Malawi: Directive on Foreign Currency Exposure Limits

This directive applies to all banks licensed by the Reserve Bank of Malawi that deal in foreign exchange activities. The directive establishes prudential limits within which foreign exchange positions may be held.

The law is divided into the following parts:

Part 1 - 'Preliminary' provides information about the short title, authorization and application of the law, as well as the definition of key terms in the law.

Part II - Statement of Policy', lists the objectives of the law, which are:

• To maximize a financial institution's ability to conduct business in a sound and viable manner and for the convenience of its customers;
• To minimize the potential of risk or loss to an institution's capital base;
• To promote favorable competition in the access to, and availability of, foreign exchange.

Part III - 'Implementation and Specific Requirements' informs about:

• • Limits on overall foreign exchange risk exposures;
  • Limits on intra-day foreign exchange risk exposures;
  • Global limits;
  • Computation of foreign exchange risk exposures;
  • Correction of excess foreign exchange risk exposure;
  • Maintenance of supporting documentation;
  • Submission of weekly reports to the Reserve bank of Malawi.

Part IV - 'Remedial Measures and Administrative Sanctions' lists the measures that the Reserve Bank of Malawi may impose on an institution for non-compliance with this directive.

Part VI concludes by mentioning the date of effectiveness of the law.