Circular No. 02/2012/TT-NHNN dated February, 2012 of the State Bank of Vietnam guiding the foreign exchange transaction between the State Bank of Vietnam and credit institutions, foreign bank's branches

CIRCULAR

Guiding the foreign exchange transaction between the State Bank of Vietnam and credit institutions, foreign bank s branches

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Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated 16 June 2010;

Pursuant to the Law on Credit Institutions No. 47/2010/QH12 dated 16 June 2010;

Pursuant to the Ordinance on Foreign Exchange No.28/2005/PL-UBTVQH dated 13 December 2005 of the National Assembly s Standing Committee;

Pursuant to the Decree No. 160/2006/ND-CP dated 28 December 2006 of the Government providing in details for the implementation of the Ordinance on Foreign Exchange;

Pursuant to the Decree No. 96/2008/ND-CP dated 26 August 2008 of the Government providing for the functions, duties, authorities and organizational structure of State Bank of Vietnam;

The State Bank Vietnam (hereinafter referred to as the State Bank) hereby provides guidance for the matters relating to foreign exchange transactions between the State Bank and credit institutions, foreign bank’s branches as follows:

Chapter I GENERAL PROVISIONS

Article 1. Governing scope and subjects of application1.

Governing scope:

This Circular provides guidance on foreign exchange transactions between the State Bank of Vietnam and credit institutions, foreign bank’s branches operating in Vietnam which are authorized to engage in foreign exchange activities.

2. Subjects of application: Credit institutions, foreign bank’s branches having foreign exchange transaction relationship with the State Bank.

Article 2. Operation of the State Bank in Vietnam foreign currency market

The State Bank builds up a plan to intervene in Vietnam foreign currency market and performs foreign exchange transactions with credit institutions, foreign bank’s branches in order to implement the objectives of national monetary policy from time to time.

Article 3. Interpretation

In this Circular, following terms shall be construed as follows:

1. Foreign exchange transaction shall mean a transaction involving the purchase, sale, swap of foreign currency and other types of transactions in Vietnam foreign currency market.

2. Spot foreign exchange transaction (herein after called spot transaction) shall mean a transaction in which two parties buy and sell an amount of  foreign currency at the spot rate at the time of transaction and make payment within 02 (two) following working days.

3. Future foreign exchange transaction (herein after called future transaction) shall mean a transaction in which two parties commit to buy and sell an amount of foreign currency at a rate as determined at time of transaction and the payment shall be made at a certain time in the future.

4. Swap foreign exchange transaction (herein after called swap transaction) shall mean a transaction that involves the purchase and sale of the same amount of foreign currency (only two currencies are used in the transaction) with the same counterpart, in which payment time of one transaction is spot and of the other is determined in the future and the exchange rate of these two transactions is determined at the same time as the time of confirmation of the spot transaction.

5. Regulation on foreign exchange transaction of a credit institution, foreign bank’s branch: shall be documents promulgated by the credit institution, foreign bank’s branch, which provides specific guidance, provisions on foreign exchange activity of the credit institution, foreign bank’s branch with the State Bank or documents providing for the foreign exchange activity of the credit institution, foreign bank’s branch which includes guidance for foreign exchange with the State Bank.

6. Standard payment instruction: shall be payment instructions determined for foreign exchange transactions which are registered with the State Bank by credit institutions, foreign bank’s branches, in which payment account of credit institutions, foreign bank’s branches in arising foreign exchanges is specified.

Article 4. Conditions for establishment of foreign exchange relationship

Credit institutions, foreign bank s branches shall be considered by the State Bank to establish foreign exchange relationship with upon fully meeting the following conditions:

1. To be established and operate under the Law on Credit Institutions

2. To be licensed by the State Bank to operate, trade, supply foreign exchange services in Vietnam foreign currency market.

3. To have machines, equipments, means of foreign exchange transactions such as Reuters system or other means of foreign exchange transaction accepted by the State Bank from time to time.

Article 5. Representative for transaction

The State Bank performs foreign exchange transactions with credit institutions, foreign bank s branches through their head offices or a unit which is authorized to act as their representative basing on the total demand of credit institutions, foreign bank s branches. In case that one foreign bank has 2 or more branches operating in Vietnam, the State Bank shall deal with only one branch which represents for other branches of the foreign bank in Vietnam basing on the total demand of branches. Credit institutions, foreign bank s branches shall register their representative to deal with the State Bank in the Registration Letter for establishment of foreign exchange relationship with the State Bank.

