Venezuela - New Currency Exchange Control Alternatives

For the past decade, Venezuela’s exchange control regime has restricted the conversion of local currency into and out of foreign currency. Consequently, payments and remittances in foreign currencies have been difficult.

Pre-existing currency exchange controls

To date, two systems have existed to navigate this regime:

• CENCOEX (originally CADIVI): the purchase of foreign currency from the Central Bank of Venezuela (BCV) in exchange for local currency, through a dual administrative/authorisation procedure supervised by a government entity. Currency is purchased at a controlled official exchange rate fixed by the BCV and the MOF. This system is limited to the needs of sectors such as food, medical, housing and education.
• SICAD – (originally SITME): the purchase of foreign currency from the BCV or third parties, in exchange for local currency, through public auctions for the sale/purchase of either foreign currency or selected securities denominated in foreign currency. More recently, SICAD has been restricted to future imports of goods and services only. Whereas originally, it was available to imports from all economic sectors and for all types of goods and services.

New currency exchange controls

Recently, the Venezuelan government introduced two new systems to enable repatriation of funds for all purposes with exchange rates loosely based on free market standards, unlike CENCOEX and SICAD:

• SICAD II: the purchase of foreign currency from any private, public or state entity either through direct sale and purchase transactions, or by the purchase and sale of any security denominated in foreign currency. The BCV has the statutory power to neutralise any erratic fluctuations in the exchange rate attached to SICAD II. Buyers are credited within two weeks of the relevant purchase and there is no limit on the size or number of transactions that can be carried out.
• Transactions involving securities’: the purchase of foreign currency indirectly through the use of securities, financial instruments or commodities.

Impact on Lloyd’s

Lloyd’s underwriters are not licensed to write insurance in or from Venezuela. Lloyd's is registered as a foreign reinsurer in Venezuela. This registration enables Lloyd's underwriters to write reinsurances business on a cross-border basis only. For the purposes of reinsurance, the market should seek to use one of the new currency exchange systems, SICAD II or ‘transactions involving securities’.

Local brokers should be consulted for further information on these exchange systems, and reinsurance documentation must specify the exchange system, and rate of exchange, that is to apply when converting premiums and claims into a settlement currency.

Full details regarding Lloyd’s trading position in Venezuela can be located on Crystal.