Changes in the law of Ukraine on currency and currency transactions

The purpose of the law of Ukraine on currency and currency transactions adopted on July 07, 2018 (further the “Currency Law”) is to significantly liberalize the regulation of currency transactions. This law will enter into force on February 07, 2019 and replace an outdated decree of the Cabinet of Ministers of Ukraine on currency regulation and currency control dated February 19, 1993 (further the “Decree”). The Currency Law introduces a fundamentally new approach based, particularly, on the freedom of currency transactions, the sufficiency and efficiency, as well as the independence and marketability of currency regulation. It is therefore necessary to consider already now the changes that will occur in this field.

Abolition of deadlines for settlements with non-residents

The Currency repeals the Law of Ukraine “On settlements in foreign currency” providing that import-export transactions should be settled within 180 days. Instead, the National Bank of Ukraine will be entitled to introduce similar restrictions as prescribed by the Currency Law, but only if signs of fragile financial condition are apparent in the banking system and/or the balance of payments of Ukraine deteriorates.

More detailed measures to protect state banking and financial system

The Currency Law entitles the National Bank of Ukraine to introduce protective measures when any circumstances threatening the stability of the state’s banking or financing system arise, in particular:

Mandatory sale of foreign currency receipts;
Setting deadlines for settlements of export-import transactions;
Introducing licenses and/or limits for certain currency transactions;
Reserving funds for currency transactions;
Measures as listed by the regulations of the National Bank of Ukraine.

The Board of the National Bank of Ukraine is entitled to introduce protective measures for 6 months at most and extend the validity term of these measures for another 6 months. Moreover, the total validity term for such measures cannot exceed 18 months within 24 months.

Abolition of registration of agreements for foreign currency credit and loan from non-residents

Currently, contracts providing for residents to fulfill debt obligations to non-residents for loans in foreign currency must be registered with the National Bank of Ukraine. Failure to comply with this rule entails the imposition of a fine of 1% of the received credit or loan.

When the Currency Law enters into force, it will repeal Decree No. 734 dated June 27, 1999 issued by the President of Ukraine. This decree regulates the receipt by residents of credits, loans in foreign currency from non-residents, imposes penalties for violation of currency law and also requires the registration of loan agreements as well as provides for liability for non-observance of this requirement.

List of transactions that may be settled not only in UAH but also in foreign currency and banking metals

UAH will remain the only legal tender in Ukraine, but Article 5 of the Currency Law will allow the following transactions to be settled in foreign currency and banking metals as well:

Foreign investments and repayment to investors of income or other funds received as a result of investments;
Bank operations for provision of banking and other financial services with a banking license;
Provision of financial services by non-banking financial institutions and postal service operators licensed by the National Bank of Ukraine;
Other transactions as set out in the Customs Code of Ukraine and regulations of the National Bank of Ukraine.

Improvement of licensing

At present, the National Bank of Ukraine issues individual and general licenses for currency transactions. Once the Currency Law enters into force, banks will carry out currency transactions on the basis of a banking license. Non-banking financial institutions will also be allowed to provide the following services on the basis of licenses issued by the National Bank of Ukraine for currency transactions:

Trading of cash currency assets;
Transfer of funds;
Payment of foreign currency settlements in Ukraine under life insurance contracts;
Factoring;
Other currency transactions as defined by the National Bank of Ukraine.

Postal service operators providing financial services for transfer of funds in currency and exchange of cash currency assets will also do so on the basis of a license issued by the National Bank of Ukraine for currency transactions.

More appropriate approach to liability

Article 16 of the Decree provides that if residents violate the statutory settlement procedure, they will have to pay a penalty equal to the currency amount used for settlements. This article also provides for a penalty equal to currency amounts in transactions completed with no individual license from the National Bank of Ukraine, etc. Article 37 of the Law of Ukraine “On foreign economic activity” provides for special sanctions, in particular, the temporary suspension of foreign economic activity.

However, Article 14 of the Currency Law will impose penalties on legal entities of up to 100% of the amount of the transaction completed in violation of currency law in proportion to the violation. The notion and criteria for proportionality have not been clearly defined so penalties will be set at the discretion of the National Bank of Ukraine and the State Fiscal Service.

Major changes will thus be introduced soon. It should be noted that a significant number of legal relationships will be governed not only by the Currency Law but also by sub-regulations such as the regulations issued by the National Bank of Ukraine. Overall, the Currency Law provides sufficiently broad currency regulation powers to the National Bank of Ukraine which is allowed to introduce protective measures, approve the procedure for exercising currency supervision and determine the boundaries of liability for violations of currency law. It follows that despite the liberalization of currency regulation liability, compliance with applicable law remains relevant for all business entities so we recommend monitoring any changes to sub-regulations that will be adopted before too long in this field.

If you require further information, please do not hesitate to contact us. We are always pleased to help as well as provide legal assistance and advice on any currency law issues you may have.