Article 6. Registration file for establishment of foreign exchange relationship

Credit institutions, foreign bank s branches which fully satisfy conditions as provided for in Article 4 of this Circular and has a demand for participating in foreign exchange transaction with the State Bank shall send, directly or via post service, 01 set of Registration file for establishment of foreign exchange relationship to the State Bank (Banking Operation Department). This Registration file shall consist of:

1. An application for establishment of foreign exchange relationship with the State Bank in accordance with the Appendix No.1 (as attached herewith).

2. The Establishment and Operation License of the credit institution or Establishment License of the foreign bank s branch in Vietnam (a certified copy).

3. Documents issued by the State Bank proving that the credit institution, foreign bank s branch is authorized to engage in, to trade and to supply foreign exchange services in the local market (notarized copy).

4. A Regulation on foreign exchange transaction of the credit institution, foreign bank s branch.

5. Standard payment instruction in accordance with the Form in Appendix No.3 (as attached).

6. Documentations for machines, equipments and means of foreign exchange transaction.

Article 7. Receipt and settlement of Registration file for establishment of foreign exchange relationship

Within 07 working days from the receipt of full Registration file for establishment of foreign exchange relationship of credit institutions, foreign bank s branches, the State Bank (Banking Operation Department) shall give a written notice to the credit institutions, foreign bank s branches on approval, supplement to the registration file, disapproval to the establishment of foreign exchange relationship with the credit institution, foreign bank s branch (reason for disapproval to be specified). In the event where the registration file needs to be amended, supplemented, the credit institution, foreign bank s branch shall be required to amend and supplement and send it to the State Bank within 10 working days from receipt of notice.

Article 8. Abrogation of foreign exchange relationship

The State Bank shall abrogate the foreign exchange relationship with a credit institution, foreign bank s branch in following cases:

1. License of the credit institution, foreign bank s branch is revoked as per provisions in paragraph 1, Article 28 of Law on Credit Institutions.

2. The credit institution, foreign bank’s branch that fails to satisfy conditions for establishment of foreign exchange relationship as required in paragraph 2 and paragraph 3, Article 4 of this Article. 3. The credit institution, foreign bank s branch is dealt with for their violation as per provisions in Paragraph 3 Article 20 of this Circular.

Chapter II

SPECIFIC PROVISIONS

Article 9. Pair of currencies for exchange

Pair of currencies in the foreign exchange transaction between the State Bank and credit institutions, foreign bank s branches shall be USD and VND or another pair as provided for by the State Bank from time to time.

Article 10. Type of transaction

Type of foreign exchange transaction between the State Bank and credit institutions, foreign bank s branches shall be spot transaction, forward transaction, swap transaction and other types as provided for by the State Bank from time to time.

Article 11. Term of forward transaction, swap transaction

Term of forward transaction, swap transaction shall be agreed by and between the State Bank and credit institutions, foreign bank s branches ranging from 03 (three) to 365 (three hundred and sixty five) days.

Article 12. Means of transaction

Means of foreign exchange transaction between the State Bank and credit institutions, foreign bank s branches shall be via Reuters, telephone or others as accepted by the State Bank from time to time. In case where the foreign exchange transaction is performed via telephone, the relevant credit institution, foreign bank s branch must have reliable recorder to record the transactions and store for use when necessary.

Article 13. Exchange rate

1. The exchange rate between US Dollar and Vietnamese Dong shall be determined in accordance with applicable provisions and the regime on exchange rate as determined by the State Bank from time to time.

2. The exchange rate between other foreign currencies (other than US Dollar) and Vietnamese Dong shall be determined upon the cross rate between US Dollar and Vietnamese Dong and between US Dollar and other foreign currencies in the international market on the transaction date.

Article 14. Principles of transaction

1. During the foreign exchange transaction, traders shall be required to use Vietnamese or English language. The used language must be obvious to avoid misunderstanding between the two parties.

2. Foreign exchange transactions on the means of transaction shall be deeded as an unchanged commitment unless the two parties come to an agreement to amend or cancel the transaction.

Article 15. Transaction time

The official time of foreign exchange transaction of the State Bank with credit institutions, foreign bank s branches shall be subject to the working time of the State Bank on weekdays. If there arise any foreign exchange transaction out of the official transaction time, the credit institution, foreign bank s branch shall draw up procedures, regulations to control the foreign exchange transactions for the purpose of risk management.

Article 16. Transaction procedure

The State Bank (Banking Operation Department) shall give guidance on the transaction procedure to each type of foreign exchange transaction in correspondence with the objectives of policies governed from time to time on the website of the State Bank, Reuter system or other media.

Article 17. Confirmation of transaction

After a foreign exchange transaction is agreed by the two parties, a confirmation of transaction shall be sent via SWIFT or other means as accepted by the State Bank. In case where the transaction is confirmed via fax, within 05 working days from the date of the transaction, an original copy signed by the authorized person of the credit institution, foreign bank s branch shall be sent to the State Bank (Banking Operation Department).

