On May 25th the Colombian Central Bank issued a new External Regulation through which several different norms were integrated. This external regulation also modified certain rules regarding foreign exchange operations.
External Regulation 1 of 2018 includes: applicable regulation to foreign exchange operations, rules for the Central Bank’s intervention on foreign exchange markets and standards applicable to all foreign exchange intermediaries. The new regulation is the result of efforts made by the Central Bank to simplify and integrate all directives related to foreign exchange, making it easier to know applicable rules and what obligations arise from said rules.
A press release issued by the Central Bank established that External Regulation 1 of 2018 not only compiles a number of relevant directives but also “updates and softens certain controls on foreign exchange operations, allowing for simpler and more efficient procedures, benefitting all those involved in these types of transactions.”
Although most procedural aspects of foreign exchange operations were simplified, certain controls remain in place. Controls include obligations of reporting and registering certain foreign exchange operations. Given that people who infract the foreign exchange regime may be subject to fines, everyone who wishes to engage in foreign exchange operations must be aware of the risks posed when operations are carried out without proper knowledge of the applicable regulations.
One of the main modifications to the previous regulation concerns foreign indebtedness. Other areas subject to changes include derivative operations, endorsements and warranties in other currencies, financial investments and imports and exports.
By way of example, the definition of foreign indebtedness was modified to distinguish between the parties (residents and non-residents) involved in the transaction as well as the currency in which a specific loan is stipulated and the currency in which it will be paid. In addition, the Central Bank has now allowed for loans between residents and non-residents to be stipulated, disbursed and paid in local currency. Furthermore, regulations regarding deposits to be constituted before the Central Bank in foreign indebtedness operations were simplified. The constitution of deposits remains at 0%.
Derivatives and Indebtedness
Regarding derivative operations, the Central Bank has eliminated certain restrictions to interest rates, exchange rates and stock indexes which serve as underlining assets for these types of operations. In this sense, both residents and foreign exchange intermediaries may celebrate all types of derivative operations with authorized non-residents. Also, the Central Bank has now allowed for non-delivery as well as delivery derivative transactions.
Another important change is that financial entities may engage in Credit Default Swaps to cover risks regarding credit operations and said Swaps may be paid in local or foreign currency, depending on the needs of the interested parties. This change softens previous controls on CDSs buy may only be applied to CDSs negotiated after January 1st, 2018. All CDSs negotiated before this date will have to comply with the rules established in External Regulation 8 of 2000.
Foreign Investment
Regarding financial investments and investments in assets abroad, the Central Bank has eliminated mandatory registration for these types of foreign investments. Investors may now negotiate their financial and asset investments in secondary markets, where negotiations can be performed in local or foreign currency. However, it’s important to establish that all resources destined to invest in financial products and assets abroad must be transferred through the foreign exchange market.
Other modifications include new rules applicable to foreign exchange intermediaries and the operations they’re allowed to perform. Limits regarding cash transactions for negotiators of foreign currency were increased and deadlines for return of funds were eliminated, except when it comes to exports.
These changes have led for other relevant regulations to be updated as is the case of External Regulation DCIN 83. The latter includes all procedural aspects which must be observed when performing foreign exchange operations.
Given that these changes have an impact on all those who carry out foreign exchange operations, it is our recommendation that all transactions be carefully revised in light of the new regulation. This will avoid inconveniences and possible investigations for infractions to the foreign exchange regime. Even when foreign exchange regulation in Colombia is becoming more flexible, its importance must not be undermined as it is mandatory for all residents and non-residents who participate in the foreign exchange market.