The Central Bank Issues Guidelines For Risk Management Of Foreign Exchange Transactions

Author:Mr Pablo Gayol
Profession:Marval O'Farrell & Mairal

In August 2016, the Argentine Central Bank (the "Central Bank") introduced significant changes in the foreign exchange regulations of derivatives by eliminating the restriction on the execution of cross-border derivative transactions. As a result, the foreign exchange regulations now allow Argentine residents to enter into derivative transaction with foreign counterparties without the need of Central Bank authorization. They also allow them to purchase foreign currency to make payments under derivative transactions. The only restriction outstanding under foreign exchange regulations for derivative transactions with foreign residents are for those which could be construed as foreign exchange transactions (e.g. FX forwards). Now, the Central Bank has issued risk management regulations which apply to certain derivative transactions which are construed as foreign exchange transactions.

The Central Bank issued "Guidelines for the Settlement of Foreign Exchange Transactions" (the "Guidelines"). The Guidelines regulate the risk management by financial institutions of the exposure resulting from foreign exchange transactions, from their negotiation to their final settlement. The financial institutions must implement the Guidelines in a manner proportional to their size, nature, complexity and risk profile in the foreign exchange activities and manage the risks associated to it in a manner similar to the management of equivalent risks generated by the other activities, but having into consideration the specific aspects of such transactions.

The Guidelines provide that the financial institutions must have a solid governance, with mechanisms that assure that all risks related to the settlement of the foreign exchange transactions are identified, measures followed and controlled on a consolidated basis, within the framework of a process of integral risk management and with active commitment of the Board of Directors.

The Guidelines define the foreign exchange transactions subjected to them. In addition to spot transactions, the Guidelines apply to certain derivative transactions. Those derivative transactions are the ones settled by...

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