JPRF-F-2021-005 — Return of the Administration of Closed Complementary Pension Funds to Their Participants

Financial Policy and Regulation Board Resolution No. JPRF-F-2021-005 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 226 of the Constitution of the Republic of Ecuador provides: “State institutions, their agencies, dependencies, public servants, and persons acting by virtue of state authority shall exercise only the competencies and powers attributed to them in the Constitution and the law. They shall have the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution.”; That, Article 13 of the Organic Code of Monetary and Financial creates the Financial Policy and Regulation Board as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care service policy and regulation; That, numeral 19 of Article 14.1 of the same legal body establishes as a function of the Financial Policy and Regulation Board the regulation of the constitution, organization, functioning, liquidation, and registration of closed complementary pension funds and their investments, among other aspects; That, numeral 22 of Article 62 of the cited Organic Code of Monetary and Financial establishes within the functions of the Superintendence of Banks the proposal of policies and regulations to the Financial Policy and Regulation Board, within the scope of their competencies; That, the Organic Law Reforming the Social Security Law and the Law of the Bank of the Ecuadorian Institute of Social Security for the return of the administration of the Closed Complementary Pension Funds to the participants, published in the fourth supplement of Official Register No. 553 of October 6, 2021, orders the Financial Policy and Regulation Board to reform or issue secondary legislation that facilitates the continuity or effective transition of the administration of the closed complementary pension funds, under the terms ordered in the second transitional provision of that legal body; That, General Provision Twenty-Ninth of the Organic Code of Monetary and Financial provides that: “In the current legislation where mention is made of the 'Monetary and Financial Policy Board', replace it with 'Financial Policy and Regulation Board'; That, Transitional Provision Fifty-Fourth added to the Organic Code of Monetary and Financial by the Organic Law Reforming the Organic Code of Monetary and Financial for the Defense of Dollarization, prescribes: “Transitional Regime of Resolutions of the Codification of the Monetary and Financial Policy Board. The resolutions contained in the Codification of Monetary, Financial, Securities and Insurance Resolutions of the Monetary and Financial Policy Board and the norms issued by the control bodies, will maintain their validity until the Monetary and Financial Policy Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies.”; That, it is necessary to include in Chapter XL “On Closed Complementary Pension Funds”, (Chapter renumbered by Article 2 of Resolution of the Monetary and Financial Policy Board No. 647, published in Official Register 415 of March 22, 2021) Section II “Norms that regulate the constitution, registration, organization, functioning and liquidation of Closed Complementary Pension Funds”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities and Insurance Resolutions, secondary norms for the application of the Organic Law Reforming the Social Security Law and the Law of the Bank of the Ecuadorian Institute of Social Security for the return of the administration of the Closed Complementary Pension Funds to the participants;

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That, through memoranda Nos. SB-INCSS-2021-0729-M and SB-INJ-2021-1253-M of November 15, 2021, the National Intendancy of Control of the Social Security System and the National Legal Intendancy of the Superintendence of Banks, in turn, issued the technical and legal reports with a favorable criterion for the issuance of the inclusion in Chapter XL “On Closed Complementary Pension Funds”, Section II “Norms that regulate the constitution, registration, organization, functioning and liquidation of Closed Complementary Pension Funds”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities and Insurance Resolutions by the Financial Policy and Regulation Board, provisions to regulate what is established in the Organic Law Reforming the Social Security Law and the Law of the Bank of the Ecuadorian Institute of Social Security for the return of the administration of the Closed Complementary Pension Funds to the participants; That, the Financial Policy and Regulation Board in an extraordinary session held by technological means, convened on December 15, 2021, on December 17, 2021, learned of the letters Nos. SB-DS-2021-0620-O of November 17, 2021 and No. SB-IG-2021-0366-O of November 30, 2021, sent by the Superintendence of Banks to the President of the Financial Policy and Regulation Board; as well as the memorandum No. JPRF-SETEC-2021-005-M of December 15, 2021, from the Technical Secretariat of the Board, to which it attaches the technical and legal analyses with its draft resolution relative to the secondary legislation for the return of the administration of the closed complementary pension funds to their participants, contained in reports No. JPRF-CT-2021-003 and No. JPRF-CJ-2021-0004; That, in accordance with ruling No. 17-14-IN/20 of June 24, 2020, the Constitutional Court of Ecuador stated that: “37. The regulation of the CCPC must be capable of providing certainty, promoting savings and protecting the rights of the participants, whose aspiration is the improvement of their benefits and living with dignity, when by reason of age, they will stop working or be retired.”; and, In exercise of its functions, RESOLVES: SINGLE ARTICLE.- Include in Chapter XL “On Closed Complementary Pension Funds” of the Codification of Monetary, Financial, Securities and Insurance Resolutions, Book I "Monetary and Financial System", Title II "National Financial System", the following Section: “SECTION V “ON THE PROCESS OF RETURN OF THE ADMINISTRATION OF CLOSED COMPLEMENTARY PENSION FUNDS TO THE PARTICIPANTS” SUBSECTION I “ON THE DECISION OF CONTINUITY OR TRANSITION” ARTICLE 179.- It is the responsibility of the general assembly of participants of the closed complementary pension funds “CCPC” under the administration of the Bank of the Ecuadorian Institute of Social Security to take a decision on their management. For this purpose, the legal representatives will issue a call to a general assembly of all participants, which may be in-person or through the use of electronic means, prioritizing non-presential meetings, synchronous or asynchronous, so that it is decided to continue under the administration of the Bank of the Ecuadorian Institute of Social Security or return to private administration in charge of the participants themselves. The legal representatives of the CCPC, prior to calling the aforementioned general assembly, will be responsible for establishing a list of eligible participants to vote, according to the requirements provided in the statutes of each fund.

