10.01.2025.
The Law on Foreign Exchange Operations specifies the securities which residents may invest in abroad, while the transfer of funds from purchasing foreign securities must be executed in accordance with regulations governing foreign payment transactions, which stipulate that for payments abroad, the resident – order issuer submits a payment order to the bank, which contains the information prescribed by the guidelines and for which funds have been provided in the bank. Also, the order issuer is obliged to enclose a document based on which the payment is being executed, in compliance with the regulations. Since the Law on Foreign Exchange Operations was last amended in 2018, it can be concluded that the regulations on investment in securities have not changed for many years, and neither have the regulations governing foreign payment transactions.
In this regard, all residents making payments abroad, including those who trade in financial instruments abroad, are obliged to submit a document to the bank based on which it can be determined that the payment in question is permitted from the aspect of the application of FX regulations, i.e. from which it may be established that residents will trade in financial instruments abroad as permitted by law, given that resident investments in financial instruments abroad have not yet been fully liberalised. The reason for this is that these are extremely volatile capital flows that can cause significant risks to the country’s financial stability.
Namely, the current regulations still maintain certain restrictions related to trading in debt securities, such as restrictions related to securities whose issuers are from countries that are not members of the European Union, since residents are allowed to trade in long-term debt securities issued by issuers from the European Union or from OECD member countries, provided their long-term rating is at least A (according to Standard & Poor’s) or A2 (according to Moody’s). On the other hand, short-term debt securities issued by issuers from third countries may be traded only by banks, and not by other residents. Also, residents may not yet freely perform transactions with financial derivatives that are traded outside the regulated market and/or multilateral trading platform abroad, since they can only perform these transactions to protect against prescribed risks (e.g. exchange rate changes, interest rate changes, changes in the price of securities, changes in the prices of goods or stock market index values). In addition, the current regulations do not allow currency trade abroad for residents.
In accordance with the above, and in order to ensure the legal conduct of residents in cases when they trade financial instruments abroad, including residents who trade through the US Interactive Brokers (through a platform that also enables trading in derivatives, foreign currencies and other financial instruments that do not comply with the valid regulation in the Republic Serbia), it is necessary for residents, when making payments abroad on the aforementioned basis, to submit documentation that would allow the bank to determine that the resident will trade only those financial instruments that are permitted by law.
Additionally, we would like to underline that residents may hold foreign currency abroad and only with foreign banks, only in exceptional cases set out in the Decision on Terms and Conditions under which Residents May Hold Foreign Exchange in Bank Accounts Abroad. This means that residents may not transfer funds to their accounts with foreign brokers and hold them there until they decide (if they decide) that the funds will be invested in certain financial instruments or transferred from the broker account to foreign bank accounts in contravention of the said Decision, where they will be used for foreign payments not allowed under applicable regulations.
For the stated reasons, we reiterate that there are no obstacles for residents to trade abroad in securities that are permitted by law, but they are required to provide the bank with a document from which it can be determined that it is a legal trade, e.g. contract with a foreign broker or any other document from which it can be determined which securities the resident will trade abroad and in what amount, the amount being determined based on the approximate price of the securities that the resident buys abroad (e.g. the price of shares of a certain company in the previous period) or a limit which the resident designates for investment in these securities.
In this regard, we note that in the previous period, numerous cases were observed of residents transferring funds to foreign brokers, by payment cards or giving orders to the bank, based on a framework contract with a foreign broker that did not contain more precise information regarding the planned trading. Residents informed the bank about trading abroad in financial instruments not permitted by law only when the funds were returned to Serbia. Hence, subsequent reporting of residents about trade in financial instruments abroad may not provide the legality of such trade, nor can it be expected that residents – natural persons will inform the National Bank of Serbia that they acted in contravention of the applicable regulations.
Governor’s Office
