Circular No. 02/2012/TT-NHNN On guiding foreign exchange transactions between the State Bank of Vietnam and credit institutions, branches of foreign banks

CIRCULAR

Guidelines for foreign exchange transactions between the State Bank of Vietnam

and credit organizations, foreign bank branches

________________

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

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

Based on the Foreign Exchange Ordinance number Amended and supplemented by Ordinance No. December 13, 2005 of the Standing Committee of the National Assembly;

Decree No. 160/2006/NĐ-CP December 28, 2006 of the Government detailing the implementation of the Foreign Exchange Ordinance;

Decree No. 96/2008/NĐ-CP August 26, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam (hereinafter referred to as the State Bank) guides the contents related to foreign exchange transactions between the State Bank and credit institutions, branches of foreign banks operating in Vietnam as follows:

Chapter I

GENERAL PROVISIONS

Article 1. Scope of Regulation and Applicability

1. Scope of regulation: This Circular guides foreign exchange transactions between the State Bank and credit institutions, branches of foreign banks operating in Vietnam that are permitted to conduct foreign exchange activities.

2. Applicability: Credit institutions, branches of foreign banks that have foreign exchange transactions with the State Bank.

Article 2. Activities of the State Bank on the Vietnamese foreign exchange market Male

The State Bank formulates intervention plans on the Vietnamese foreign exchange market and foreign exchange transactions with credit institutions, branches of foreign banks to implement national monetary policy objectives during each period.

Article 3. Explanation of Terms

In this Circular, the following terms shall be understood as follows:

1.Foreign exchange transaction refers to transactions related to the purchase, sale, swap of foreign currencies, and other types of transactions on the Vietnamese foreign exchange market.

2.Spot foreign exchange transaction (hereinafter referred to as spot transaction) is a transaction where both parties undertake to buy and sell a certain amount of foreign currency at the spot rate prevailing at the time of the transaction and settle within two (2) working days following the transaction.

3.Forward foreign exchange transaction (hereinafter referred to as forward transaction) is a transaction where both parties commit to buying and selling a certain amount of foreign currency at a predetermined exchange rate at the time of the transaction, with settlement to be made at a future specified date.

4.Swap foreign exchange transaction (hereinafter referred to as swap transaction) is a transaction including the simultaneous purchase and sale of the same amount of foreign currency (only two currencies are used in the transaction) with the same counterparty, wherein one transaction has an immediate settlement date and the other has a future settlement date, and the exchange rates of the two transactions are determined simultaneously at the time of confirming the spot transaction.

5.Rules for foreign exchange transactions of credit institutions, branches of foreign banks: Are documents issued by credit institutions, branches of foreign banks guiding and specifying in detail their foreign exchange transaction activities with the State Bank or documents regulating their foreign exchange transaction activities which include guidance on foreign exchange transactions with the State Bank.

6.Standard payment instructions: Are payment instructions determined for foreign exchange transactions registered by credit institutions, branches of foreign banks with the State Bank, clearly identifying the payment accounts of credit institutions, branches of foreign banks in foreign exchange transactions arising therefrom.

Article 4. Conditions for Establishing Foreign Exchange Transaction Relationships

Credit institutions and foreign bank branches shall be considered by the State Bank to establish foreign exchange transaction relationships when they meet the following conditions:

1.They are credit institutions or foreign bank branches established and operating under the Law on Credit Institutions.

2.They are credit institutions or foreign bank branches licensed by the State Bank to operate, trade, and provide foreign exchange services in the domestic foreign exchange market.

3.They are credit institutions or foreign bank branches equipped with machines, equipment, and foreign exchange trading means such as the Reuters system or other trading means approved by the State Bank during each period.

Article 5. Representatives for Transactions

The State Bank conducts foreign exchange transactions with credit institutions and foreign bank branches through their headquarters or authorized units representing the credit institutions or foreign bank branches based on the overall needs of the credit institutions or foreign bank branches. In cases where a foreign bank has two or more branches operating in Vietnam, the State Bank will only conduct transactions with one branch representing all branches of the foreign bank in Vietnam based on the overall needs of the branches. Credit institutions and foreign bank branches must register representatives for transactions with the State Bank in the Application for Establishing Foreign Exchange Transaction Relationships with the State Bank.

Article 6. Documents for Registering to Establish Foreign Exchange Transaction Relationships

Credit institutions and foreign bank branches meeting the conditions set out in Article 4 of this Circular, if they wish to participate in foreign exchange transactions with the State Bank, shall submit directly or send via postal service one set of documents for registering to establish foreign exchange transaction relationships to the State Bank (Trading Department). The documents include:

1.Application for Establishing Foreign Exchange Transaction Relationships with the State Bank according to Appendix 1 (attached).