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ARTICLE 180.- Once a resolution has been adopted by the general assembly of participants, it must be notified to the Superintendence of Banks and the BIESS no later than the next business day. Without prejudice to the aforementioned notice, a certified copy of the meeting minutes will be sent to the Superintendent of Banks and the General Manager of the BIESS within a term of eight (8) days, counted from the adoption of the corresponding resolution. ARTICLE 181.- The CCPC that resolve to remain with the administration of the Bank of the Ecuadorian Institute of Social Security will be governed by the applicable current regulations for CCPC administered by said entity. In case the general assembly of participants resolves to continue under the administration of the BIESS, no additional decision from those established in this section will be required. The aforementioned CCPC must assume in full the costs of the BIESS administration, according to what is provided in Article 137 of this chapter. SUBSECTION II “ON THE DESIGNATION OF THE BOARD OF DIRECTORS” ARTICLE 182.- In the event that the decision adopted by the CCPC is to return to the administration of the participants, the election of the Board of Directors will proceed, through elections of all participants. Any participant may run for the Board of Directors, provided that they documentally prove that they meet the regulatory requirements to be qualified by the Superintendence of Banks. The legal representatives of the CCPC will establish, prior to validation, a registry of those candidates who meet the requirements established by the Superintendence of Banks. The general assembly of participants will elect from the registry of candidates prepared by the legal representative, in accordance with current regulations, 5 or 7 principal members and their respective alternates of the Board of Directors. The members of the Board of Directors will be selected according to the number of votes obtained by each candidate. The principal members will be those who obtained the highest vote, and they will be accompanied, as alternates, those who follow in number of votes. All principal and alternate members of the Board of Directors must, prior to their installation, have the qualification of the Superintendence of Banks, according to the norms of Chapter III “Norms for the qualification, declaration of disqualification and removal of the members of the board of directors, the person responsible for the benefits area and the legal representative of the closed complementary pension funds”, Title II “On the qualification of the authorities of the national social security system”, Book II “Control norms for entities of the social security system” of the Codification of Norms of the Superintendence of Banks. SUBSECTION III “ON THE LEGAL REPRESENTATIVES OR MANAGERS” ARTICLE 183.- It will correspond to the general assembly of participants or representatives to decide if the legal representative of the CCPC will be a natural or legal person of private law. Likewise, it will correspond to that instance to elect, prior to a merit contest and opposition, the legal representative of the CCPC. SUBSECTION IV “ON THE MINIMUM REQUIREMENTS OF THE LEGAL REPRESENTATIVES OR MANAGERS OF THE CCPC” ARTICLE 184.- Natural persons must meet the requirements established in the current regulations, particularly by the requirements and provisions contained in Article 36, Paragraph III “On the Legal Representative”, Subsection IV “On Government and Administration”, Section II,

