/ New Supervision for the Financial Market5 February, 2019
Together with Law No. 21.000, which created the Chile’s new securities and insurance regulator (CMF, for its Spanish acronym- former SVS), Law No. 21.130 provides for the merger of the banking regulator (SBIF, for its Spanish acronym) into the CMF, and sets up a new institutional framework for the oversight of the financial market.
Law No. 21.130 (the “Law”) published in the Official Gazette on January 12, 2019, along with modernizing Chilean banking legislation, incorporating Basel III standards, contains a series of legal amendments and adjustments that will finally allow the existence of a single supervisory entity for the financial market, whose creation as an independent commission (moving from being a regulator – the old SVS – governed by a single superintendent appointed by the President) took place with the enactment of Law No. 21.000 on December 13, 2017.
The merger into a single entity seeks to improve the corporate governance of the banking supervisor, since the CMF is structured in such a way that its top management is entrusted to a collegiate body and gives greater stability, continuity and strength to the decisions it makes.
In order to achieve this merger, the Law broadened the institutional mandate of the CMF by incorporating within its functions the safeguarding not only of the interests of investors and policyholders, but also of depositors. To this end, it reinforced the powers that the CMF already had, allowing it to exercise with the “broadest scope” its supervisory powers over all conduct of those subject to its supervision, examining “without any restriction and by the means it deems appropriate” all information about the situation, resources, administration, etc., that allows the CMF to determine the effective compliance with the regulations.
As a new banking supervisory authority, the CMF is granted specific powers to issue general applicability rules (normas de carácter general or NCG) governing matters ranging from the requirements to determine the solvency of a bank’s controller, or the conditions or requirements for setting up bank subsidiaries, to those necessary for the implementation of Basel III standards. It also incorporates provisions empowering the CMF to make decisions to prevent or promptly correct situations that could affect banks and that if not resolved could, in turn, generate damage not only to depositors, but also to public faith and the stability of the financial system.
The new institutional framework also brings with it a new regime of sanctions applicable to those companies, individuals or entities that are subject to the supervision of the CMF, as a result of the amendment to the General Banking Act (DFL 3 of the Ministry of Finance). Thus, those who infringe the laws, regulations, bylaws and other rules that govern them or do not comply with the instructions or orders legally issued by the CMF, may be sanctioned in accordance with the regime contemplated in Title III of Law 21.000.
It is worth mentioning the power granted to the CMF to request information on corporate governance practices. Such power had been long sought for by the CMF given that until now all the NCGs issued by the CMF (former SVS) that required its issuers and insurers to self-assess good corporate governance practices, did not have an express legal standard that clearly allowed the enforcement of such rules (NCG Nos. 309 and 385). This amendment paves the way for strengthening corporate governance requirements, allowing the CMF to directly interfere in this area.
With regard to its the entry into force, the Law provides that the President of the Republic will have a 1-year term, counted from its publication, i.e. until January 12, 2020, to establish by means of a law-ranking decree the date on which the CMF will assume the competences of the SBIF, determining, likewise, the date of suppression of the latter. The authorities involved in this integration have expressed that the date at issue will be June 1, 2019.
With regard to the entry into force of the provisions contained in Basel III, the Law sets out that the issuance of regulations by the CMF, which are to implement in detail such provisions, will only take place within a period of 18 months from the date on which the CMF assumes the functions and powers of the SBIF, that is, as of the completion of the merger.
It is to be expected that the Law with all its modernizing regulations will be fully effective as of the second half of 2020.