BCEAO Instruction No. 025-11-2016 on the Accounting Treatment of Foreign Currency and Similar Asset Operations

The Governor of the Central Bank of West African States (BCEAO),

Having regard to the Treaty of the West African Monetary Union (UMOA) of January 20, 2007, particularly Article 34;

Having regard to the Statutes of the Central Bank of West African States (BCEAO), annexed to the UMOA Treaty of January 20, 2007, particularly Articles 30, 31, 32, 33 and 34;

Having regard to Regulation No. 09/2010/CM/UEMOA of October 1, 2010 relating to the external financial relations of the member states of the West African Economic and Monetary Union;

Having regard to the Uniform Act on banking regulation, particularly Articles 50, 51, 52, 53 and 54;

Having regard to Decision No. 357-11-2016 of November 15, 2016 instituting the Revised UMOA Banking Accounting Plan and its annex, particularly Articles 65, 75, 78, 81, 84, 87, 91, 95 and 99;

Having regard to Instruction No. 04/07/2011/RFE of July 13, 2011 relating to the coverage of exchange rate and price risk by residents on commercial and financial operations with the outside world,

DECIDES

Chapter 1: General Provisions

Article 1

In application of the provisions of the Revised UMOA Banking Accounting Plan, banks and financial institutions with a banking character, hereinafter referred to as subject institutions, record in their accounts the operations they carry out in foreign currencies, under the conditions set by this instruction and without prejudice to the legal or regulatory provisions governing these operations.

The provisions of this instruction also apply to operations on gold and precious metals held in a negotiable form.

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INSTRUCTION NO. 025 - 11 - 2016 RELATING TO THE ACCOUNTING OF FOREIGN CURRENCY AND SIMILAR VALUE OPERATIONS

The Governor

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Article 2

For the purposes of this instruction, the following expressions mean:

1°) Foreign currency operations: operations carried out in all currencies other than the CFA franc issued by the BCEAO, referred to as the local currency;

2°) Liquid market: a market on which exchange operations are traded and which meets the following conditions: – there is a clearing house that organizes market liquidity and ensures the proper completion of operations; – firm positions maintained by operators are adjusted daily by settlement of differences; – operators must pay a security deposit to cover any potential default.

Chapter 2: Accounting Treatment of Current Foreign Currency Operations

Article 3

Spot foreign exchange operations and forward foreign exchange operations, as well as other foreign currency operations, are recorded in accounts opened and denominated in each of the currencies used.

Spot foreign exchange operations are purchase or sale operations of currencies whose parties do not defer settlement or only defer it due to the usance period.

Forward foreign exchange operations are purchase or sale operations of currencies whose parties defer settlement for reasons other than the usance period.

Other foreign currency operations include in particular loans and borrowings in foreign currencies.

Article 4

The counterpart of foreign currency entries relating to foreign exchange operations is recorded in accounts called foreign exchange position accounts, opened among balance sheet or off-balance sheet accounts and denominated in each of the currencies used.

Local currency entries associated with foreign exchange operations are recorded in accounts called foreign exchange position counter-value accounts, opened among balance sheet or off-balance sheet accounts.

Article 5

Capital commitments, resulting from purchases or sales relating to spot foreign exchange operations with a usance period and forward foreign exchange operations, as well as commitments resulting from loans or borrowings in foreign currencies, are recorded in off-balance sheet accounts from the date of commitment. Upon delivery or receipt of the currencies, the off-balance sheet accounts are settled and the balance sheet accounts are moved.

Spot foreign exchange operations whose parties do not defer settlement, referred to as value of the day, mentioned in the 2nd paragraph of Article 3 of this instruction, are recorded in balance sheet accounts upon their realization, without prior registration in the off-balance sheet.

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Article 6

Commitments resulting from purchases or sales of firm or conditional financial instruments for exchange rates are recorded according to rules identical to those set out in Article 5 above. Each commitment gives rise to a separate entry.

However, several commitments relating to purchases or sales of firm or conditional financial instruments for exchange rates may be subject to a global entry if they relate to operations or instruments of the same nature, if they are carried out with the same counterparty and if they have the same maturity date.

Premiums relating to option contracts follow the rules described in Article 3 of this instruction and are recorded in foreign currencies, in case of purchase, on the asset side of the balance sheet and, in case of sale, on the liability side of the balance sheet.

Chapter 3: Treatment at Accounting Closures

Article 7

At each accounting closure, asset, liability and off-balance sheet items in foreign currencies, including the foreign exchange position accounts concerned, are valued at the market rate in force on the closure date or at the market rate observed on the nearest preceding date, with regard to currencies not quoted on the closure day.

The market rate applicable to asset items, liabilities and spot foreign exchange commitments is the spot rate of the currency concerned.

The market rate applicable to forward foreign exchange commitments is the remaining forward rate of the currency concerned.