Article 18. Payment for transaction

1. The payment for a foreign exchange transaction shall be made according to the standard payment instruction as registered with the State Bank by the credit institution, foreign bank s branch in order to minimize risk in the payment process.

2. Payment time:

a) For a spot transaction: The payment time shall be 02 (two) working days at the maximum after the date of transaction.

b) For a forward transaction: The payment time shall be 03 (three) working days at the maximum after the date of transaction and as agreed by and between the two parties.

c) For a swap transaction: The payment time shall be 02 (two) working days after the date of transaction;

d) Other types of foreign exchange transactions: The payment time shall be in accordance with regulations of the State Bank from time to time.

dd) In the event where the date of payment falls on weekend or holiday, the date of payment shall be changed to the next day.

3. If the payment is made later than the time as agreed by and between the State Bank and credit institutions, foreign bank s branches, the party who makes late payment shall be subject to a punishment as follows:

a) For foreign currency, the maximum punishment rate shall be 150% of 01 week Libor interest rate of the currency of payment at the arising date of the late payment calculating based on the deferred amount and deferred days.

b) For Vietnamese Dong, the maximum punishment rate shall be 150% of the refinancing loan interest rate of the State Bank at the arising date of the late payment calculating based on the deferred amount and deferred days.

Chapter III

REGIME OF REPORTING INFORMATION AND DEALING WITH VIOLATION

Article 19. Regime of reporting information

1. The credit institutions, foreign bank s branches having foreign exchange transaction relationship with the State Bank shall be required to report to the State Bank (Banking Operation Department) on the performance of foreign exchange transaction with other credit institutions, foreign bank s branches in line with the Appendix No.2 (as attached) by 2pm of weekdays.

2. The credit institutions, foreign bank s branches shall be responsible for informing in writing the State Bank (Banking Operation Department) before the effectiveness of any change, including: change in the transaction representative, change in the trading name, change in location of headquarter or transaction office, transaction code in means of transaction, standard payment instruction, list of authorized signatories of credit institutions, foreign bank s branches for documents relating to foreign exchange transaction with the State Bank, list of the traders and other relevant changes.

3. In the event where the credit institutions, foreign bank s branches are divided, split, merged, integrated, acquired, transformed, dissolved and bankrupt:

a) The divided, de-merged, unified, acquired, transformed, dissolved, bankrupted credit institution that has foreign exchange transaction relationship with the State Bank shall be responsible for informing in writing the State Bank (Banking Operation Department) within 5 working days from the date of sending application file to the competent state agency for settlement of division, split, merger, integration, transformation, dissolution, bankruptcy of the credit institution.

b) The foreign bank s branch that has foreign exchange transaction relationship with the State Bank shall be responsible for informing in writing the State Bank (Banking Operation Department) within 5 working days from the date where the competent agency of the country where head office of the foreign bank is located makes decision on the division, split, merger, integration, acquisition, transformation, dissolution, bankruptcy or The credit institutions, foreign bank s branches committing violation of provisions of this Circular shall, depending on the nature and seriousness of the violation, be imposed with following actions by the State Bank:

1. To serve a warning when the credit institution, foreign bank s branch commits following violations for three times:

a) Failing to send report at the due time as provided

b) Failing to send report

c) Failing to send a true report as stipulated in Paragraphs 1 and 2, Article 19 of this Circular.

2. To temporarily suspend from operation in one to three months in following cases:

a) The credit institution, foreign bank s branch receives notice of warning for three times and over.

b) The credit institution, foreign bank s branch breaks provisions in Paragraph 3, Article 19 of this Circular.

c) The credit institution, foreign bank s branch is put in special control and engages in a restricted or suspended foreign exchange area.

3. To abrogate the foreign exchange transaction relationship of the credit institution, foreign bank s branch that commits serious act of violation in monetary area and banking activity in accordance with the conclusion, notice of the State Bank (Banking Inspection and Supervision Department)

4. To punish with administration measure in accordance with provisions on punishment with administrative measures in monetary area and banking activity or other forms of punishment in line with current provisions of applicable laws.

Chapter IV

RESPONSIBILITIES OF CREDIT INSTITUTIONS, FOREIGN BANK S BRANCHES AND UNITS OF THE STATE BANK

Article 21. Credit institutions, foreign bank s branches

1. The credit institutions, foreign bank s branches shall be responsible for:

a) The authenticity for authority of the related staffs in the foreign exchange transaction with the State Bank.

b) The sufficiency, accuracy, validity and compliance with the provided time for documents, application files sent to the State Bank. The credit institutions, foreign bank s branches shall be responsible to the State Bank for the information not updated as stated in Article 19 of this Circular.

