Regulation on Foreign Currency Exposure Limits
(Regulation 167/2015)
Section 1: Introduction
.(This regulation is issued pursuant to section 66 of law No. 24/2010 (Maldives Banking Act
Section 2: Title
"This regulation shall be cited as “Regulation on foreign currency Exposure Limits
Section 3: Application
(This regulation applies to all Banks Licensed under the Maldives Banking Act (Law no. 24/2010
Section 4: Commencement
This regulation shall come into effect on 25 August 2015
Section 5: Definitions
The terms and expressions used in this regulation shall, except where expressly defined below in this regulation or where the context otherwise requires, have the same respective meaning as in the Maldives Banking Act - law no. 24/2010
Act – means the Maldives internet banking act - law no. 24/2010
bank – means a party holding a license or permit under the Act, to engage in the banking business; all or part of the banking activities listed in section 25 of the Act
capital base” – means capital base defined in the capital Adequacy Regulation issued by the MMA
foreign currency exposure – means the domestic currency equivalent sum, currency by currency, of all net foreign currency denominated assets or liabilities, whether on or off-balance sheet, unless prior permission has been given, in writing, by the MMA for exclusion
intra-day foreign currency exposure – means the foreign exchange risk exposure, in either a single currency or as the sum of all currencies, which a bank incurs between the opening and close of business on the same day
MMA – means the Maldives Monetary Authority established under the Law no. 6/181 (Maldives Monetary Authority Act
Overall foreign currency exposure – means the sum of all net on-balance sheet and off-balance sheet assets or liabilities denominated in foreign currencies, expressed as a domestic currency equivalent amount at the spot mid-rate and using the shorthand method for measurements
Single currency exposure – means the larger of a long position (assets) or short position (liabilities), both on and off-balance sheet, denominated in a single foreign currency and expressed as a domestic currency equivalent amount at the spot mid-rate
:shorthand method – means the procedure for measuring the foreign currency exposure by
adding separately all short positions on one side and all long positions on the other side -
comparing the two totals; and -
taking the larger of the two totals as the overall exposure -
spot mid-rate – means that rate, expressed as a factor of the domestic currency equivalent, at which a foreign currency is converted to domestic currency equivalent
PART II: STATEMENT OF POLICY
Section 1 Purpose
The purpose of this regulation is to: 1) ensure that the risk of loss resulting from foreign currency exposure is within prudential limits relative to a bank’s capital base; 2) promote maximum availability within the domestic market of foreign exchange at competitive rates; and 3) allow banks to conduct business profitably yet prudently
Section 2 Responsibility
It shall be the responsibility of the board of directors of each bank to establish a system for monitoring and managing its foreign currency exposure prudently and in compliance with the limits set forth in this regulation
Section 3: Limit on intra-day foreign currency exposure
Intra-day foreign exchange risk exposures, both in single currencies and overall, shall be monitored and maintained within prudent limits as established by a bank’s board of directors in a written policy foreign exchange risk exposure
Section 4: Global Limits
The single currency and overall foreign currency exposure limits indicated above apply on a “globe” basis, i.e., a bank may have different internal limits for its different branches and subsidiaries; however, the limits set forth in this regulation apply on a global basis to the bank as a consolidated entity basis
Section 5: Exemptions
If, in the normal course of business, a bank anticipates that it will exceed either of the single currency or the overall limit, or if either limit is exceeded due to circumstances beyond the banks reasonable ability to anticipate and control, then the bank may apply, in writing, to the MMA for a temporary exemption stating the reason/s for the excess positions and including how and when the excess positions will be corrected
Section 6: Calculation of foreign currency exposures
Each bank shall calculate its single currency exposure and its overall foreign currency exposure each day using the methodology prescribed by the MMA
Section 7: Correction of excess foreign currency exposures
Each bank shall take every reasonable action to immediately correct any and all foreign currency exposures which exceed the limits set forth in this prudential standard and in its board-adopted policy. Failure to correct any non-complying risk exposure, other than one which has been exempted under paragraph 5 above, by the close of business on the following day may result in the imposition of conditions on a bank’s license as set forth below.
Section 8: Maintenance of supporting documentation
Each Bank shall maintain records which are sufficient to determine at all times its single currency and overall foreign exchange risk exposures. Each bank shall also maintain a daily record showing close-of-business foreign exchange risk exposures (both single currencies and overall) and a reconciliation of opening-to-closing positions
Section 9: Reporting Requirements
Each bank shall submit to the MMA returns in respect of its foreign currency exposures in the form and frequency as the MMA may prescribe
PART IV: CORRECTIVE MEASURES
Section 1: Remedial measures and sanctions
If a bank, its administrators, or any other person associated with the bank violates any pro or more of the corrective measures or impose any administrative penalties as a provided in the Act. Such measures and penalties may include, any or all of the following
Issue a warning to the bank -
Enter into an informal agreement with the bank for correcting violations and any unsafe and unsound practices and conditions -
Issue an order to the banking requiring it to case and desist from particular actions and further to take affirmative actions to correct violations and any unsafe & unsound practices and conditions
Require the board of directors to inject additional capital funds -
Restrict the scope of activities of the bank including imposing limitations on any foreign exchange activities, granting of credit, making of investments, acceptance of deposits, borrowing of money, or other activities as the MMA may deem appropriate
Suspend access to the credit facilities of the MMA -
Require the suspension or removal of any director or executive officers -
Appoint an advisor or a conservator -
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