What Is A CFC (Customer Foreign Currency) Account?

CFC accountsA customer foreign currency (CFC) account is a transactional account denominated in a foreign currency, ie any currency other than rand. It is available in all major currencies and is a useful mechanism for managing foreign currency receipts and payments.

What problems do CFC accounts solve?

Using a Customer Foreign Currency (CFC) account can offer several advantages for businesses engaged in international transactions or dealing with foreign currencies. Here are some of the key advantages of using a CFC account:

1. Currency Risk Mitigation: As an example; an importer / exporter both receive and make payments in dollars. By operating within the CFC environment they are able to receive funds into the CFC account and then subsequently make payments from it. This provides a way to diversify your currency holdings, reducing your reliance on the ZAR and potentially mitigating currency risk. CFC accounts can be set up in different foreign currencies depending upon the needs of the individual business. 

2. Savings on Currency Conversion: By holding foreign currencies in a CFC account, you can avoid frequent currency conversions when dealing with international transactions. This can lead to cost savings, as you won't incur conversion fees or unfavourable exchange rates.

3. Improved Cash Flow Management: For businesses, CFC accounts enable better cash flow management when dealing with international clients and suppliers. You can receive payments in the currency of your choice and make payments directly in that currency, streamlining your financial operations.

4. Reduced Exchange Rate Risk: CFC accounts allow you to hold funds in the foreign currency in which you expect to transact. This reduces your exposure to fluctuations in exchange rates, as you can choose when to convert funds based on favourable rates.

5. International Business Facilitation: Businesses can use CFC accounts to simplify cross-border transactions. You can pay international suppliers in their currency, which may lead to better terms and stronger relationships.

6. Hedging Capabilities: CFC accounts can serve as a form of currency hedging. If you anticipate a future need for a specific foreign currency, you can hold it in your CFC account to lock in exchange rates.

It's important to note that the advantages of using a CFC account may vary depending on individual or business circumstances and financial goals.

Who might a CFC account be useful for?

Customer Foreign Currency (CFC) accounts offer a valuable financial tool for a diverse range of businesses engaged in international dealings or having exposure to foreign currencies. Here are several business categories that may find CFC accounts advantageous:

  1. Exporters and Importers: Companies conducting international trade often utilise CFC accounts for holding foreign currencies. Exporters can receive payments in foreign currency, while importers can settle bills with overseas suppliers, streamlining currency conversion and diminishing exchange rate risks.
  2. Travel and Hospitality Entities: Businesses in the travel industry, including travel agencies, tour operators, and airlines, catering to international clientele and suppliers, find CFC accounts useful for handling foreign currency transactions related to ticket sales, reservations, and payments to overseas partners.
  3. E-commerce Enterprises: Online retailers catering to customers worldwide frequently engage with foreign currencies. CFC accounts streamline the receipt and retention of foreign currency payments, reducing currency conversion expenses.
  4. Global Service Providers: Businesses offering services globally, such as consulting, IT services, or marketing, may utilise CFC accounts to accept payments in their clients' preferred currencies and efficiently manage foreign currency related expenses.
  5. Shipping and Logistics Companies: Enterprises involved in shipping and logistics services, often serving international clients and partners, can efficiently handle foreign currency transactions, including shipping fees and customs duties, through CFC accounts.

It is essential to recognise that any advantages of a CFC account may vary considerably, based on the unique characteristics and international pursuits of each business. Prior to establishing a CFC account, businesses should seek guidance from an expert to ensure that the use off a CFC account meets regulatory requirements and their operational requirements. 

CFC accounts in a South African context

In South Africa, a Customer Foreign Currency (CFC) account is a type of bank account that allows individuals and businesses to hold foreign currencies, but still with the ambient of exchange control regulations. These accounts are typically used for various purposes, including international trade and travel. Here are some key points about CFC accounts:

  • Currency Options: CFC accounts can be held in various foreign currencies, such as US dollars (USD), euros (EUR), British pounds (GBP), and others. These accounts enable customers to conduct transactions in foreign currencies without the need for constant currency conversions.
  • Usage: CFC accounts are commonly used by businesses engaged in international trade, that receive international payments and also make international payments, to hedge against exchange rate fluctuations and negate the amount of currency conversions they need to make. 
  • Exchange Rate Risk: While CFC accounts offer the advantage of holding foreign currency, they also come with exchange rate risk. Fluctuations in exchange rates can impact the value of the funds held in these accounts when compared to the local ZAR rate at a given moment in time.
  • Regulations: The South African Reserve Bank (SARB) regulates CFC accounts to ensure compliance with exchange control regulations. There may be limitations on the amount of foreign currency that can be held in such accounts, and specific transactions may require approval from the SARB.
  • Reporting Requirements: Account holders are required to report their CFC account holdings to the South African Revenue Service (SARS) for tax purposes. It's essential to comply with reporting requirements to avoid potential legal issues.
  • Interest Rates and Charges: Interest rates and charges on CFC accounts may vary depending on the foreign currency and the financial institution providing the account. It's advisable to compare rates and charges before opening an account.
  • Documentation: To open a CFC account, individuals and businesses typically need to provide specific documentation, including proof of identity, proof of residence, and compliance with exchange control regulations.

Who can establish a CFC account?

  • Importers and exporters of goods
  • Locally recognised shipping agents
  • Freight forwarders
  • Marine insurance brokers
  • South African entities that provide services to non-residents
  • Merchanting traders, insurance brokers, stockbrokers and tour operators
  • Insurance companies utilising the account for foreign currency working balances

If you do not fall within the above list, an application can be made to the South African Reserve Bank to open a CFC account.

Important to note 

  • The types of transactions that may be processed through CFC accounts are subject to the South African Reserve Bank exchange control requirements.
  • Details of the exchange control requirements that must be complied with are published on the South African Reserve Bank’s website.

If you need more guidance on the specific process for obtaining and running a CFC account, or have any other queries around transferring funds in or out of South Africa, get in touch via our contact page, online chat or call + 27 (0) 21 424 2936.