The National Bank of Ukraine presented a concept paper on a new foreign exchange regulation model  and a roadmap for its implementation. The new model is not only more liberal compared to the current but is more in line with international practice - Directive 88/361/EC on free flow of capital and the Association Agreement with European Union.

New FX regulation model will be implemented with help of new legislation, which will replace obsolete Decree of the Cabinet of Ministers of Ukraine On Foreign Exchange Regulation and Foreign Exchange Control System of 1993 and numerous legal acts. From early November of the current year, working group is developing new legislation with participation of experts engaged by the European Commission within EU-FINSTAR project framework.

“As a result, new draft law On Foreign Exchange, which is a single frame document that will outline main guidelines on FX regulation in the country. At the same time, specific principles will be introduced at level of regulations. - told NBU Deputy Governor Oleh Churiy. - Such approach will make FX regulation in Ukraine transparent, simple and clear for households, business and banks, and will enable NBU to react more promptly and effectively on changes in balance of payment and market conditions.” According to project schedule, first version of the draft law will be introduced in Q2 2017.

Liberalization of FX regulation system on the way to target model will be performed in several stages, which can take place simultaneously:

• Stage0. On the basic stage we intend to lift limits for export and import operations and direct foreign investments aimed at improvement of export capacities of our country.
• Stage1. On this stage, limitations for portfolio investments and debt capital flows will be abolished.
• Stage2. On the last stage, all obstacles for foreign financial transactions of individuals will be removed.

“Grada shift to new FX regulation system is linked to the fact that liberalization must not lead to disruption of yet fragile macroeconomic and financial stability.  That is why we must weight each step: assess its potential effect and analyze consequences after the implementation, and take the availability of favorable prerequisites into account”, stressed Mr Oleh Churiy.

We shall take into account following factors: inflation level and economic growth, availability of significant gaps in balance of payment, resilience of the financial system, adequacy of international reserves, and development of financial markets and security of invertors’ rights. In particular, temporary restrictions easing shall not lead to inflation to exceed NBU targets. Moreover, if international reserves are not sufficient provided excessive supply of foreign exchange in the interbank FX market, NBU shall each time choose between temporary restrictions easing and purchase of foreign exchange to build-up reserves.

For the complete transition to a more liberal FX regulation model, efficient tax regulation shall take the stand of strict monetary regulation. NBU initiated  and the Tax and Customs Policy Committee of the Verkhovna Rada has prepared for consideration in parliament two draft laws,  which are to introduce in Ukraine 5 key and most urgent among 15 EBRD recommendations on countering the tax base reduction and moving profits abroad - BEPS). They also provide for Ukraine’s joining the mechanism of Automatic Exchange of Information with the fiscal authorities of other countries.

Currently, according to recommendations of the National Council of Reforms of 25 October 2016, public discussion of initiative on BEPS counteraction is still on. First discussion took place  on 30 November 2016 within framework of meeting of Financial Sector Reform Task Force, in which participated representatives of the NBU, the National Commission for the State Regulation of Financial Services Markets, the National Securities and Stock Market Commission, the Project Office of National Council of Reforms, the Independent Association of Banks of Ukraine, Insurance Federation of Ukraine and also representatives of people’s deputies corps and expert community.  Revised according to results of discussion, draft laws will be submitted to the National Council of Reforms for the further passing to the Verkhovna Rada of Ukraine.