The situation in the foreign exchange market remains tense due to the effect of both objective and subjective factors.  Hostilities in the east of our country are the main objective factor driving foreign exchange market instability, which is closely linked to the subjective factors, specifically, attempts to foment panic among the public and businesses, as well as an appetite for quick profits shown by some foreign exchange market players.

Given the above, on August 20, 2014, the Board of the National Bank of Ukraine adopted Resolution No. 515 "On measures to put the foreign exchange market of Ukraine back on track" (hereinafter – Resolution No. 515).

Resolution No. 515 imposes the mandatory sale of foreign exchange proceeds in the interbank foreign exchange market of Ukraine. Pursuant to this Resolution, export and import transactions shall be settled within a period not exceeding 90 calendar days.

According to Governor of the National Bank of Ukraine Valeriia Gontareva, these temporary administrative measures imposed by the regulator would help put the foreign exchange market back on track. “We have extended the requirement for the mandatory sale of foreign exchange proceeds from exports in the interbank forex market for three months, obliging exporters to sell 100% of their foreign exchange earnings. The measure is a logical step that has been anticipated, given the grim political and social situation in the country,” said Ms Valeriia Gontareva.

In addition, Resolution No. 515 contains the provision whereby the National Bank of Ukraine shall perform a continuous monitoring of activities of the authorized bank on a daily basis to check that payment transactions on behalf of clients are duly executed. To this end, the National Bank is given the right to demand that banks suspend transactions that carry a high risk of being carried out for unlawful purposes and submit documents confirming that these transactions are non-fraudulent.

Commenting on the decision, Head of the National Bank of Ukraine said: "I draw attention of all the bank executives that acquisition of foreign currency under fake export-import contracts, "junk" securities and false agreements, which aim at distortion of actual content of transactions, concealment of 100% sale of foreign exchange earnings and other operations that are invented to bypass the regulator’s administrative restrictions is a violation of foreign exchange laws that will result in a fine equivalent to the value  of the contact."

According to Resolution 515, now the requirements are in force that compulsory sale should take place in the Ukrainian interbank currency market with regard to foreign exchange inflows from abroad to accounts opened with authorized banks for conduction of joint activities without forming a legal entity, in favor of legal entities that are not authorized banks, in favor of individual entrepreneurs, foreign representative offices (other than official representative offices), as well as foreign exchange inflows to the accounts of residents, opened outside Ukraine based on individual licenses granted by the National Bank of Ukraine.

Such earnings in foreign currency are subject to compulsory sale in the Ukrainian interbank foreign exchange market, including the National Bank of Ukraine directly, at the amount of 100 percent.

The requirement for compulsory sale shall apply to earnings in foreign currency of 1st group according to Classifier of foreign currencies and precious metals, and in Russian rubles.

However, the regulation also contains a list of cases where the compulsory sale of foreign currency earnings from abroad in the Ukrainian interbank foreign exchange market shall not apply. These include:

• inflows in favor of the state or within the state guarantees;
• on loans, borrowings raised under international treaties of Ukraine;
• to correspondent accounts of non-resident banks in foreign currency which are opened with authorized banks, etc.

The terms specified by Resolution 515 shall be in effect from August 21, 2014 to November 21, 2014.