Functioning of Currency and Monetary Markets during Martial Law

During martial law, an uninterruptable operation of the banking system and proper functioning of the monetary and foreign exchange markets are extremely important.

On April 4, 2022, the Board of the National Bank of Ukraine adopted the Resolution No. 68, which amended the Resolution of February 24, 2022 No. 18 “On the Operation of the Banking System during Martial Law”.

The Resolution revises the current restrictions on transactions in foreign currency and at the same time provides for certain relaxations in the implementation of certain transactions of residents and non-residents, namely:

1) Deadlines for payments in the field of foreign economic activity have been reduced from 365 to 90 calendar days.

This rule applies to residents’ operations on exports and imports of goods carried out from April 5, 2022.

Restrictions were introduced in order to prevent the outflow of capital abroad and prevent macroeconomic imbalances.

At the same time, the settlement deadlines do not apply to transactions on export, import of goods (including incomplete settlements under transactions), the amount of which does not exceed UAH 400 thousand in equivalent at the official exchange rate of the NBU on the date of the transaction. The fragmentation of export transactions or fragmentation of foreign exchange transactions is also not allowed.

What is more, at the request of the Cabinet of Ministers, the NBU has the right to establish exceptions and/or peculiarities of the application of the provisions on deadlines for settlements in foreign currency for certain goods and industries.

As a result, the Resolution of the Board of the NBU of May 14, 2019 No. 67 established that the deadlines for settlements do not apply, in particular, to:

– goods imported within the framework of state contracts for defense orders for the supply (purchase) of products, works and services concluded in accordance with the Law of Ukraine “On State Defense Order”;

– goods and services to be procured in accordance with procurement agreements concluded by the Ministry of Health of Ukraine with specialized procuring organizations or procurement agreements for medicines, medical devices, aids and other medical goods and services, concluded by the State Enterprise “Medical Procurement of Ukraine”.

The Law of Ukraine “On Currency and Currency Transactions” provides for liability for violation of the term of settlements under foreign economic contracts by residents, namely accrual of penalties for each day of delay in the amount of 0.3 percent of uncollected funds under the contract or value of undelivered goods.

2) Standard requirements for banks to conduct proper analysis and verification of documents (information) on foreign exchange transactions of their clients have been restored.

From February 24, 2022, the NBU allowed banks to conduct foreign exchange supervision in a simplified form, without additional analysis of documents and information on foreign exchange transactions of customers, sources of funds used for their conduct, and other relevant measures.

At the same time, since April 4, 2022, the simplified requirements for currency supervision shall be applied only to certain transactions, including:

– transactions of residents and non-residents to carry out mobilization and other activities specified by the laws of Ukraine governing relations in the areas of national security and defense;

– transactions of residents to fulfill obligations secured by a state guarantee;

– MFI transactions;

– transactions the amount of which does not exceed UAH 400 thousand, and some others.

This is explained by the stability of the banking system and the necessity to adapt to the challenges of wartime.

3) Natural persons who are not business entities are allowed to transfer foreign currency for the purchase of a number of goods abroad within the monthly limit of UAH 400 thousand (equivalent at the official NBU exchange rate).

These include the purchase of critical imports such as bulletproof vests, head protectors, helmets, optical surveillance devices, unmanned aerial vehicles, military and tactical uniforms and footwear, protective clothing, ground pads and premedical aid products.

According to the NBU, this easing was introduced taking into account numerous requests from banks and volunteers to help increase Ukraine’s defense capabilities.

4) It has been allowed to carry out certain expenditure transactions to legal entities – residents of Ukraine, the ultimate beneficial owners of which are residents of the Russian Federation or the Republic of Belarus.

In particular, such legal entities are given the opportunity to:

– transfer funds in Ukraine for social benefits, salaries, utilities, taxes, fees and other mandatory payments (except for payments in Russian and Belarusian rubles);

– sell non-cash foreign currency (except Russian and Belarusian rubles);

– pay commissions and other payments to banks for the provision of banking and other financial services, as well as for the purpose of fulfilling their obligations under credit agreements with banks;

– transfer funds to other own current accounts opened in Ukrainian banks (except for funds in Russian and Belarusian rubles);

– make a number of insurance-related payments, including insurance payments by paying health care facilities the cost of assistance provided, as well as insurance compensation for damage to life, health, property of victims under automobile liability insurance agreements (with some restrictions);

– transfer funds to a special account of the NBU to raise funds in support of the Armed Forces of Ukraine and/or to the accounts of the Cabinet of Ministers, ministries and other state bodies of Ukraine (except for payments in Russian and Belarusian rubles).

The above changes came into force on April 4, 2022 after the official publication of the Resolution of the Board of the NBU No. 68 of April 4, 2022, which can be found at: https://bank.gov.ua/admin_uploads/law/04042022_68.pdf?v=4.

Lawyers and consultants of the “Prime” Law Firm will be happy to advise on issues related to changes in the legislation in connection with the imposition of martial law, as well as provide comprehensive legal support.

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