Legal impact of the new manual exchange regulation in the DRC

Gaby KABUE
Managing Partner

Abstract

In the Democratic Republic of Congo, the manual exchange sector is an old activity most used by individuals, who are engaged in the transactions of buying and selling foreign currencies against the national currency and vice versa. Currency trading is a widespread phenomenon that comes from the monetary instability experienced by the country in 1993. It should be noted that this situation was accentuated by the political upheavals in 1990 which led to the tremendous consequences on the economies and more particularly on banking systems. In other words called “Changers”, these individuals’ purchases and sales foreign currencies against the national currency and buy and sell in cash foreign currencies against other national currencies other share. For several decades, this growing activity has been carried out in the absence of any specific applicable regulation likely to eradicate the legal and operational risks denounced several times by the banking institutions, the consumers, the public authorities and other actors evolved in this market. The Central Bank of Congo, according to its missions especially to elaborate the regulations concerning operations on foreign currencies; has established a specific regulation that governs all manual exchange activities in the relationship between manual money changers, consumers and the control authority.

In the Democratic Republic of Congo, the manual exchange sector is an old activity most used by individuals, who are engaged in the transactions of buying and selling foreign currencies against the national currency and vice versa. Currency trading is a widespread phenomenon that comes from the monetary instability experienced by the country in 1993. It should be noted that this situation was accentuated by the political upheavals in 1990 which led to the tremendous consequences on the economies and more particularly on banking systems. In other words called “Changers”, these individuals’ purchases and sales foreign currencies against the national currency and buy and sell in cash foreign currencies against other national currencies other share. For several decades, this growing activity has been carried out in the absence of any specific applicable regulation likely to eradicate the legal and operational risks denounced several times by the banking institutions, the consumers, the public authorities and other actors evolved in this market. The Central Bank of Congo, according to its missions especially to elaborate the regulations concerning operations on foreign currencies; has established a specific regulation that governs all manual exchange activities in the relationship between manual money changers, consumers and the control authority.

By Gaby Kabue Kayombo

Key words: manual exchange, regulation, prudential rules, operational risks, changers.

Introduction

The manual foreign exchange market is a very popular activity that has evolved several decades without regulations in order to determine the obligations and relationship between operators, consumers and the control authority involved in this business. It is so quiet to mention that the lack of prudential rules applicable to the manual exchange, has made operators, commonly called “Changers” to operate the activity according to their subjective rules which led most of them to act malicious, for instance, grant of loans to individuals with high interest rate, organize the fund deposits on behalf of their customers, carry out transfer fund abroad, importing and exporting bank notes, making large-scale currency exchange transactions per day, etc. It should be noted that the manual money changer’s behavior are considered as an encroaching on the activities of the commercial banks, and in other hand, the wrongdoing cause economic and financial difficulties to the financial institutions.

Effectively, sort out the multiple legal and operational issues caused in the manual exchange sector, as well as ensured the good functioning of manual exchange operations between the stakeholders involved in matter, the Central Bank of Congo, established the administrative instruction n ° 007 for regulating the manual exchange activity.

The purpose of this article consists to identify the key general and specific provisions that organize operating of manual foreign exchange activities on the national territory.

In this approach it will be a question of examining the relevant points addressed by the new regulation, in particular: (1) the legal status of manual money changers; (2) the scope of the foreign exchange activity; (3) the classification of manual money changers; (4) the rules for creating Bureau de Change or manual changer; (5) restrictive activities; (6) the obligations of  Bureau de Change and manual changers; etc.

Activities scope of the manual money changers

The manual money changers are authorized to buy and sell foreign currency in cash against the national currency (Congolese francs) and to buy and sell foreign currency in cash against other foreign currencies (art 3).

Legal status of manual money changers

The manual money changers are individuals or corporates congolese, other than credit institutions that carry out, as their usual profession, manual exchange transactions. With regard to this administrative provision, we can bring out three legal attributes, cumulative recognized to manual money changers:

■ be an individual or corporate under congolese law

■ practice the profession in usual way

■ do a manual exchange transaction

The new regulations related to manual foreign exchange activities set up the requirements before operating an exchange activity. Firstly, manual money changers must be the individuals or commercial enterprises legally registered under OHADA law. Secondly, individuals or companies must operate the business without interruption. Thistly the operation must be a manual exchange transaction, in other words they must make manual exchange a unique activity.

Categorization of manual changers

Administration instruction No. 007 subdivides three types of manual changers. They can subscribe to practice their profession as:

  • Bureau de Change of the first category or national level which enable to operate the profession of manual exchange throughout the national territory.
  • Bureau de Change of the second type or provincial level which enable to operate the profession of manual exchange within the limits of province.
  • Manual changers carry out their activities within the limits of their province of domiciliation regardless of the category of Exchange Offices to which they are affiliated.

Constitution of the bureau de change or manual changer

The regulation of Central Bank of Congo imposes the requirement for manual money changers, to be constituted in Bureau de Change or manual changer, and these must be affiliated to the Bureau de Change.