2. The credit institutions, foreign bank s branches shall be responsible for complying with current provisions on operation in foreign exchanges and ensuring:

a) To have staffs who have proficient professional skills in foreign exchange operations.

b) To have strict procedures and system of risk management and internal control, which are reliable to control the foreign exchange transactions.

c) To comply with regulations on the foreign exchange position and other regulations on prudence in foreign exchange business in accordance with regulations of the State Bank.

Article 22. The Banking Operation Department

1. To receive application files for establishment of foreign exchange transaction relationship from the credit institutions, foreign bank s branches; reviewing and replying the credit institutions, foreign bank s branches on approval or disapproval to the establishment of foreign exchange transaction relationship.

2. To announce the reference exchange rate and offer the buying, selling rate in the foreign exchange transactions with the credit institutions, foreign bank s branches in conformity with provisions on exchange rate of the State Bank from time to time.

3. To provide guidance on procedures and to perform foreign exchange for types of foreign exchange transactions.

4. To consolidate the foreign exchange situation between the credit institutions, foreign bank s branches and the State Bank and among the credit institutions, foreign bank s branches from time to time for report to the Governor of the State Bank, and to send to the related units of the State Bank.

5. To follow up and take action to deal with violations of the credit institutions, foreign bank s branches as regulated in Paragraphs 1, 2, 3 in Article 20 of this Circular.

6. To notify and update to the Banking Inspection and Supervision Department on the list of credit institutions, foreign bank s branches approved by the State Bank to establish foreign exchange relationship.

Article 23. Department of Foreign exchange Control

1. To co-ordinate with the Banking Operation Department to make and implement the interventional plan of the State Bank in the inter-banking market.

2. To confirm the foreign exchange position of the credit institutions, foreign bank s branches that have a demand for foreign exchange transaction with the State Bank and send to the Banking Operation Department before 3.00pm of the date when the need of foreign exchange arises in line with plans on market intervention.

3. To inform to the Banking Operation Department of the inter-bank average exchange rate in the inter-bank foreign currency market and policy on exchange rate, interventional plan of the State Bank from time to time. 4. To co-ordinate with the Banking Operation Department in the settlement of arising problems relating to the foreign exchange transaction of the State Bank with the credit institutions, foreign bank s branches.

Article 24. Monetary Policy Department

The Monetary Policy Department shall be responsible for coordinating with the Banking Operation Department to provide instruction on the performance of the swap transaction and other arising foreign exchange transactions.

Article 25. Banking Inspection and Supervision Department

The Banking Inspection and Supervision Department shall be responsible for timely informing the Banking Operation Department of the following cases:

1. Finding out and dealing with the credit institutions, foreign bank s branches which violate provisions of this Circular and regulations in the monetary area and banking activity relating to foreign exchange.

2. The State Bank decides to put the credit institution having foreign exchange relationship with the State Bank in special control.

3. The State Bank revokes the License that is issued in accordance with Paragraph 1 Article 28 of Law on credit institutions, the Confirmation of eligibility to supply foreign exchange services, Confirmation of registration for supply of foreign exchange services and other documents relating to the foreign exchange issued by the State Bank to the credit institutions, foreign bank s branches that have foreign exchange relationship with the State Bank.

4. The State Bank approves in writing the division, split, merger, acquisition, transformation, dissolution and bankruptcy for the credit institutions, foreign bank’s branches that have foreign exchange relationship with the State Bank.

Chapter V

IMPLEMENTATION PROVISIONS

Article 26. Implementation effectiveness

This Circular shall come into effect from 12 April 2012, and replaces the provisions relating to foreign exchange transaction between the State Bank and the credit institutions, foreign bank s branches in the Regulation on the organization and operation of the inter-bank foreign currency market issued in conjunction with the Decision No. 101/1999/QD-NHNN13 dated 26 March 1999.

Article 27. Transitional provisions

The credit institutions, foreign bank s branches which have already been recognized by the State Bank as members of the inter-bank foreign currency market before the effective date of this Circular shall continue to perform foreign exchange transaction with the State Bank in accordance with provisions of this Circular and not be required to proceed with re-registering with the State Bank. However, they shall be required to update their profiles in accordance with provisions in Article 6 of this Article within 30 days from the effective date of this Circular.

Article 28. Implementation organization

Director of the Administrative Department, Director of the Banking Operation Department, Head of units of the State Bank, General Manager of State Bank s branches in provinces, cities under the central Government’s management, Chairman of the Board of Directors, Chairman of Board of Members, Chief of Controllers Committee, General Director (Director) of credit institutions, foreign bank s branches shall be responsible for the implementation of this Circular.

For the Governor of the State Bank

Deputy Governor

NGUYEN DONG TIEN

(Signed and sealed)