Regulation governing Forex operations

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REGULATORY DIGEST ON THE REGULATION N° 42/2022 OF 13/04/2022 GOVERNING FOREIGN EXCHANGE OPERATIONS

Background

Foreign exchange markets serve an important function in society and the global economy. They allow for currency conversions, facilitating global trade (across borders), which can include investments, the exchange of goods and services and financial transactions (BIS).

Foreign exchange business refers to a facility offered, business undertaken or transactions executed with any person involving a foreign currency inclusive of any account facility, credit extension, lending, issue of guarantee, counter guarantee, purchase or sale by means of cash, cheque, draft, transfer or any other instrument denominated in a foreign currency.

Being aware of the fact that foreign currency markets are dynamic, volatile and risky and hence  deals are quite intriguing, the National Bank of Rwanda is quietly concerned with these operations and it is in that context that it has issued a new Regulation n° 42/2022 of 13/04/2022 governing foreign exchange operations aiming at the liberalization of capital account and the establishment of rules relating to the management of foreign exchange transactions by licensed banks, foreign exchange bureaus and any other licensed intermediaries.  This Regulation repeals the Regulation n° 05/2013 of 21/10/2013 governing foreign exchange operations as modified.

Regulatory Key Highlights

The regulation provides that only licensed intermediaries are authorized to carryout foreign exchange business in conformity with specific central bank regulations. Licensed intermediaries determine their purchase and sales spot exchange rates which should be displayed on boards that are easily accessible. The regulation specifies that all monetary obligations or transactions entered into or made in the Republic of Rwanda are considered to be expressed and settled in Rwandan franc; however, non-licensed persons shall apply to the Central Bank for authorization to transact in foreign currency depending on the need and types of the business.

As per the regulation, foreign currency accounts by residents and non-residents may be opened in compliance with Anti Money Laundering and Counting Financing Terrorism Law and regulations and regulation related to Know Your Customer and due diligence.

Further, this regulation provides all requirements and guidance related to the use of foreign currency in import, export and merchandizing operations where among others the licensed intermediaries allowed to transfer foreign currency have the responsibility of ensuring that transfers of foreign exchange for import payments reflect fair value of goods imported or to be imported. Licensed intermediaries allowed to transfer foreign currency may also approve the transfer of fees related to merchandising operations subject to providing pro-forma invoices evidencing the purchase and sale of the goods.

On capital accounts operations, inwards and outwards transactions on direct investments are fully liberalized. Portfolio investments transactions between residents and non-residents are liberalized, however allowed licensed intermediaries must request relevant documents before repatriation of return on investment. Other important provisions include the following:

  •   Offshore borrowing by residents is allowed taking into account the requirements of this regulation;

  •   Resident financial institutions are authorized to grant loans in foreign currency following applicable regulatory framework; 

Auctioning of foreign currencies and other practices that may distort the foreign exchange market are prohibited;

  •   Central bank may prohibit any transfer of foreign currency abroad in the framework of fulfilling obligations pertaining to international agreements.

Important deadlines

A bank shall appoint a foreign exchange dealer. A foreign exchange dealer shall acquire professional certification (ACI Dealing certificate) as a minimum requirement. A foreign exchange dealer who does not have the certificate is given a period of 6 months to have the certificate from the publication of this regulation in the Official Gazette (Article 6).

Implications for concerned stakeholders

The main implications of the current regulation on foreign exchange operations are:

  •   Although all transactions must be conducted and maintained in strictest confidence, licensed intermediaries shall request from their customers any information that they deem necessary for performing their duties specified in this regulation and other relevant laws and regulations.

  •   A licensed intermediary shall submit to the Central Bank required reports as required in the regulation on reporting requirements.

  •   Any cash transportation abroad by licensed intermediaries is prohibited unless authorized by the Central Bank

  •   Operation of buying or selling foreign currency is prohibited, where at least one of the parties to the transaction is not a licensed intermediary.

Click here for more details:

https://www.bnr.rw/laws-and-regulations/other-laws-and-regulation/laws-regulations/