5 March 2018
2 March 2018, the
National Reforms Council has approved for consideration of the Verkhovna Rada of Ukraine motions of the National Bank of
Ukraine (NBU) to the Draft Law On Currency that
will become a uniform framework law on ensuring FX regulation and providing FX
regulations are based on the Cabinet of Ministers’ Decree On
the System of Foreign Exchange Regulation and Control dated 1993 became
inefficient and hinder capital inflows to Ukraine.
legal framework makes it impossible to shift to liberal principles.
legal framework on FX operations is complicated, intricate and contradictory.
The NBU believes
that the Decree and a number of relevant regulations should be replaced with
the Law On Currency. The uniform
framework law on FX regulation will make it transparent, simple and
clear for households, businesses and banks, and will enable the NBU to promptly and effectively respond to fluctuations in
balance of payments and market conditions.
If the Law is adopted, Ukraine will be able to convert to a new,
liberal, look-through and up-to-date model of FX regulation suggested by the
NBU. Please be reminded that the NBU presented the concept of this model and
the conversion roadmap on 1 December 2016.
This model gives
green light to FX operations based on the principle ‘everything that is not
explicitly forbidden by law, is allowed”. This means that any operations in
domestic and foreign currencies between residents and between residents and
nonresidents can be transacted without any
The regime of the free
movement of capital means that there are no FX restrictions and therefore there
is no need for FX control as an oversight instrument of compliance with these
restrictions. Instead, foreign exchange supervision will be primarily
responsible for compliance with FX legal framework.
With the free
movement of capital in place, procedures will be informative rather than
permitting as it is now and serve for the purpose of statistics (such as BOP
In line with the
liberal FX regulation model, FX restrictions will be
implemented only to counteract or prevent a crisis and applied for a short term
(not more than six months).
This approach to
FX regulation corresponds to the international practices and EU integration
ambitions of Ukraine. Under the EU association agreement, in 2021, Ukraine
should initiate negotiations with EU on the mew FX rules. Having signed this
agreement, Ukraine has assumed the liability to ensure the free movement of
capital. Thus, when drafting the Law, the NBU task force - with the
participation of experts engaged by the European Commission as part of
EU-FINSTAR - took under advisement EU Council Regulation 88/361.
Draft Law On Currency was endorsed
by international financial institutions, businesses, the banking sector, the
expert community, MPs and state agencies that took part in deliberations with
the NBU of the Draft Law after it was presented to the general public on
9 August 2017.
Later, the Draft
Law was backed by the National Reforms Council and
will be brought up for consideration of the Verkhovna
Rada of Ukraine.
According to the
NBU’s motion, following the adoption of the Law On
Currency by the Verkhovna Rada of
Ukraine, the transition period of six months will be required to bring the NBU
regulations in line with the new Law. Afterwards the Law will come into effect.