2.License for establishment and operation of the credit institution or License for establishment of foreign bank branch in Vietnam (certified copy).

3.Documents proving that the credit institution or foreign bank branch is permitted to operate, trade, and provide foreign exchange services in the domestic market issued by the State Bank (certified copy).

4.Foreign exchange trading regulations of the credit institution or foreign bank branch.

5.Standard payment instructions according to the model at Appendix 3 (attached).

6.Documents proving the system of machines, equipment, and foreign exchange trading means.

Article 7. Receiving and Processing Applications for Registering to Establish Foreign Exchange Transaction Relationships

Within seven working days from the date of receipt of complete applications for establishing foreign exchange transaction relationships from credit institutions or foreign bank branches, the State Bank (Trading Department) shall notify in writing the credit institutions or foreign bank branches regarding approval, supplementary application, or non-approval of establishing foreign exchange transaction relationships with the credit institutions or foreign bank branches (specifying reasons for non-approval).

In cases where the application requires modification or supplementation, the credit institutions or foreign bank branches must modify or supplement the application and submit it to the State Bank within ten working days from the date of receipt of the notification.

Article 8. Cancellation of foreign exchange transaction relationships

The State Bank of Vietnam shall cancel the foreign exchange transaction relationship with credit institutions and foreign bank branches in the following cases:

1.Credit institutions and foreign bank branches have their licenses revoked according to Clause 1, Article 28 of the Law on Credit Institutions.

2.Credit institutions and foreign bank branches fail to meet the conditions for establishing foreign exchange transaction relationships as stipulated in Clauses 2 and 3, Article 4 of this Circular.

3.Credit institutions and foreign bank branches are subject to violation handling measures as stipulated in Clause 3, Article 20 of this Circular.

Chapter II

SPECIFIC PROVISIONS

Article 9. Currency Pairs for Transactions

The currency pairs for transactions between the State Bank of Vietnam and credit institutions and foreign bank branches are US Dollars and Vietnamese Dong or other currency pairs specified by the State Bank of Vietnam during each period.

Article 10. Types of Transactions

The types of foreign exchange transactions between the State Bank of Vietnam and credit institutions and foreign bank branches include spot transactions, forward transactions, swap transactions, and other types of transactions prescribed by the State Bank of Vietnam during each period.

Article 11. Terms of Forward Transactions and Swap Transactions

The terms of forward transactions and swap transactions between the State Bank of Vietnam and credit institutions and foreign bank branches shall be agreed upon within the range from three (3) to three hundred sixty-five (365) days.

Article 12. Means of Transaction

The means of foreign exchange transactions between the State Bank of Vietnam and credit institutions and foreign bank branches are through Reuters, telephone, or other transaction means approved by the State Bank of Vietnam during each period. In the case of foreign exchange transactions conducted via telephone, credit institutions and foreign bank branches must have recording devices that ensure the recording of all transactions and storage for use when necessary.

Article 13. Exchange Rates

1.The exchange rate for foreign exchange transactions between US Dollars and Vietnamese Dong is determined according to the regulations on exchange rates and exchange rate policies decided by the State Bank of Vietnam during each period.

2.The exchange rate for foreign exchange transactions between other convertible foreign currencies (other than US Dollars) and Vietnamese Dong is determined based on the cross-exchange rate of the US Dollar-Vietnamese Dong exchange rate and the US Dollar exchange rate with other foreign currencies on the international market on the day of the transaction.

Article 14. Principles of Transactions

1.During the process of foreign exchange transactions, transaction officers must use Vietnamese or English language. The language used must be clear to avoid misunderstandings between both parties.

2.Foreign exchange transactions conducted through transaction means are considered irrevocable commitments unless both parties agree to amend or terminate the transaction.

Article 15. Time of Transactions

The official time of foreign exchange transactions between the State Bank of Vietnam and credit institutions and foreign bank branches is during the working hours of the State Bank of Vietnam on working days of the week.

In the event of foreign exchange transactions occurring outside the official transaction time, credit institutions and foreign bank branches must establish procedures and regulations to manage such transactions to ensure risk management.

Article 16. Transaction Procedures

The transaction procedures for each type of foreign exchange transaction shall be guided by the State Bank of Vietnam (Trading Department) according to the intervention policy objectives during each period on the State Bank of Vietnam's electronic information page, Reuters network, or other means.

Article 17. Transaction Confirmation

After both parties agree on a foreign exchange transaction, the transaction confirmation must be sent via SWIFT or other means accepted by the State Bank of Vietnam. In case of confirmation by fax, within five working days from the date of the transaction, the original copy signed by an authorized representative of the credit institution or foreign bank branch must be sent to the State Bank of Vietnam (Trading Department).