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“Norms that regulate the constitution, registration, organization, functioning and liquidation of Closed Complementary Pension Funds”, Chapter XL of the Codification of Monetary, Financial, Securities and Insurance Resolutions. In addition, they must observe the requirements for the qualification of suitability established by the Superintendence of Banks. ARTICLE 185.- Legal persons must meet the following requirements:

1. Legal personality and corporate object linked to fund administration or financial administration, which will be evidenced through the deed of constitution, with an experience of at least three years;
2. Have a legal representative, for which purpose a current appointment duly registered in the corresponding Public Registry will be presented;
3. Not have pending obligations with the Superintendence of Companies, Securities and Insurance, which will be verified with the respective certificate of compliance with obligations from that control body;
4. Not have pending obligations with the Internal Revenue Service and the Ecuadorian Institute of Social Security, which will be verified with separate certificates issued by said institutions;
5. Not have been declared a non-compliant contractor or failed bidder by the State, which will be verified with the respective certificate issued by the SERCOP;
6. Not have firm responsibilities, of an administrative or civil nature, established by the Comptroller General of the State;
7. The legal representative, shareholders or partners cannot be participants of any CCPC, for which purpose sworn declarations will be presented that accredit such fact;
8. The Head or Coordinator of the technical team assigned for the administration of the CCPC must have a fourth-level academic degree in economics, finance or business administration, which will be accredited with certificates from the SENESCYT;
9. The technical team assigned for the administration of the CCPC must accredit a verifiable experience of at least three years, at director levels in one of the following institutions: entities of the social security system in positions linked to the administration and investment of funds; fund administrators; institutions of the financial sector. This requirement will be accredited through the work history of the IESS, tax withholding receipts or equivalent documents issued abroad;
10. Certificate issued by the Financial and Economic Analysis Unit “UAFE” that the legal representative, attorney-in-fact, partners or shareholders are not registered in the database of persons with a final conviction for crimes typified in the Law on Narcotic and Psychotropic Substances, as well as for crimes related to substances cataloged subject to supervision provided for in the Organic Integral Penal Code;
11. Declaration of the legal representative in which it is certified: (i) having physical and technological infrastructure to support the operational level of the CCPC to which it applies; (ii) having the capacity to generate information for control bodies and its administration; (iii) having an information security audit based on ISO27001 standard; and, (iv) having an ethical hacking study, with the respective action plans to remediate vulnerabilities in case they have been found; and,
12. Have a Code of Ethics and adherence agreements by all members of the team assigned to the management of the CCPC, based on the guidelines of IOSCO (International Organization of Securities Commissions) or ISO 31000. SUBSECTION V “ON THE MERIT CONTEST AND OPPOSITION” ARTICLE 186.- The selection of the legal representative or manager of the CCPC will be carried out, in all cases and without any exception, through a public merit contest and opposition, where the most suitable person, natural or legal, will be selected, which will replace the legal representative designated by the BIESS.