The spot and forward market rates used by subject institutions for the valuation of foreign currency operations at accounting closure dates must be retained for justification purposes and communicated, upon any requisition, to the Central Bank and the Banking Commission. They correspond to those officially published by the BCEAO or, failing that, by an institution or professional association recognized and having authority in this matter.

Article 8

At the accounting closure, the differences between, on the one hand, the amounts resulting from the valuation of foreign exchange position accounts, carried out in accordance with the provisions of Article 6 above, and, on the other hand, the amounts recorded in the foreign exchange position counter-value accounts, are brought to the income statement by the debit or credit of the foreign exchange position counter-value accounts.

However, differences relating to operations whose exchange rate risk is borne by the State are not brought to the income statement. They are recorded in the balance sheet in the guaranteed foreign exchange difference accounts.

Differences resulting from the conversion of items denominated in currencies whose markets do not have sufficient liquidity are not brought to the income statement. They are recorded in the balance sheet in other foreign exchange difference accounts. Negative differences are subject to provisions recorded under the heading called other provisions for risks and charges.

The foreign currency market with limited convertibility also falls under this category.

The currency of a country is convertible if nationals of other countries can use it freely in their international operations.

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Article 9

Regularization accounts, opened by nature of operations and denominated in each of the currencies used, are maintained to attach to each financial year the charges and revenues in foreign currencies relating thereto.

The provisions of Article 4, above, apply to the recording of accrued interest.

Accrued revenues and charges in foreign currencies, relating to loans, borrowings, securities, off-balance sheet commitments are valued at the spot rate of the currency concerned and recorded in the income statement, according to a periodicity decided by the subject institution and at the latest during the accounting closure.

Unaccrued revenues and charges in foreign currencies, payable or receivable, relating to balance sheet or off-balance sheet operations, are recorded in specific off-balance sheet accounts when they have been covered within the meaning of Article 12 below.

Article 10

The imbalance of the balance sheet induced by the inclusion of revenues and charges resulting from the conversion of spot and forward foreign exchange operations recorded in the off-balance sheet is corrected by the use of a specific account, titled foreign currency adjustment account.

Article 11

The balance of differences resulting from the value variations of firm financial instruments for exchange rates traded on liquid markets is brought to the income statement. The balance of differences resulting from the value variations of premiums relating to foreign exchange option contracts traded on liquid markets is also brought to the income statement at each accounting closure. The counterpart of these variations is recorded in the asset and liability accounts where the premiums are listed.

Positive differences resulting from the value variations of financial instruments for exchange rates or premiums relating to foreign exchange option contracts, traded outside liquid markets, are not recorded in the income statement, but are recorded in the balance sheet in other foreign exchange difference accounts.

The provisions of Article 3 apply when recording differences resulting from the value variations of financial instruments for forward exchange rates.

Chapter 4: Specific Provisions for Hedging Operations

Article 12

The provisions of Articles 7 and 8, above, are not applicable to hedging operations.

Operations concluded as hedging are those whose purpose and effect are to compensate or reduce the risk of exchange rate variation affecting a homogeneous set of asset, liability or off-balance sheet items.

Forward foreign exchange operations simultaneously associated with spot foreign exchange operations, loans and borrowings in foreign currencies are assimilated to hedging operations.

Article 13

At the accounting closure, hedging operations are valued at the rate used for the valuation of the covered items. The differences between, on the one hand, the amounts resulting from the valuation of foreign exchange position accounts and, on the other hand, the amounts recorded in the

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foreign exchange position counter-value accounts, are brought to the income statement by the debit or credit of the counter-value accounts, in a manner symmetrical to the recording of gains or losses on the covered items.

Article 14

Differences resulting from the value variations of financial instruments for exchange rates qualified as hedging operations are also reported to the income statement in a manner symmetrical to the accounting of exchange gains or losses of the covered items.

Interest differences relating to covered forward foreign exchange operations, or swaps, recorded globally in specific off-balance sheet accounts in local currency or foreign currencies, are recorded in a staggered manner among interest charges and revenues over the effective duration of the covered operation.

Chapter 5: Miscellaneous and Final Provisions

Article 15

Subject institutions are required to produce a trial balance by currency used, summarizing the balances and cumulative movements of the subject institution's accounts.

Article 16

Subject institutions provide, in an annex to their annual financial statements, the total amount of asset and liability items denominated in foreign currencies, converted into local currency. They also provide an evaluation of forward operations not yet settled at the end of the financial year, indicating the share of operations undertaken to cover the effects of exchange rate fluctuations.

Article 17

This instruction repeals and replaces all previous provisions dealing with the same subject.

It enters into force on January 1, 2018 and will be published wherever necessary.

Done in Dakar, on November 15, 2016

Tiémoko Meyliet KONE