Resolution No. JB-2015-3436 of the Banking Board of Ecuador

Banking Board of Ecuador

RESOLUTION No. JB-2015-3436

THE BANKING BOARD

CONSIDERING:

THAT the second paragraph of the Third Transitional Provision of the Organic Code of Monetary and Financial Affairs determines that the Banking Board will continue to act until it resolves all claims, appeals, and other administrative procedures it was handling on the date this Code entered into force, within a period of one hundred and eighty days, extendable at the discretion of the Monetary and Financial Policy and Regulation Board;

THAT through Resolution No. 054-2015-F, dated March 5, 2015, published in the Official Register No. 467, dated March 27, 2015, the aforementioned period was extended by an additional one hundred and eighty days;

THAT through Resolution No. JB-2005-834 of October 20, 2005, the Banking Board issued the operational risk management standard and set the maximum compliance deadline as October 31, 2008, for controlled institutions, except for savings and credit cooperatives that intermediated with the public and mutual savings and credit associations for housing, to which it granted an additional deadline until October 31, 2009;

THAT through Resolution No. JB-2008-1223 of December 18, 2008, the initial deadline of October 31, 2008, was extended to August 31, 2009, for all controlled institutions, except for savings and credit cooperatives that intermediated with the public and mutual savings and credit associations for housing;

THAT through Resolution No. JB-2011-1983 of August 26, 2011, provisions regarding operational risk management were implemented, which were to be applied until December 31, 2011, for all controlled institutions considered in the operational risk standard;

THAT through Resolution No. JB-2012-2358 of October 25, 2012, it was resolved to further extend the implementation deadline for operational risk provisions until March 31, 2013, for all institutions controlled by the Superintendency of Banks;

THAT through Resolution No. JB-2012-2148 of April 26, 2012, the Banking Board ordered financial entities to implement security measures for ATMs and electronic channels in order to mitigate the risk of fraud due to the use of information and communications technology;

THAT through Circular No. IG-INSFPR-2012-036 of July 16, 2012, this regulatory body reminded the national financial system that, following thirty (30) days from the publication of Resolution No. JB-2012-2148 of April 26, 2012, they must provide adaptation schedules for the implementation of security measures, whose deadline could not exceed nine (9) months, and submit quarterly progress reports;

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Banking Board of Ecuador

Resolution No. JB-2015-3436 Page 2

THAT through Circular No. IG-INSFPR-INSFPU-2012-071 of November 19, 2012, addressed to controlled financial entities, the submission of the schedule for progress and compliance with operational risk provisions was reminded, until December 31, 2012, duly approved by the Board of Directors;

THAT through Circular No. IG-INSFPR-INSFPU-DNR-2013-031 of May 3, 2013, legal representatives of financial system entities were requested to submit certification by the Board of Directors regarding the level of compliance with the operational risk standard reached as of March 31, 2013;

THAT in Circular No. IG-DNR-2013-017 of March 8, 2013, the financial system was instructed that, in accordance with the transitional provisions of Resolution No. JB-2012-2148 of April 26, 2012, the deadline established for the implementation of ATM security measures expired on March 19, 2013;

THAT through Letter No. IRC-2014-1486, dated March 6, 2014, the Regional Intendancy of Cuenca imposed a fine of US$ 1,500.00 on the General Manager of Sociedad Financiera del Austro S.A. FIDASA for non-compliance with operational risk standards;

THAT the General Manager of Sociedad Financiera del Austro S.A. FIDASA filed an appeal for reconsideration against the administrative act contained in Letter No. IRC-2014-1486, dated March 6, 2014, which was rejected through Letter No. IRC-2014-2742, dated April 28, 2014, since the entity did not present new technical elements in addition to those already analyzed by the regulatory body;

THAT through a document received at the Superintendency of Banks on May 13, 2014, Engineer Remigio José Moscoso Eljuri, General Manager of Sociedad Financiera del Austro S.A. FIDASA, with the professional sponsorship of lawyer Cristóbal Piedra Andrade, filed an appeal for review against Letter No. IRC-2742, dated April 28, 2014;

THAT through Letter No. JB-2014-1297, dated May 22, 2014, Licentiate Pablo Cobo Luna, Secretary of the Banking Board, informed Engineer Remigio Moscoso Eljuri, General Manager of Sociedad Financiera del Austro S.A. FIDASA, that the filed appeal for review was accepted for processing, and extended the term to resolve it by an additional sixty days;

