Venezuela - update on currency exchange controls

Please note that this article supersedes guidance contained in a previous article published on 26 June 2014 entitled "Venezuela - New Currency Exchange Control Alternatives". 

Background

For the past decade, Venezuela’s exchange control regime has restricted the conversion of local currency into and out of foreign currency. At present, there is a three-tiered currency control system in place:

1. The Official Exchange Rate (CENCOEX, originally CADIVI)
2. SICAD and
3. SIMADI.

Of these, the options available for the insurance sector seem to be limited to SICAD and SIMADI – however, the government has not published any new rules or regulations that clarify exactly which activities/sectors can make use of which tier.

The update below constitutes our understanding and should not be interpreted as definite advice tailored for the insurance sector. It is therefore recommended that Lloyd’s managing agents follow the guidance sought from local intermediaries and, where necessary, of independent legal counsel before entering into potential transactions.

Venezuela’s currency exchange control system summarised

In February 2015, the Venezuelan government amended its foreign currency exchange system, only months after the introduction of SICAD II as a third alternative rate to the Official Exchange Rate (provided by CENCOEX, originally CADIVI) and SICAD (originally SITME). In short, SICAD and SICAD II were merged to SICAD and a new third tier, SIMADI (Marginal Currency System), was introduced.

After these latest changes, the Central Bank of Venezuela (BCV) now operates with the following three-tiered currency control system:

1. The Official Exchange Rate (CENCOEX, originally CADIVI) is available via the purchase of foreign currency from the 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 Ministry of Finance. This system is explicitly limited to the food sector.
2. SICAD (originally SITME, recently merged with SICAD II) enables the purchase of foreign currency from the BCV via regular auctions regulated by the government. Since its merger with former SICAD II and the introduction of SIMADI in February 2015, the government has not published any new rules or regulations that clarify exactly which activities, industries or transactions will be eligible to transact at SICAD. In practice, the government invites specific economic sectors to participate in the auctions (toys, auto, agricultural, etc).
3. SIMADI (Marginal Currency System), introduced in February 2015, is intended to compete with the unofficial parallel currency exchange market (black market) rate by allowing for the trade of currency based on supply and demand. It is available to individuals and companies – both public and private.

For the actual individual rates and further clarifications on the eligibility to use the Official Exchange Rate, SICAD or SIMADI, please seek advice from your local brokers or check the BCV’s website for official updates.

Lloyd’s trading status

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.

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.