Article 18. Settlement of Transactions

1.Settlement for foreign exchange transactions must be carried out according to the standard payment guidelines registered with the State Bank of Vietnam by credit institutions or foreign bank branches to minimize risks during the settlement process.

2.Payment deadlines:

a) Spot transactions: The maximum payment deadline is two working days after the transaction date.

b) Forward transactions: The minimum payment deadline is three working days after the transaction date, as agreed upon by both parties.

c) Swap transactions: The maximum spot payment deadline is two working days after the transaction date; the future forward payment deadline is as agreed between the parties in accordance with current regulations.

d) Other types of foreign exchange transactions: Payment deadlines shall comply with the regulations of the State Bank of Vietnam during each period.

e) In cases where the payment date coincides with weekends or holidays, the payment date will be moved to the next working day.

3.In cases where payment is delayed compared to the agreement between the State Bank of Vietnam and credit institutions or foreign bank branches, the party making the late payment will bear the following penalty rate:

a) If in foreign currency, the maximum penalty rate equals 150% of the one-week Libor interest rate of the payment currency at the time of the late payment, calculated based on the amount and number of days delayed.

a) If the penalty is in foreign currency, the maximum penalty rate shall be 150% of the overnight interest rate applied by the clearing bank of the delayed party on the standard foreign currency receiving account at the time of occurrence, calculated based on the amount and number of days of delay.

Chapter III

INFORMATION REPORTING REGIME AND VIOLATION HANDLING

Article 19. Information Reporting System

1.Credit institutions and foreign bank branches that have foreign exchange transactions with the State Bank of Vietnam must report to the State Bank of Vietnam (Trading Department) the situation of foreign exchange transactions with other credit institutions or foreign bank branches according to Appendix 2 (attached) no later than 14:00 on working days of the week.

2.Credit institutions and foreign bank branches are responsible for notifying in writing to the State Bank of Vietnam (Trading Department) before the effective date of changes including: change of transaction representatives, change of transaction name, main office location or transaction office location, transaction code on transaction means, standard payment guidelines, list of authorized signatories representing credit institutions or foreign bank branches for documents related to foreign exchange transactions with the State Bank of Vietnam, list of transaction officers, and other related changes.

3.In cases where credit institutions or foreign bank branches are divided, split, merged, consolidated, acquired, converted into another legal form, dissolved, or declared bankrupt:

a) Credit institutions that have foreign exchange transactions with the State Bank of Vietnam which are divided, split, merged, consolidated, acquired, converted into another legal form, dissolved, or declared bankrupt are responsible for notifying in writing to the State Bank of Vietnam (Trading Department) within five working days from the date of submitting the relevant documents to the competent authority to handle the division, split, merger, consolidation, acquisition, conversion into another legal form, dissolution, or bankruptcy of the credit institution.

b) Foreign bank branches that have foreign exchange transactions with the State Bank of Vietnam are responsible for notifying in writing to the State Bank of Vietnam (Trading Department) within five working days from the date the competent authority of the country where the foreign bank's main office is located decides on the division, split, merger, consolidation, acquisition, conversion into another legal form, dissolution, bankruptcy, or revocation of the business license, suspension of operations.

Article 20. Handling Violations

Credit institutions and foreign bank branches violating the provisions of this Circular, depending on the nature and severity of the violation, the State Bank of Vietnam will apply the following handling measures:

1.A verbal warning when credit institutions or foreign bank branches violate three times or more in the following cases:

a) Submitting reports not in accordance with the prescribed deadlines.

b) Not submitting reports.

c) Submitting false reports as stipulated in Clause 1 and Clause 2 of Article 19 of this Circular.

2.Temporarily suspending transactions for one to three months in the following cases:

a) Credit institutions or foreign bank branches receiving a verbal warning three or more times.

b) Credit institutions or foreign bank branches violating the provisions of Clause 3 of Article 19 of this Circular.

c) Credit institutions being placed under special supervision and their foreign exchange activities being restricted or suspended.

3.Terminating the foreign exchange transaction relationship when credit institutions or foreign bank branches commit serious violations in monetary matters and banking activities as concluded or notified by the State Bank of Vietnam (Bank Inspection and Supervision Authority).

4.Administrative penalties according to the provisions on administrative penalties in the field of money and banking activities or other forms of penalties as provided by current regulations.

Chapter IV

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

Article 21. Credit organizations, foreign bank branches.

