JPRF-F-2024-0132 — Reforms to Section I "Categorization of Guarantees" for the inclusion of vehicle guarantee trusts as adequate guarantees

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-F-2024-0132 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 82 of the Constitution of the Republic of Ecuador prescribes the right to legal security, which is based on respect for the Constitution and the existence of prior, clear, public legal norms applied by competent authorities; That, Article 84 of the Supreme Norm provides that any organ with normative power shall have the obligation to formally and materially adapt laws and other legal norms to the rights provided for in the Constitution. In no case shall the reform of laws or other legal norms nor acts of public power violate the rights recognized by the Constitution; That, number 6 of Article 132 of the Magna Carta grants public control and regulation bodies the authority to issue norms of a general nature in matters within their competence, without being able to alter or innovate legal provisions; That, Article 226 of the Fundamental Norm stipulates that State institutions shall exercise only the competencies and powers attributed to them in the Constitution and the law; That, Article 308 aforementioned determines that financial activities are a public order service, and may be exercised, with prior authorization from the State, in accordance with the law; That, Article 309 of the Constitution establishes that the national financial system is composed of the public, private, and popular and solidary sectors; That, Article 424 ibidem mandates that the Constitution is the supreme norm and prevails over any other in the legal order. Norms and acts of public power must maintain conformity with constitutional provisions; otherwise, they will lack legal efficacy; That, Article 425 of the Magna Carta prescribes the following hierarchical order for the application of legal norms: “The Constitution; international treaties and conventions; organic laws; ordinary laws; regional norms and district ordinances; decrees and regulations; ordinances; agreements and resolutions; and other acts and decisions of public powers. (…)”; That, Article 13 of the Organic Code of Monetary and Financial Law, Book I, reformed by the Organic Law Reforming the Organic Code of Monetary and Financial Law for the Defense of Dollarization, published in Official Register No. 443 on May 3, 2021, created the Financial Policy and Regulation Board, part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That, Article 14, number 2, of the aforementioned Code provides that the Financial Policy and Regulation Board, among other functions, is responsible for issuing regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial, securities, insurance, and prepaid comprehensive health care services systems, in accordance with what is provided in Article 309 of the Constitution of the Republic of Ecuador. Likewise, its antepenultimate paragraph establishes that, for the fulfillment of its functions, it must issue norms in matters within its competence, without being able to alter legal provisions; That, Article 14.1 ibidem prescribes that the Financial Policy and Regulation Board must comply, among other duties and powers: “1. Regulate the creation, constitution, organization, activities, operation, and liquidation of financial, securities, insurance, and prepaid comprehensive health care services entities; (…) 16. Regulate the constitution, operation, and liquidation of funds and fiduciary businesses related to the securities market; (…)”;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, Article 25.1, number 1, of the aforementioned Code indicates, among the functions of the Technical Secretariat of this Board, the elaboration of technical and legal reports that support the regulation proposals to be issued by the Financial Policy and Regulation Board; That, Article 150 of the referenced normative body provides that entities of the national financial system shall be subject to the regulation issued by the Financial Policy and Regulation Board; That, Article 160 of the cited legal body stipulates that the national financial system is integrated by the public financial sector, the private financial sector, and the popular and solidary financial sector; That, Article 188 of the aforementioned Organic Code mentions that entities of the national financial system must comply, at all times, with the financial and operational requirements established by the Code and those established by the Financial Policy and Regulation Board, which is in harmony with what is provided in Article 210 of the same normative body regarding adequate guarantees; That, General Provision Twenty-Ninth of the Organic Code of Monetary and Financial Law, Book I, incorporated by the aforementioned Organic Law Reforming the Organic Code of Monetary and Financial Law for the Defense of Dollarization, establishes that in current legislation, wherever reference is made to the “Monetary and Financial Policy and Regulation Board,” it shall be replaced by “Financial Policy and Regulation Board”; That, Transitory Provision Fifty-Fourth of the aforementioned Organic Code, added by the aforementioned Organic Law Reforming the Organic Code of Monetary and Financial Law for the Defense of Dollarization, provides that Resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board shall maintain their validity until the Monetary Policy and Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies; That, Article 15 of the Organic Administrative Code recognizes the principle of responsibility, in which it is established that: ‘The State shall be liable for damages as a consequence of the lack or deficiency in the provision of public services or the actions or omissions of its public servants or subjects of private law who act in the exercise of a public power delegated by the State and their dependents, controlled or contractors.’; That, by Resolution No. 402-2017-F of September 5, 2017, issued by the Monetary and Financial Policy and Regulation Board, Chapter XXI “Categorization and Valuation of Adequate Guarantees,” Title II “National Financial System,” Book I “Monetary and Financial System” was substituted; That, Article 195 of the Organic Law for Economic Development and Fiscal Sustainability after the COVID-19 Pandemic, published in the Third Supplement No. 587 of the Official Register on November 29, 2021, reformed the Article numbered immediately following Article 120 of the Organic Code of Monetary and Financial Law, Book II (Securities Market Law), incorporating as number 8 the following text: “8. Credit operations or of any other type destined for the financing of vehicles.” Additionally, it repealed the third paragraph of the aforementioned Article which established the following: “In no case shall natural or legal persons, public or private, national or foreign, including naturally the institutions of the financial system, be able to constitute commercial trusts as guarantees on vehicles.”;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0111-M of December 18, 2024, submits to the President of the Board the Technical Report No. JPRF-CTIFSP-2024-0022 of December 13, 2024, issued by the Technical Coordination of Financial Inclusion and Prepaid Health Care Policy, and the Legal Report No. JPRF-CJF-2024-058 of December 13, 2024, issued by the Coordination of Financial Policy and Norms of this Board, as well as the respective draft resolution; That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on December 20, 2024, and carried out via video conference on December 23, 2024, reviewed the Memorandum No. JPRF-ST-2024-0111-M of December 18, 2024, issued by the Technical Secretary of the Board; as well as the aforementioned Technical Report No. JPRF-CTIFSP-2024-0022 and Legal Report No. JPRF-CJF-2024-058, in addition to the corresponding draft resolution; That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on December 20, 2024, and carried out via video conference on December 23, 2024, reviewed and approved the following Resolution; and, In exercise of its functions, RESOLVES: ARTICLE FIRST.- Article 1 of Section I: “Categorization of Guarantees,” Chapter XXI “Categorization and Valuation of Adequate Guarantees,” Title II “National Financial System,” Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is substituted by the following text: “Art. 1.- For the purposes of applying the provisions established in Articles 188 and 210 of the Organic Code of Monetary and Financial Law, Book I, the following are considered adequate guarantees:

1. Guarantees constituted in the country: a. Pledge on deposits of cash money, or other financial investments made in the same financial entity or in other entities of the National Financial System, or titles issued by the State or the Central Bank of Ecuador; b. Mortgages on real estate, including those that are by accession; c. Mortgages on ships and aircraft, provided they are insured against all risks and the policy is endorsed in favor of the creditor financial entity; d. Certificates of deposit of goods of easy realization, issued by general warehouses, specifying the quality and quantity of the deposited goods; e. Commercial, agricultural, and industrial pledges; and, f. Automatic debit agreements subscribed between the Central Bank of Ecuador and public companies, in the case of credits granted by public banking to public companies, whose term does not exceed ninety (90) days. These operations must be approved by the board of directors of the public bank and may only be renewed once for the same original term.
2. Guarantees constituted abroad: a. Mortgages on ships and aircraft, provided they are insured against all risks and the policy is endorsed in favor of the creditor financial entity.
3. Other guarantees:

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | a. Solidarity bonds granted by banks or operational financial entities from abroad with recognized international solvency; with the exception of operational financial entities from abroad domiciled in tax havens or jurisdictions with lower taxation than Ecuador; b. Solidarity bonds granted by societies constituted abroad, with internationally accredited solvency, that cover obligations of their branches, subsidiaries, or set of associated companies for a specific project in which they participate and which is contractually established, provided that in the document subscribed in favor of the creditor financial entity, the commitment to pay unconditionally and irrevocably, at the sole request of the creditor, the debtor's matured obligations is assumed. Such internationally accredited solvency must be justified at least with the following information:

