On 21 June 2018, the Ukrainian Parliament passed the Law of Ukraine “On Currency and Currency Transactions” (“FX Law”), which will apply starting from 7 February 2019. The FX Law is expected to finally replace the archaic and inefficient currency regulations with more liberal and transparent rules.
The existing currency regulations prohibit currency transactions unless a transaction falls under an express exemption or a respective licence of the National Bank of Ukraine (“NBU”) is obtained. The FX Law, on the other hand, will generally allow freedom of currency transactions. Among other things, under the FX Law:
- Ukrainian residents (both individuals and legal entities) can open foreign bank accounts and transact using such accounts, acquire foreign currency (“FX”) abroad, and make cross-border FX transfers
- non-residents can open accounts with Ukrainian banks and use such accounts for cross-border and local currency transactions
- cross-border FX transfers must be carried out via banks, non-banking financial institutions, or post offices holding respective NBU licences according to the procedure set by the NBU
- a number of transactions are expressly allowed to be settled in FX on the territory of Ukraine
The general freedom of currency transactions introduced by the FX Law can only be limited by (i) temporary protective measures of the NBU (“Restrictive Measures”), (ii) national security or anti-money laundering laws of Ukraine, and (iii) applicable international treaties.
The Restrictive Measures, among other things, may include the following:
- mandatory sale of FX proceeds
- time limits for settlements under export and import transactions
- special requirements for capital movement
- special approvals or restrictions for certain currency transactions, etc.
In contrast to the existing regulatory environment, the FX Law envisages a number of safeguards in connection with the Restrictive Measures (e.g., grounds for introducing the Restrictive Measures, maximum time limits of their application, the NBU Council approval for extension and re-introduction of the Restrictive Measures, and reporting by the NBU to the Financial Policy and Banking Committee of the Parliament).
At the same time, no later than 30 days before the FX Law becomes applicable, the NBU must adopt new currency regulations providing for the Restrictive Measures if legal grounds exist. These Restrictive Measures will not be subject to the safeguards under the FX Law and will remain effective until the NBU cancels them.
Nevertheless, we believe that the adoption of the FX Law is a major milestone for Ukraine, which will reshape the Ukrainian FX market and increase the amount of debt financing and foreign investments.
For further information on the topic please contact Mykola Stetsenko, Managing Partner, Glib Bondar, Senior Partner, Yuriy Nechayev, Partner, or by telephone +380 44 591-3355 or via e-mail.