments under previously issued savings (deposit) certificates may be made only via wire transfer of funds to the bank accounts of the owners of such certificates.

The NBU has established the long net foreign exchange position limit at no more than 1%.

The Resolution 540 reintroduced previously cancelled requirement for minimum period for purchase of FX funds by Ukrainian banks under instructions of their clients, which provides that a purchase of FX funds could be made not earlier than on the third (3rd) banking day after submission of the relevant instruction and transfer of UAH funds to an interim account of the bank. Ukrainian banks shall also, on a daily basis, (i) report to the NBU on all the instructions to purchase FX funds received from their clients; and (ii) conduct monitoring of operations of clients on purchase of FX funds on Ukrainian interbank foreign exchange market.

The Resolution 540 shall remain effective until 2 December 2014.

[1] The first group of foreign currencies classifier currently includes such currencies as, among others, USD, EUR, GBP, JPY and CHF.