1. Financial statements audited by a prestigious international firm and whose opinion contains no qualifications, for at least two (2) consecutive years;
2. Valid and duly legalized certificate of operation; and,
3. Report issued by an independent risk rating agency; c. Irrevocable documentary credits and bills of exchange, issued by banks or operational financial entities from abroad with recognized international solvency that cover export financing loans whose shipments or services have already been fulfilled in accordance with the following:
4. Irrevocable documentary credits, issued by operational banks abroad whose solvency is internationally accredited;
5. Bills of exchange guaranteed by operational banks abroad, whose solvency is internationally accredited; and,
6. Irrevocable documentary credits or guaranteed bills of exchange, which have a reimbursement code duly verified through payment and reciprocal credit agreements subscribed by the central banks of the member countries of the Latin American Integration Association (ALADI); d. “Stand by” letters of credit issued by operational banks abroad whose solvency is internationally accredited; e. Goods to be imported through an open documentary credit by the financial entity, in which it is established that the bills of lading will be consigned to its order and with the corresponding insurance endorsement in favor of the creditor financial entity. For such purposes, the goods must be of easy realization and the financial entity will have free disposal over them; f. Solidarity bonds, of any nature, granted by banks or national insurance companies; g. Bills of lading for oil, provided they refer to previously negotiated (sold) oil purchases by the client of the financial entity; and their respective insurance policy, duly endorsed in favor of the creditor financial entity; h. Credit documents duly endorsed with liability in favor of the creditor financial entity by another financial entity;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | i. The commercial guarantee trust, by virtue of which assets are transferred to an autonomous patrimony administered by an institution or fund and trust management company, duly authorized, that allow guaranteeing obligations contracted in favor of entities of the National Financial System. Such trust, under the protection of what is established in the article numbered immediately following Article 120 of the Organic Code of Monetary and Financial Law, Book II (Securities Market Law), may only be constituted to back the following credit operations:

1. Housing credits;
2. For the development of real estate projects;
3. For infrastructure financing, circumscribed to gross fixed capital formation;
4. Public investment credits;
5. Syndicated credits jointly with public banking or multilateral financial entities;
6. With backing of credit guarantee funds;
7. Specific productive credits that can be guaranteed with commercial trusts on inventories of raw materials, work-in-progress products, or other movable goods or finished products; precious metals, industrial capital goods, and brands or patents whose ownership has been acquired by purchase and whose price has been paid in full; and,
8. Credit operations or of any other type destined for the financing of vehicles. Entities of the National Financial System may not accept the quality of beneficiaries in commercial guarantee trusts for consumer credit operations, or for credit operations other than those detailed in the aforementioned numbers. Commercial guarantee trust contracts that comply with legal provisions and this norm shall be considered adequate guarantees and their patrimonies may cover, based on their duly appraised values, up to 100% of the value of the guaranteed credit; j. In the case of commercial lease operations, the all-risk insurance policy, according to the leased asset, endorsed in favor of the financial entity; k. Negotiable commercial invoices related to credit sales of products or services, backed by export credit insurance policies or domestic or internal credit insurance policies, issued by legally constituted or established insurance companies in the country. In case of having reinsurance, the reinsurer must have a risk rating of at least A-. Insurance companies operating in export credit insurance must have access to international database information that allows the rating of buyers of Ecuadorian products in the markets in which they operate, as provided in Article 6 of Executive Decree No. 1793, published in Official Register No. 365 on June 28, 2004. Insurance companies operating in domestic or internal credit insurance must equally have sufficient information on local buyers, for the purpose of carrying out the rating referred to in the preceding paragraph. Such invoices to be endorsed to the creditor financial entity must be “negotiable invoices” and contain the requirements established in the Code of Commerce, tax regulations, and other applicable norms. The endorsement must be made with irrevocable character.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Negotiable invoices endorsed to the financial entity must be for a value that adequately covers the amount of the credit granted, for which effect, the financial entity will consider the agreed co-insurance and deductible contemplated in the particular conditions of the credit insurance policy. The debtor will transfer its right to indemnity derived from the credit insurance policy to the creditor financial entity, prior notice and express acceptance of the insurance company; l. Bonds granted by an entity of the credit guarantee system; and, m. For credits granted to small and medium-sized enterprises (SMEs), and to micro-entrepreneurs, the unsecured guarantee shall be considered an adequate guarantee, in addition to those established in this norm, provided that the guarantor justifies a sufficient net resource flow to cover the credit subject's debt; understanding net resource flow as the average of monthly gross family income minus estimated monthly family expenses obtained from stable sources such as: salaries, wages, fees, remittances, and/or average rents; and precious metals.” FINAL PROVISION.- This Resolution shall enter into force from this date, without prejudice to its publication in the Official Register, and shall be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance. NOTIFY.- Given in the Metropolitan District of Quito, on December 23, 2024. THE PRESIDENT, Mgs. María Paulina Vela Zambrano The aforementioned Resolution was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on December 23, 2024.- I CERTIFY. TECHNICAL SECRETARY, Mgs. Luis Alfredo Olivares Murillo