THAT in accordance with Article 213 of the Constitution of the Republic, the Superintendency of Banks is the technical body for surveillance, auditing, intervention, and control of the financial activities and services provided by public and private entities that are part of the national financial system, with the purpose that these activities and services comply with the legal framework and serve the general interest. In harmony with this fundamental norm, Article 1 of the General Law of Financial System Institutions establishes that the Superintendency of Banks and Insurance is the entity responsible for the supervision and control of the financial system. Furthermore, financial activities are a service of public order and have the fundamental purpose of preserving public deposits;

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Banking Board of Ecuador

Resolution No. JB-2015-3436 Page 3

THAT regarding the appellant's argument that Sociedad Financiera del Austro S.A. FIDASA does not have ATMs, and therefore cannot meet requirements related to security provisions, it should be indicated that in Letter No. IRC-2014-1486, dated March 8, 2014, such mention exists, but it does not correspond to the factual basis of the imposed sanction, but rather is a reference to the regulatory background, as referred to in Memorandum No. DNR-SRO-2014-0355, dated April 22, 2014, whose pertinent part states:

"(...) The Superintendency of Banks and Insurance in the sanction letter IRC-2014-1486 of March 6, 2014, in the 'Background' section refers to all resolutions issued by the Banking Board as part of the Operational Risk Normative: in the case of FIDASA Financial Society, the resolutions governing security in ATMs and Electronic Channels have not been considered as the factual basis for the sanction since, according to what was mentioned by the entity 'Not Applicable' because they do not offer products through the channels."

THAT Article 134 of the General Law of Financial System Institutions established:

"When the directors, administrators, officials, or employees of a financial system institution infringe laws or regulations governing their operation and such laws or regulations do not establish a special sanction, or in cases where they contravene instructions issued by the Superintendency, the latter shall impose the sanction according to the gravity of the infringement, which shall not be less than 50 UVCs and shall not exceed 3,000 UVCs."

Recidivism in the infringement, of contravening instructions issued by the Superintendency, shall be the responsibility of the entity.

The same sanction shall be imposed on any person or institution that, without having the qualities indicated in the preceding paragraph, commits infringements to this Law, its regulations, or instructions issued by the Superintendency, when such infringements do not have a specific sanction."

THAT regarding the assertion that global compliance with the operational risk standard reached 83.39% as of March 3, 2013, and therefore the imposed sanction must be proportional to the same, it is necessary to indicate that the maximum sanction amount was US$ 7,886.00, equivalent to 3,000 UVCs, according to what is provided in Article 134 quoted above; consequently, the fine of US$ 1,500 relates to the non-compliance, especially considering that the deadline extensions occurred since 2005;

THAT it is appropriate to point out that the aforementioned legal provision empowered the Superintendency of Banks to impose monetary and personal sanctions on executives in cases of non-compliance with issued provisions, which is why the appellant's argument that the general manager cannot have personal obligation for the company's business is invalid;

THAT regarding the appellant's assertion that personal responsibility is not viable in the operational risk implementation process, as it was under the general management for a period of five months, when the referred process has taken approximately eight years, having started in 2005, it should be indicated that the Superintendency of Banks would have expected Mr. Remigio Moscoso Eljuri to communicate the evident non-compliance in which the financial society was incurring, especially if the arguments for the delay have not justified the entity;

THAT the National Legal Intendancy, through Memorandum INJ-DNJ-SAL-2015-0329 of April 16, 2015, recommended the Banking Board reject the claim contained in the filed appeal for review; and,

IN exercise of its legal powers,

RESOLVES:

SINGLE ARTICLE.- REJECT the claim contained in the appeal for review filed by Engineer Remigio Moscoso Eljuri, General Manager of Sociedad Financiera del Austro S.A. FIDASA; and, consequently CONFIRM the administrative act contained in Letter No. IRC-2014-2742, dated April 28, 2014, through which the Regional Intendancy of Cuenca imposed a fine of US$ 1,500.00 on the General Manager of Sociedad Financiera del Austro S.A. FIDASA for non-compliance with operational risk standards.

NOTIFY.- Given at the Superintendency of Banks, in Quito, Metropolitan District, on May 27, 2015.

(Signature) Econ. Rodrigo Landeta Parra GENERAL INTENDANT, S PRESIDENT OF THE BANKING BOARD, E

I CERTIFY.- Quito, Metropolitan District, on May 27, 2015.

(Signature) Lic. Pablo Cobo Luna SECRETARY OF THE BANKING BOARD