FINANCIAL INSTITUTIONS (FOREIGN CURRENCY EXPOSURE LIMITS) REGULATIONS 2000

IN EXERCISE OF THE POWERS CONFERRED UPON THE COMMISSIONER OF FINANCIAL INSTITUTIONS BY SECTION 71(2) (i) OF THE FINANCIAL INSTITUTIONS ACT 1999 , THE COMMISSIONER MAKES THE FOLLOWING REGULATIONS -
 

PART I
PRELIMINARY

Citation and commencement

1. These Regulations may be cited as the Financial Institutions (Foreign Currency Exposure Limits) Regulations 2000 and shall come into operation on the date of publication in the Gazette.

Interpretation

2. In these Regulations, unless the context otherwise requires, words used have the same meanings assigned to them in the principal law.

Objectives

3. These Regulations are meant to-

(a) determine the maximum amount of open foreign currency position of all licenced banks in Lesotho; and

(b) establish procedures that would ensure the determination and reporting
of these positions.

Application

4. These Regulations apply to all licensed banks in Lesotho


PART II
REGULATORY REQUIREMENTS


Exposure limits

5. (1) It shall be the responsibility of the board of directors of each bank to establish a system for managing and monitoring its foreign currency exposures prudently and in compliance with the limits as set forth in these Regulations.

(2) A copy of the bank's foreign exchange risk management policies and procedures shall be submitted to the Central Bank within 60 days from the date of commencement of these Regulations and within 15 days from any subsequent amendment thereof.

(3) A bank shall maintain, as at the close of any business day, its foreign exchange exposures at not more than –

(a) 10% of the total qualifying capital for any single foreign currency exposure; and (b) 20% of the total qualifying capital for overall foreign exchange exposure.

(4) A bank shall likewise monitor and maintain, within prudent limits established by the board of directors, its intra day foreign exchange exposures both in single currencies and the overall position.

(5) Each bank shall calculate its single and overall foreign currency exposure on a daily basis.

(6) A report on foreign currency exposure as set out in the Schedule for every business day of the week shall be submitted to the Central Bank not later thanThursday of the following week.

(7) For purposes of these Regulations –

(i) “foreign currency” means any currency which is not legal tender in Lesotho and includes any bill of exchange, letter of credit, money order, promissory note, travellers cheque or any other instrument for the payment of currency payable in a currency unit which is not legal tender in Lesotho;



(ii) “intra day” means at any one time during the day;

(iii) “overall foreign exchange exposure” means the Maloti equivalent of the gross aggregate of a bank’s long and short
positions in individual foreign currencies computed using the shorthand method where all short positions are added together
and all long positions are also added together and taking the higher of the two values;

(iv) “single foreign currency exposure” means the Maloti equivalent at spot mid-rate (the mean between prevailing buying and selling rates) of assets and liabilities (on and off balance sheet) denominated in a foreign currency; where foreign exchange assets exceed foreign exchange liabilities, the bank is considered to be in a long position in that currency and where foreign exchange liabilities exceed foreign exchange assets, the bank is considered to be in a short position in that currency;

(v) “total qualifying capital” refers to latest capital position computed
according to Financial Institutions (Risk-Based Capital Requirements) Regulations 1999 .

Internal controls

5. (1) All banks shall observe a clear-cut and well-defined division of
responsibility between -

(a) foreign exchange dealing;
(b) accounting; and
(c) internal supervision.


(2) A bank’s foreign exchange dealers shall have clear and binding instructions both as regards general trading principles and as regards limits (by individual currencies and maturities) on open positions, on the size of individual contracts and on exposure with individual counterparties.

(3) Dealers shall be strictly required to record each transaction on a dated and sequentially-numbered form and pass it promptly to the accounting department.


(4) The instructions to the dealers shall prohibit the conduct of business (including business within the same banking groups) at exchange rates which are unrepresentative of the prevailing level in the market and shall include a general
code of conduct for their relations with other foreign exchange brokers.

(5) The accounting department shall receive, without delay, all the information from the dealers that is necessary to ensure that no deal goes unrecorded.

(6) All foreign exchange contracts shall be promptly confirmed in writing.

(7) Foreign exchange accounting shall be organised in such a way that the bank’s management is continuously in possession of a full and up-to-date picture
of the bank’s position in individual currencies and with individual counterparties.

(8) Revaluations at current market rate shall be done at least every month-end
or more frequently in order to permit the monitoring of the bank’s profits or
losses on its outstanding foreign exchange book.

(9) The internal auditor of the bank shall ensure that dealers observe their
instructions and the code of behaviour required of them, and that accounting procedures meet the necessary standards of accuracy, promptness and completeness.

(10) Internal control procedures shall cover not only the head or main office but
also the branch network and subsidiaries, if any and branches shall report their
dealing positions to the head or main office on a daily basis.


Supervisory action

7. (1) If a bank fails to comply with the foreign exchange exposure limits on any day, it shall, within the next day, report in writing to the Central Bank such failure giving the reason for the excess and stating how and when the excess shall be corrected.



(2) If a bank fails to comply with the foreign exchange exposure limits in a
flagrant manner, the Central Bank may pursue any remedial measures at its
disposal, including imposition of fines and penalties and requiring the bank to take any or all of the following measures –

(a) prohibit the undertaking of any further foreign exchange
activities;
(b) require the infusion of additional capital to absorb probable
foreign exchange losses;
(c) restrict declaration or payment of dividends or remittance of
profits; and
(d) prohibit payment of bonuses, salary incentives, management fees
or other discretionary compensation to directors or officers.

Saving

8. A bank which fails to comply with the foreign currency exposure limits on
the commencement date of these Regulations shall, within 60 days from such date, submit, for approval by the Central Bank, a detailed plan describing the means and specifying the time-table by which the bank shall meet the requirement and thereafter comply with it.


S. M. SWARAY
GOVERNOR, CENTRAL BANK OF LESOTHO


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NOTE
1. Act No 6 of 1999
2. L.N. 111 of 1999