New FX Legislation In Ukraine Gives More Flexibility To International Lenders And Local Borrowers

From 7 February 2019, the Law of Ukraine on Foreign Exchange and Exchange Transactions (the "FX Law") is in effect. Adopted by the Ukrainian parliament on 21 June 2018, the FX Law overhauls the existing exchange control regime, introduces the principle of freedom of foreign exchange transactions and vests the National Bank of Ukraine (the "NBU") with a complete arsenal of exchange control tools, including those that earlier applied based on the law and not the NBU regulations.

According to the transitional provisions of the FX Law, the NBU was required to bring its regulations into compliance with the FX Law and also to adopt regulations on contingency exchange control restrictions that will start to apply simultaneously with the FX Law. These contingency restrictions will remain in place until Ukraine improves its macroeconomic condition, tightens its control over non-banking financial institutions and adopts BEPS-related legislation.

In line with the FX Law, on 4 January 2019, the NBU published a suite of regulations dated 2 January 2019 that will enter into the effect together with the FX Law on 7 February 2019. While some of the earlier existing restrictions were essentially repackaged, the NBU did change significantly its regulation for cross-border credit transactions between Ukrainian borrowers and non-Ukrainian lenders as discussed below, in particular by abolishing the loan registration procedure.

From 7 February 2019, loan agreements between international lenders and Ukrainian borrowers that were signed and registered before the FX Law enters into effect will no longer be subject to the earlier regime, otherwise than as a result of contractual provisions driven by the previously applicable regulation. There may be situations where either party to a loan agreement or both may wish to revisit their contractual arrangement to allow greater flexibility to the parties going forward.

Parties are free to select the effective date

Loan agreements (as well as amendments to them) may enter into effect on the date of their signing or on any other date agreed by the parties to such agreements. It is no longer necessary to have the loan agreement registered with the NBU as a condition for its entering into effect. Under the new regulations, all that is required is for the local account bank of the Ukrainian borrower to enter the loan agreement into the NBU's electronic system no later than the day of the first payment under the agreement. This...