Colombia: New Foreign Exchange Regulation

Resolution 8 of 2000 sets forth the new regulation regarding foreign exchange and therefore replaces Resolution 21 of 1993. Among the most important changes introduced by Resolution 8 are the following:

• Intermediaries of the Foreign Exchange Market (Intermediarios del Mercado Cambiario). Financial cooperatives (cooperativas financieras) and stock brokersage companies have been enabled to operate as intermediaries of the foreign exchange market. With regards to financial cooperatives, those with an amount of paid-in capital and legal reserve exceeding the minimum requiredto be credited in order to organize a financial corporation, are granted with broader faculties than those with a paid-in capital and legal reserve below said minimum. These companies may carry out the same operations as stock brokersage companies with a net worthpatrimony that exceeds COP $ 3,500 million. The transactionsoperations allowed for foreign exchange bureaux currency exchange houses (casas de cambio), which were already considered as intermediaries of the foreign exchange market under Resolution 21, have been broadened, and the recently issued Resolution 9 of 2000, eliminated the powers of foreign exchange bureauxcurrency exchange houses to manage and administer systems of international credit and debit cards systems. In addition to the foregoing, sSavings and loanhousing corporations (corporaciones de ahorro y vivienda) are no longer authorized to act perform as foreign exchange intermediaries,. The foregoing, pursuant to Law 510 of 1999.
• Derivative TransactionsOperations. Resolution 21 authorized residents to perform basic product hedging transactionsoperations and dollar-other currency (different than dollars) hedging transactionsoperations and, on the other hand, to perform dollar-peso futures transactionsoperations. Resolution 8 clarified the above mentioned derivative transactionsoperations by authorizing residents, with the exception of foreign exchange market intermediaries, to execute basic product derivatives and financial derivatives transactions. The purpose of the new regulation is to make derivatives transactionsoperations more flexible. In that sense Resolution 8, for example, does not require residents who intend to carry out hedging transactionsoperations to be involved in activities which involve a variation risk in the basic product prices.
• Hydrocarbons. Resolution 21 set forth a special regime to which the following entities could decide to be subject to: (i) companies with foreign capital dedicated to the exploration and exploitation of oilpetroleum and natural gas and (ii) branches of foreign companies involved in oilpetroleum, natural gas, carbon, ferronickel (ferroniquel) or uranium operations. In other words, only companies with foreign capital which were involved in oilpetroleum and natural gas exploration and exploitation could choose to be subject to said special regime, pursuant to which they would not be obliged to redeem to the country the currencies product of the sales made in foreign currency. Resolution 8 extended said special regime to companies with foreign capital (including companies with any percentage of foreign capital participation) and branches involved in carbon, ferronickel (ferroniquel) and uranium operations.
• Head Offices and Branches. Regarding foreign head offices with branches in Colombia, there was an important change with respect to Resolution 21 in the sense that branches were not allowed to reimburse to their head officeprincipals the product of the imports, and therefore the imported goods had to be destined to the branches’ "Assigned Capital" or "Supplementary Capital" accounts. Resolution 8 allows the branch to pay its head office every import made, and it is no longer necessary to account for the value of such goods in the Capital accounts.
• Currency Sale-Purchase. With regards to sale and purchase of currency, Resolution 21 established the express prohibition for individuals to get professionally involved in this activity, but Resolution 8 authorizes residents to professionally sell and purchase currency with the only condition of being registered in the trademerchantile registry. It is important to take into account that the aforementioned authorization refers to the sale-purchase of currency under the free market, because the currency which must be channeled through the foreign exchange market must be purchased or sold before authorized intermediaries of the foreign exchange market, or through the compensation account mechanism.