Bureau de change

In this option the Bureau de Change operates as:

Corporate

As a corporate, the Bureau de Change must fulfill the following conditions:

1.Register as a limited liability company

Manual Changers which would like to open the Bureau de Change must constitute under the form of a Limited Liability Company (LLC), in accordance with the OHADA law related to commercial companies. This is to comply with the conditions of substance and form.

Bureau de Change must obtain an operating license (RCCM), the National Identification Number, the Tax Number, the INPP, the INSS, show notarial statutes, demonstrate the proof of the existence account in national currency and / or in foreign currencies opened with the financial institutions approved in the name of the applicant; etc.

2. Approval obtaining

Regulation specifies that the first and second type of the Bureau de Change must address the letter of application for approval of the central bank of Congo.

This letter will be accompanied by the following evidence:

  • copy of original of notarial statutes;
  • proof of deposit statutes at the clerk’s office of the Commercial Court
  • certified copy of license
  • certified copy of the National Identification Certificate;
  • proof of accounts in national currency and / or in foreign currencies open with financial institutions;
  • CVs and criminal records at least three months old from the promoters and persons in charge of the administration and management of the Bureau de Change.

Applicant for obtaining approval is required to pay 3% of the deposit for file review.

Once application for approval received, the Authority has 90 days to examine. Whether the deadline expired, it supposed that the authority has approved the application. (art 11).

3. Payment of the deposit

In case the Central Bank of Congo gives a favorable opinion on the application for approval, the applicant is required to pay the deposit and approval fees as follows:

For the deposit:

  • 2500 USD for first type or national level of Bureau de Change.
  • 1500 USD for second type or provincial level of Bureau de Change.
  • 150 USD for Manual changers

For the manual fees:

  • 20% of the deposit of each type.

However, the deposit paid to the Central Bank of Congo is not remunerated. The Central Bank of Congo might reimburse the deposit in currency in case of ceasing of activities. In addition the supervisory body will deduct any sums due to Treasury. But, the regulation does not demonstrate the elements that will be taken into account to make this deduction.

It should be noted that the opening of branches allows to the payment of deposit fees (3%).

Manuel changer

In this category the manual changer carries out the activity as:

Individual

As an individual, the Manual changer is required to fulfill the following conditions:

1. Approval obtaining

In this type, the applicant must send the letter of application for approval to the Governor of the Central Bank of Congo.

The letter must be accompanied by the following elements:

  • proof of the authorizations of the competent authorities for the operating of commercial activity (declaration of activity at the Registry of the Commercial Court, subject to the license);
  • proof of accounts in national currency and / or in foreign currencies opens with financial institutions;
  • CV and criminal records less than three months old from the applicants.
  • proof of affiliation to the Bureau de Change by the transmission of the affiliation agreement.

Bureau de Change and Manual changer are not allowed:

  1. carry out the operations of buying and selling in cash the foreign currencies against the national currency, either buying and selling in cash the foreign currencies against other foreign currencies for an amount exceeding 10.000 USD or the equivalent in another foreign currency by person per day;
  2. make deposits for the accounts of their customers;
  3. make transfers abroad;
  4. import or export banknotes;
  5. grant loans to their customers;
  6. manual currency traders individuals are not allowed to affiliate to more than one Bureau de change.

Obligations of bureau de change and manual changer

The Bureau de Change, as a corporate are bound by certain obligations in foreign exchange transactions, such as:

  1. immediately seize the National Financial Intelligence Unit and the Central Bank of Congo through its Financial Intermediaries Department for any transaction deemed suspicious;
  2. collecting and photocopy the identities (address, photo) of the customers carrying out the exchange operations;
  3. keeping proper accounts that can present the summary statements in accordance with the Congolese General Chart of Accounts;
  4. prepare daily statements of exchange transactions according to the predefined models;
  5. transmit to the Central Bank of Congo, not later than the 7th day of the following month, a consolidated monthly statement by currency of the sales and purchases of the currencies made;
  6. reporting to the Central Bank of the Congo the cases of non-transmission of the unconsolidated monthly statements by currency of sales and purchases of currencies made by their affiliates;
  7. seizing against discharge and transmit to the Central Bank of Congo by a circumstantial note any false currency presented;
  8. displaying the legalized copies of the deed of approval and opening authorization of the Bureau de Change and its branches in the premises where the exchange activities take place;
  9. reproducing on each document or correspondence of the Bureau de Change the approval and authorization numbers for opening the branches our teller;
  10. organizing as a professional corporation;
  11. submitting the statutes of the corporation for the approval of the Central Bank of Congo.

Manual changers are bound to the following obligations:

  1. sending to their respective Affiliation Exchange Offices, not later than the 2nd day of the following month, the consolidated monthly statements by currency of the sales and purchases of currencies made;
  2. affiliating with Bureau de Change;
  3. organizing as a professional corporation;
  4. submitting the statutes of the corporation to the approval of the Central Bank of Congo.

Conclusion

Manual change regulation is cornerstone legal tool that governs manual change trading activities between changers and consumers involved in the manual exchange market across the country. Prudential regulatory measures help to fight against money laundering and the financing of terrorism. This regulation defines the obligations of manual money changers vis-a-vis the supervisory authority and gives a large clarification related to the restrictive activities which they can’t afford in operating of their manual exchange activities.