|Carlos Fradique-Méndez||Sebastián Boada Morales|
On September 30 2016, the Colombian Central Bank (Banco de la República de Colombia or BRC) issued External Regulation 14. It eliminated the obligation to file a foreign exchange declaration through a foreign exchange intermediary in respect of the remittance of funds under an exchange operation with a Colombian resident.
The foreign exchange market has welcomed this reform because it has provided greater flexibility by eliminating the formalities previously required to complete foreign exchange transactions with Colombia. However, it may create uncertainties regarding the new requirements.
The new regulation radically changes the definition of a so-called foreign exchange declaration contained in Colombia's foreign exchange legislation. A foreign exchange declaration is now defined as: the minimum information data required to be provided by residents and non-residents, for exchange operations traded through the exchange market, when transmitted to the BRC by means of either: (i) foreign exchange intermediaries (generally banks); or (ii) residents who hold a clearing account.
Before this modification, a foreign exchange declaration was a number of specific documents provided by the BRC. These needed to be executed and were subject to certain formalities. Now, foreign exchange transactions can be completed by providing certain minimum information, without requiring the execution of specific standard form documents.
As a result of the deregulation, every foreign exchange intermediary is now free to request any information that it deems necessary to complete exchange transactions. This could create more uncertainty for parties, given that the information that must be provided to each intermediary will no longer be standardised by means of the BRC forms. Formats one to five, which have now been eliminated, used to refer to the following exchange transactions:
- payments for the import and export of goods;
- foreign indebtedness operations;
- the provision of guarantees and collateral;
- international investment; and
- services, transfers and other concepts.
The modification also impacts cross-border derivatives transactions with Colombian residents. External Regulation DODM 144, issued by the BRC, has been entirely restated to reflect the new mechanism for registering exchange operations under derivatives transactions. Market participants must take these new procedures into consideration when completing remittances of funds.
Colombian and non-Colombian residents who participate in foreign exchange operations in Colombia hope that the exchange regulation has been made more flexible to reduce transaction costs in an era of almost real-time transactions. However, difficulties may arise due to the loss of standardised documentation. Now each foreign exchange intermediary can request any information it deems relevant. This risks creating other formalities that will differ from those previously imposed by the BRC.
Carlos Fradique-Méndez and Sebastián Boada Morales