COBAC Regulation R-2003/02 on the Monitoring of Foreign Exchange Positions

COMMISSION BANCAIRE DE L'AFRIQUE CENTRALE

COBAC REGULATION R-2003/02 ON THE MONITORING OF FOREIGN EXCHANGE POSITIONS

The Central African Banking Commission,

Having regard to the Convention of 16 October 1990 establishing a Central African Banking Commission;

Having regard to Articles 1 and 9 of the Annex to the Convention of 16 October 1990;

Having regard to the Convention of 17 January 1992 on the Harmonization of Banking Regulation in Central African States;

Having regard to Articles 32 and 36 of the Annex to the Convention of 17 January 1992;

Having regard to Articles 31, 32 and 34 of the Convention governing the Central African Monetary Union;

Having regard to Regulation R-02/00/CEMAC/UMAC/CM on the Harmonization of Foreign Exchange Regulation in CEMAC Member States;

Having regard to COBAC Regulation R-98/01 on the Chart of Accounts for Credit Institutions;

Having regard to COBAC Regulation R-2001/07 on Internal Control in Credit Institutions;

Having regard to COBAC Regulation R-2003/01 on the Organization of Accounting for Credit Institutions;

HEREBY DECIDES:

Article 1.- Credit institutions are required to record in their accounts, under the conditions provided by the Chart of Accounts for Credit Institutions (PCEC), particularly Annex III thereof, established by COBAC Regulation R-98/01 cited above, the operations they carry out in each of the currencies other than the Central African Financial Cooperation Franc, which is used for accounting purposes.

Article 2.- Credit institutions that regularly carry out foreign exchange operations must have:

• a permanent measurement system capable of immediately recording these operations, calculating their results, and determining global foreign exchange positions and individual positions by currency;
• a risk monitoring and management system, which notably shows the limits set by the executive body as well as the conditions under which these limits are met;
• a permanent control system aimed at verifying compliance with the internal procedures necessary to implement the preceding provisions.

The above-described mechanism must be documented in a document subject to approval by the General Secretariat of the Banking Commission and kept regularly up to date. The foreign exchange transaction monitoring system referred to in Article 30 of COBAC Regulation R-2001/07 on internal control in credit institutions is included in this mechanism. The latter itself forms an integral part of the general internal control system organized by the institution under said regulation.

Article 3.- In addition to the internal limits mentioned in Article 2 above, credit institutions are required to permanently comply with:

• a maximum ratio of 15% between the weighted amount of their long or short position in each currency and the amount of their net equity;
• a maximum ratio of 45% between the highest sum of weighted long or short positions across all currencies and the amount of their net equity.

For the calculation of the above-mentioned ratios:

• positions denominated in the West African Financial Community Franc are assigned a weighting factor of 0%.
• positions denominated in Zone Franc currencies, excluding the Central African Financial Cooperation Franc, the West African Financial Community Franc, and the Euro, are assigned a weighting factor of 10%;
• positions denominated in Euros are assigned a weighting factor of 15%;
• positions denominated in other foreign currencies are assigned a weighting factor of 100%.

Article 4.- For the purposes of this regulation, precious metals such as gold and silver held in a negotiable form are treated as foreign currencies.

Article 5.- Foreign exchange positions, long or short, are determined as follows.

5.1.- The position is the algebraic sum of the positive and negative elements listed below:

• the net spot position, i.e., all asset items minus all liability items including accrued but unpaid interest on balance sheet and off-balance sheet operations in the currency considered. Foreign exchange spot operations are defined as purchase or sale transactions where the parties do not defer settlement, or only defer it due to the customary grace period mentioned in Annex III of the Chart of Accounts referred to in Article 1;
• the net forward position, i.e., all amounts receivable minus all amounts payable under forward foreign exchange operations. Foreign exchange forward operations are defined as purchase or sale transactions where the parties decide to defer settlement for reasons other than the aforementioned customary grace period.

Depreciation provisions allocated to cover asset or off-balance sheet items and constituted in currencies other than those of the covered assets or off-balance sheet items must be:

• taken into account (with a negative sign) in the calculation of the foreign exchange position of the currency in which the claim is denominated;
• and excluded (with a positive sign) from the foreign exchange position of the currency in which the provision is constituted.

A net position in a currency is classified as a net long position when assets exceed liabilities; it is classified as a net short position when liabilities exceed assets.

The global net foreign exchange position equals the difference between the total of net long positions and the total of net short positions.

5.2.- The following are excluded from the above elements:

• operations for which the foreign exchange risk is borne by the State;
• upon request of the institution and with prior approval from the General Secretariat of the Banking Commission, durable and structural assets (equity and subsidiary shares, tangible and intangible fixed assets...) that are financed in a currency other than their denomination currency.

Any modification to the exclusion conditions for these categories of operations requires prior approval from the General Secretariat of the Banking Commission.

Article 6.- The internal limits set by the executive body referred to in Article 2 above include:

• open foreign exchange position limits, for each of the currencies handled, during the day on one hand and from one day to another on the other;
• loss limits, also by currency, beyond which the position must be closed out obligatorily;
• once the global net foreign exchange position exceeds 2% of total net equity, a global limit on foreign exchange risk exposure expressed as a percentage thereof.

Article 7.- Net equity is determined in accordance with the provisions of COBAC Regulation R-93/02 on the net equity of credit institutions, as amended by COBAC Regulation R-2001/01.

Article 8.- A subject credit institution may calculate its foreign exchange positions from consolidated documents according to the rules set by COBAC Regulation R-2003/01 cited above, under conditions and procedures agreed upon with the General Secretariat of the Banking Commission.

Each institution included in the consolidation remains individually subject to the provisions of this regulation, unless consolidated exclusively, as defined in Article 63 of COBAC Regulation R-2003/01, by another institution subject to this regulation.

Article 9.- For the application of this regulation, credit institutions submit monthly declarations to the General Secretariat of the Banking Commission in accordance with the model defined by an instruction from the President of the Banking Commission. Institutions whose foreign currency shares in assets, liabilities, and off-balance sheet items simultaneously represent less than 10% are exempt from these declarations. The 10% percentage is derived from the average of amounts appearing in accounting statements as of the twelve monthly deadlines of the previous fiscal year and transmitted to the Banking Commission.

Amounts related to operations for which foreign exchange risk is borne by the State are not taken into account in calculating the 10% percentage.

Article 10.- In case of non-compliance with the provisions of this regulation, particularly the foreign exchange risk exposure limits set in Article 3, or non-conformity of the mechanism described in Article 2 with either the principles set forth in the Chart of Accounts for Credit Institutions or the provisions of COBAC Regulation R-2001/07 cited above, the Banking Commission may issue an injunction requiring, inter alia, the institution to take within a specified timeframe all corrective measures necessary to bring it into compliance with regulatory standards.

If a credit institution fails to comply with an injunction, disregards a warning, or seriously breaches the regulation, the Banking Commission may impose one or more disciplinary sanctions provided for in Article 15 of the Annex to the Convention of 16 October 1990.

Article 11.- These provisions enter into force on January 1, 2004. They apply to institutions covered by the Convention of 16 October 1990 establishing a Central African Banking Commission.

Article 12.- The General Secretary of the Banking Commission is responsible for the execution of this regulation.

Done at Yaoundé, on 14 NOV. 2003

For the Banking Commission,
The President,
Jean-Félix MAMALEPOT