“Nothing is more constant than change” – Karl Ludwig Berne.
The temporary-permanent or permanent-temporary legal regulation of foreign exchange operations in Ukraine confirms this great wisdom, as well as statements by many other well-known personalities describing the inevitability of change within society.
In December 2016, following a “tradition” it has established, the National Bank of Ukraine, as the main foreign exchange market regulator, introduced permanent measures concerning banks’ and other financial institutions’ activities in regards to implementing certain foreign currency transactions. These measures are, in fact, entail restrictions and prohibitions on banks’ carrying out transactions and, consequently, on the clients of these banks. While such restrictions were introduced before the maximum period of six months, Bank of Ukraine Decree no. 410, issued in December, saw them introduced indefinitely, with the exception of transactions related to the mandatory sale of foreign exchange earnings.
To ease these restrictions, the National Bank is issuing individual decrees and cancelling or modifying the December prohibitions. Since June 15, the NBU decided to issue Decree no. 54 and already made it public on its website on June 16 – this degree effectively introduces amendments to a number of legal acts regulating the procedure for issuing individual licenses for foreign exchange transactions to individuals who are not entrepreneurs. Owing to this law, physical persons will at last, after a lengthy ban, be able to carry out foreign exchange transactions, for which Ukraine’s currency legislation stipulates that a permit document – namely an individual license from the NBU – is required. As of today, the requirement to have individual licenses is established by Article 5 of the Decree of the Cabinet of Ministers of Ukraine “On the system of currency regulation and currency control” and these are required for such transactions as, for example, investing outside of Ukraine and placing funds in one’s own bank account opened at a foreign bank.
This mechanism took effect on July 3 of this year, and provides for the possibility of obtaining e-licenses, which are individual licenses in electronic form with information about issuances to be documented in the NBU’s information system – the Registry of individual licenses for individual persons to carry out physical currency transactions (hereinafter referred to as the Registry of individual licenses).
However, not everybody have the possibility to obtain a license as of that date. As a restraining arm, the National Bank has stipulated that the issuance of e-licenses only applies to transactions carried out by individuals that amount to no more than USD 50,000 per calendar year. In other words, those persons receiving an e-license and carrying out transactions can only do so up the range of USD 50,000 in total over the entire period. It is theoretically possible to undertake transactions exceeding this limit after obtaining an individual license in paper form, but this has virtually been prohibited since the December ruling in this regard while it is still in effect and limiting carrying out such transactions.
To obtain an individual license to (1) carry out investments abroad (for example, to purchase real estate or the corporate rights of a foreign legal entity); (2) to pay for a life insurance contract with a foreign insurance company; (3) to transfer funds to one’s own bank account with a foreign bank, a Ukrainian citizen who is a client of a Ukrainian bank must apply to this specific bank in order to obtain an e-license. The bank is obliged to accept the application in electronic form with copies or originals of the required documents for the proposed payment and to review them for compliance with the applicable National Bank instructions governing the procedure for issuing licenses for various kinds of transactions and the new Regulation on the functioning of the NBU’s automated database, confirmed by Decree no. 54, dated June 15, 2017. It is an interesting fact that there is no established time period for a commercial bank to consider such documents. Previously, the procedure for obtaining individual licenses was carried out without the involvement of the servicing bank, and therefore, it is not yet possible to anticipate any applicable period by analogy. This could potentially be a stumbling block as the collection of documents for the servicing bank may take much longer than the well-established 25-day procedure for the NBU’s consideration that is currently in effect.
The fact that the client will only have one business day for a transaction – the day the the license is issued – is also critically important. If he does not have time to complete this for any reason, including that which is due to a technical problem, such an operation will be impossible and would require the cancellation of the previous license and the registration of a new one. The same applies to any transactions of the client, for which a refund of the payment made under a particular license was issued.
At the same time, the NBU has established a number of restrictions on the number of persons who cannot obtain such a license. We are talking about cases where parties to a transaction are registered in the Russian Federation – this regulation applies to both individuals and legal entities.
As before, all transactions must be thoroughly checked out by an authorized bank in order to identify potential risks to the interests of the bank’s own depositors and creditors, so a bank has the right to request documents to confirm the origin of the funds for the proposed payment, as well as the economic purpose of a given financial transaction. Herein lies another potential risk for the client, as often a commercial bank’s investigation of even the “purest” client transactions can become a long and not always successful negotiation between the client and the bank. The client was previously protected from this kind of behavior on the part of the servicing bank, since the presence of an individual license issued by the NBU guaranteed its further implementation by the commercial bank.
But in the case that the client is indeed fortunate and if the bank has not found any grounds for refusing a transaction, it must electronically send a request for an individual license directly to the National Bank, the result of which should be the issuance of an e-license to the applicant. In this case, the NBU no longer double checks the package submitted, but only administers the system and enters the relevant information in the Registry of individual licenses.
We hope that, beginning from July of this year, everyone will be able to freely obtain an e-license from the National Bank, but individual clients should still be prepared to “play the game” with their respective banks.
For any questions regarding the acquisition of e-licenses, contact EBS Lawyer Tetyana Prychepa, 13 a Universytetska Street in Kiev, by phone +38 (044) 249-79-05, or email at email@example.com.
Author: Tetyana Prychepa