Banking Board Resolution JB-2015-3420

Banking Board of Ecuador

RESOLUTION No. JB-2015-3420

THE BANKING BOARD

CONSIDERING:

THAT this appeal is resolved in accordance with the First Transitional Provision of the Organic Monetary and Financial Code, published in the Official Register Second Supplement No. 332, on September 12, 2014, whose text states that resolutions contained in the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, and the norms issued by control bodies, will remain in force in all that does not oppose what is provided in the Organic Monetary and Financial Code, until the Monetary and Financial Policy and Regulation Board resolves what corresponds, according to the case; and with the second paragraph of the Third Transitional Provision, which states that the Banking Board will continue to act until it resolves all complaints, appeals, and other administrative procedures it was hearing on the date of entry into force of the same, 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, of March 5, 2015, published in the Official Register No. 467, on March 27, 2015, the aforementioned period has been extended by one hundred and eighty additional days;

THAT through communication of March 12, 2013, Mr. Edwin Oswaldo Naula Chuni, filed a complaint against Banco Pichincha C.A., for having proceeded to pay ten checks drawn against checking account No. 3422810404, with a single signature, when according to the complainant "...At the time of opening the account the signing condition was joint signatures, at the time of paying the checks it was with DISTINCT signatures...";

THAT the second clause of the Checking Account Opening Contract signed between Banco Pichincha and Mr. Edwin Oswaldo Naula Chuni, holder of citizenship card No. 1712783131 and his spouse, Ena Jeanneth Guerrero Vega, holder of citizenship card No. 1712792074, sent to this control body via letter No. BP-ACEC-2013-0646 of July 15, 2013, determines that said checking account is a joint account, unless the account holders request another payment modality from the bank;

THAT through letter No. AUD-C-R-050-2013 of April 26, 2013, Mr. Víctor Ojeda, Internal Auditor of Banco Pichincha C.A., stated that there is no evidence that the mentioned clients had requested the bank to modify the signing condition of the checking account from joint to independent;

THAT through letter No. BP-ACEC-2013-0496 of May 9, 2013, Banco Pichincha C.A. stated that checking account No. 3422810404 was opened under the condition of joint signatures;

THAT through letter No. INSFPR-D1-2013-1470 of July 25, 2013, this control body proceeded to impose a monetary sanction of US$500.00 on the Deputy President, Legal Representative of Banco Pichincha C.A., on the grounds that the bank proceeded to pay several checks from checking account No. 3422810404, without verifying that the two signatures of the

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Resolution No. JB-2015-3420 Page 2

holders of said checking account were present, that is, without observing what is provided in the aforementioned Checking Account Opening Contract;

THAT in response to the letter indicated in the preceding paragraph, Mr. Antonio Acosta, in his capacity as Deputy President, Legal Representative of Banco Pichincha C.A., through communication of August 1, 2013, entered into this Superintendence on the 2nd of the same month and year, filed an appeal for reconsideration against the administrative act contained in letter No. INSFPR-D1-2013-1470 of July 25, 2013;

THAT through letter No. INSFPR-D1-2013-1831, of September 19, 2013, the National Intendancy of the Private Financial Sector rejected the appeal for reconsideration, and ratified the content of letter No. INSFPR-D1-2013-1470 of July 25, 2013;

THAT through writing entered into this control body on September 30, 2013, Banco Pichincha C.A. filed an appeal for review against the content of letter No. INSFPR-D1-2013-1831, of September 19, 2013, signed by economist Valeria Llerena, National Intendant of the Private Financial Sector;

THAT with Resolution No. JB-2014-2891 dated April 15, 2014, the Banking Board resolved:

"SINGLE ARTICLE.- REJECT the claim contained in the appeal for review filed by Mr. Antonio Acosta Espinosa, Deputy President of Banco Pichincha C.A.; and, consequently, CONFIRM letter No. INSFPR-D1-2013-1831, of September 19, 2013 with which, economist Valeria Llerena, National Intendant of the Private Financial Sector, rejected the appeal for reconsideration filed by Banco del Pichincha C.A. and ratified letter No. INSFPR-D1-2013-1470 of July 25, 2013, with which a monetary sanction was imposed on the Deputy President of Banco Pichincha C.A.";

THAT through writing entered into the Superintendence of Banks on May 12, 2014, Mr. Fernando Pozo Crespo, in his capacity as General Manager of Banco Pichincha C.A., filed an appeal for reconsideration and requested that Resolution No. JB-2014-2891 issued by the Banking Board on April 15, 2014, be revoked, with which the claim contained in the appeal for review proposed by the bank is rejected and consequently letter No. INSFPR-D1-2013-1831, of September 19, 2013, signed by economist Valeria Llerena, National Intendant of the Private Financial Sector, is confirmed, letter by which the appeal for reconsideration through which Banco Pichincha C.A. challenged the administrative act contained in letter No. INSFPRD1-2013-1470 of July 25, 2013, was rejected, through which it was resolved to impose a monetary sanction of USD $500.00, on Mr. Antonio Acosta Espinosa in his capacity as Deputy President, of Banco Pichincha C.A.;

THAT with letter No. JB-2014-1219, of May 14, 2014, the Secretary of the Banking Board, accepted for processing the appeal for reconsideration filed;

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THAT Banco Pichincha C.A. bases its appeal for reconsideration on the following: "(...) Having been one of the co-holders of the checking account who signed the checks subject of the complaint, no sanction is due; more so when according to article 11 of the Checks Law, it is the drawer who is responsible for payment (...)";

THAT regarding this, it is important to mention what article 2 of chapter III, title XXIV, book I, of the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board indicates, in which the definition of joint signature is contained and literally states:

"Joint Signature.- These are the signatures of the persons recorded in the bank's records who are authorized to draw checks against a checking account, and for the issuance of the check, they must appear one next to the other."