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The merit contest and opposition will be processed by the board of directors of the CCPC and will have two phases: (i) Merit Phase, where the documents presented by the applicants will be analyzed, verified and qualified, according to the corresponding regulatory requirements applicable to them; and, (ii) Opposition Phase, where the results report of the merit phase will be made known to the participants to, if applicable, resolve any claim or observation that arises. ARTICLE 187.- The qualification rules will be clear, prior and public, with objective qualification criteria, that make the selection of the best candidates to integrate a slate to be formed by the board of directors predictable and verifiable. The procedure of the merit contest and opposition will be approved and carried out by the board of directors, under principles of legality, transparency and equality. The qualification criteria established must promote the appointment of a professional administration, with extensive experience and impeccable probity. It corresponds to the general assembly of participants or representatives the designation of the legal representative. ARTICLE 188.- The legal representatives of the CCPC who are currently in office will not have impediment to participate in the merit contests and opposition that are promoted, provided they meet the requirements established in the current regulatory framework. ARTICLE 189.- The compensation that the CCPC recognizes to the administrator for their services will be established by the Board of Administration, and made known to the general assembly of participants or their representatives. ARTICLE 190.- The legal representative prior to being installed must obtain the qualification of the Superintendence of Banks. In the qualification process, in addition to the regulatory requirements, compliance with the regulated process for their designation will be verified. SUBSECTION VI “ON THE CONSTITUTION OF THE COMMITTEES” ARTICLE 191.- The Board of Administration, in order to guarantee the operability of the CCPC, will constitute and designate the Committees provided for in this Chapter, within a period not greater than fifteen (15) days, counted from the designation of the legal representative. SUBSECTION VII “ON THE OBLIGATIONS OF THE BIESS IN THE TRANSITION PROCESS TO THE PARTICIPANTS” ARTICLE 192.– The legal representatives of the closed complementary pension funds delegated by the Bank of the Ecuadorian Institute of Social Security, have the obligation to present to the participants, an updated report containing at least the following: a) legal and financial situation of the CCPC; b) detail of individual accounts; c) amount of assets, private and non-private investments, investment returns, delinquent portfolio (private and non-private investments); d) number of participants; e) detail of administrative expense; and, f) benefits delivered in the period of BIESS administration, payroll of administrative and service personnel. A copy of said report will be delivered to the Superintendence of Banks and the National Assembly, within a term of ninety (90) days counted from October 6, 2021, that is, from the publication in the Official Register of the Organic Law Reforming the Social Security Law and the Law of the Bank of the Ecuadorian Institute of Social Security for the return of the administration of the Closed Complementary Pension Funds to the participants. This information must not include personal data, protected by the Constitution and the Organic Law of Protection of Personal Data and the Organic Code of Monetary and Financial, supplementary norm for social security entities, according to Article 305 of the Social Security Law.

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ARTICLE 193.- The legal representatives of the closed complementary pension funds delegated by the Bank of the Ecuadorian Institute of Social Security, have the obligation to present to the participants, an updated report containing the following: legal situation of the CCPC, judicial and extrajudicial recovery actions, the last management report, situation of real estate projects, if any, situation of technological, administrative and financial infrastructure. ARTICLE 194.- The legal representatives of the CCPC delegated by the Bank of the Ecuadorian Institute of Social Security will sign a handover receipt act before a public notary with the new administration of the CCPC appointed by the participants, on the day of the installation of the new administration, with which the process of relief and managerial transition will be formalized. ARTICLE 195.- The outgoing administration of the CCPC must proceed with the change of signatures, delivery of keys, physical and magnetic files of financial, administrative and operational information, historical and current, audited financial statements of the last economic year, securities in custody duly inventoried, contracts and other documentation that supports and sustains their management, within a term not greater than five (5) days, counted from the designation of the incoming administration. The cutoff date of the accounting information must correspond to the day prior to the signing of the handover-receipt act. It is the responsibility of the outgoing administration the veracity, integrity and reasonableness of the same. ARTICLE 196.- The General Manager of the Bank of the Ecuadorian Institute of Social Security through the Coordination of Closed Complementary Pension Funds, must send to the incoming Board of Administration of each CCPC, a technical and financial report containing the following: amount of assets, portfolio of private and non-private investments, investments overdue and their status, administrative expenses, individual account, the last approved budget and its execution, and the financial and accounting indicators of the CCPC. The cutoff date of the information must correspond to the day prior to the signing of the handover-receipt act. ARTICLE 197.- The Bank of the Ecuadorian Institute of Social Security will be responsible for the veracity, integrity and reasonableness of the reports that must be presented in this transition process according to this norm, as well as to coordinate, efficiently and effectively, the delivery of information and other procedures inherent to this process. GENERAL PROVISIONS: FIRST.- At any stage or phase, the Superintendence of Banks will be empowered, ex officio or at the request of a party, to request information from the CCPC regarding the progress of the processes provided for in this section. SECOND.- Cases of doubt that arise in the application of this section will be resolved by the Superintendence of Banks. THIRD.- The effective transition of the new administration of the CCPC must be implemented within a period not greater than ninety (90) days, counted from the date of issuance of this resolution, unless the Superintendence of Banks for duly justified reasons requests from the Financial Policy and Regulation Board an additional extension of ninety (90) additional days. TRANSITIONAL PROVISIONS: FIRST.- The decisions of continuity or transition adopted prior to the issuance of this regulation, within the framework of circular No. SB-INCSS-2021-0024-C issued on November 22

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of 2021 by the National Intendancy of Control of the Social Security System of the Superintendence