1. Credit organizations, foreign bank branches shall be responsible for:

a) The authenticity of the authority of relevant officers in foreign exchange transactions with the State Bank.

b) The completeness, accuracy, legality, and compliance with time requirements for documents and files submitted to the State Bank. Credit organizations, foreign bank branches shall be liable to the State Bank for information that has not been updated as stipulated in Article 19 of this Circular.

2. Credit organizations, foreign bank branches shall be responsible for complying with current regulations on activities in the foreign exchange sector and must ensure:

a) Having a staff proficient in foreign exchange transaction operations.

b) Having strict risk management and internal control systems to ensure the management of foreign exchange transaction activities.

c) Adhering to regulations on foreign exchange status and other safety measures in foreign exchange business operations as prescribed by the State Bank.

Article 22. Trading Department

1. Accept applications from credit organizations, foreign bank branches to establish foreign exchange transaction relationships; examine and respond to credit organizations, foreign bank branches regarding approval or non-approval of establishing foreign exchange transaction relationships.

2. Announce reference exchange rates and offer buying and selling exchange rates in foreign exchange transactions with credit organizations, foreign bank branches according to the exchange rate regulations of the State Bank during each period.

3. Guide procedures and implement transactions for various types of foreign exchange transactions.

4. Compile reports to the Governor of the State Bank, simultaneously sending related units of the State Bank periodic situations of foreign exchange transactions between credit organizations, foreign bank branches and the State Bank, and among credit organizations, foreign bank branches.

5. Monitor and implement measures to handle violations by credit organizations, foreign bank branches as stipulated in Clause 1, Clause 2, Clause 3 of Article 20 of this Circular.

6. Notify and update the Banking Supervisory Authority about the list of credit organizations, foreign bank branches approved by the State Bank to establish foreign exchange transaction relationships.

Article 23. Foreign Exchange Management Department

1. Coordinate with the Trading Department to develop and implement the State Bank's intervention plans in the inter-bank foreign exchange market.

2. Confirm the foreign exchange status of credit organizations, foreign bank branches requesting foreign exchange transactions with the State Bank, which must be sent to the Trading Department before 3:30 PM on the day the need for foreign exchange transactions arises, according to the intervention plans.

3. Inform the Trading Department of the average inter-bank exchange rate in the inter-bank foreign exchange market and the State Bank's exchange rate policy and intervention plans during each period.

4. Coordinate with the Trading Department in resolving issues arising from foreign exchange transactions between the State Bank and credit organizations, foreign bank branches.

Article 24. Department of Monetary Policy

The Monetary Policy Department coordinates with the Trading Department to guide the implementation of swap transactions and other foreign exchange transaction operations that arise.

Article 25. Banking Inspection and Supervision Authority

The Banking Inspection and Supervision Authority shall promptly notify the Trading Department in the following cases:

1. Discovering and handling credit organizations and foreign bank branches that violate the provisions of this Circular and violations in the monetary and banking sectors related to foreign exchange activities.

2. The State Bank decides to place credit organizations engaged in foreign exchange transactions with the State Bank under special control status.

3. The State Bank revokes the License issued according to Clause 1, Article 28 of the Law on Credit Organizations, the Confirmation of Eligibility for Foreign Exchange Service Supply, the Registration Confirmation for Foreign Exchange Service Supply Activities, or other documents related to foreign exchange service supply activities issued by the State Bank to credit organizations and foreign bank branches engaged in foreign exchange transactions with the State Bank.

4. The State Bank approves in writing the division, separation, merger, consolidation, acquisition, change in legal form, dissolution, or bankruptcy of credit organizations engaged in foreign exchange transactions with the State Bank.

Chapter V

IMPLEMENTING PROVISIONS

Article 26. Effective date

This Circular takes effect from April 12, 2012, replacing relevant regulations concerning foreign exchange transactions between the State Bank and credit organizations in the Interbank Foreign Exchange Market Operation Regulation issued together with Decision No. 101/1999/QD-NHNN dated March 26, 1999.

Article 27. Transitional Provisions

Credit organizations and foreign bank branches recognized as members of the interbank foreign exchange market by the State Bank before the effective date of this Circular continue to conduct foreign exchange transactions with the State Bank according to the provisions of this Circular without having to re-register with the State Bank, however, they must update their files in accordance with the provisions of Article 6 of this Circular within thirty days from the effective date of this Circular.

Article 28. Implementation Organization

The Head of the Office, the Director of the Trading Department, the Heads of units under the State Bank, the Directors of the State Bank provincial and municipal branch offices; the Chairmen of the Management Boards, the Chairmen of the Member Councils, the Heads of the Supervisory Boards, and the General Managers (Directors) of credit organizations and foreign bank branches are responsible for implementing this Circular.