From the above, it follows that for the issuance of a check under the joint signature modality, both signatures must be present for the payment to proceed.

THAT it is documented in the attached file that in the second clause of the checking account opening contract signed between Banco Pichincha C.A. and Mr. Edwin Oswaldo Naula Chuni, and his spouse Edna Jeanneth Guerrero Vega, the condition for check signing with "joint signatures" was established;

THAT considering article 1561 of the Civil Code, which was also mentioned in letter No. INSFPR-D1-2013-1831, it fully establishes the obligation of the parties who sign a contract to comply with its terms, so said legal instrument becomes "law for the parties"; and the bank failed to comply with what was provided in the aforementioned contract, by paying checks without verifying that the two signatures of the account holders were present, a condition indispensable to effect said payment;

THAT it is important to note that through letter No. AUD-C-R-050-2013, of April 26, 2013, Mr. Víctor Ojeda, Internal Auditor of Banco Pichincha C.A., states that the clients have not requested to modify the "joint signatures" condition;

THAT with reference to the fine imposed through letter No. INSFPR-D1-2013-1470 of July 25, 2013, the appellant argues that "even if the two premises referred to in the cited article 5 had been breached, which has not happened in the case at hand, said norm of the Codification of Resolutions does not expressly provide for the possibility of imposing monetary sanctions, for which reason this legal basis is entirely inappropriate";

THAT the sanction was imposed under the provisions of article 134 of the General Law of Institutions of the Financial System, in force at the date of the complaint, which empowers this control body to impose fines if it is verified that the financial entity infringed laws or regulations, and as has been

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Resolution No. JB-2015-3420 Page 4 detailed in the preceding paragraphs, it was evidenced that Banco de Pichincha C.A. incurred in incorrect procedures;

THAT it must be indicated that article 26, chapter III "General Regulation of the Checks Law", title I of the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, states:

"Article 26.- Banks will take all necessary precautions prior to the payment of checks, according to the procedures established in the Checks Law, in the Law on Economic Reordering in the Tax-Financial Area, and in this chapter. These procedures must be contained in the internal operational manuals of each institution."

The transcribed provision was not observed by the bank, since prior to the payment of the checks, the financial entity was obligated to verify "joint signatures" in compliance with the terms of the checking account contract signed by the parties, therefore, the imposed sanction is fully justified.

THAT the appellant in his argument mentions article 11 of the Checks Law which provides:

"Article 11.- The drawer is responsible for payment. Any clause by which the drawer exempts himself from this responsibility is deemed unwritten."

THAT it is appropriate to highlight that although the client has responsibilities, this does not exempt the bank from its responsibility to verify the check prior to payment, since even the bank has a signature registration system that allows the employee to visualize the condition of the account;

THAT it is important to indicate that the failure to verify compliance with the "joint signature" condition led Banco Pichincha C.A. to violate numeral 28.6 of article 28, chapter III "General Regulation of the Checks Law", title XXIV, book I of the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, norm in force at the date of the complaint, which states:

"Article 28.- The drawee bank may only refuse payment of a check: protesting or rejecting it, as appropriate, in the terms of article 24 of the Checks Law, with the consequent return of the check, in the following cases:

28.6 Rejecting it for defect of substance or defect of form according to the provisions contained in this chapter.";

THAT article 5 of chapter IV, title XX, book I, of the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, states:

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"Article 5.- If the result of the analysis carried out by the Superintendence determines the need for the controlled institution to introduce corrective measures to regularize the situation that motivated the complaint, the Superintendent of Banks and Insurance or the official who holds the delegation of said authority, will issue the corresponding disposition.

If the situation that motivated the complaint referred to in the preceding paragraph originated in an incorrect procedure of the controlled institution, which caused harm to the complainant, the Superintendence of Banks and Insurance may order the return of the claimed values, in exercise of the functions and attributes contemplated in letters b) and o) of article 180 of the General Law of Institutions of the Financial System, granting the legal representative of the entity a period that cannot exceed fifteen (15) days from notification to send, under the warnings of Law, the proof of compliance with the issued order.

For complaints of unauthorized withdrawals due to evidence of attempts or frauds produced in ATMs, the Superintendence of Banks and Insurance will order the return of the claimed values to the credit card issuing institution or where the client maintains their account, if said withdrawals originated in an incorrect procedure of the controlled institution, which may repeat against the institution owning or operating the ATM due to whose defects or lack of security measures the fraud occurred.";

THAT it is concluded that the bank should have, prior to the payment of the checks, verified that the two joint signatures were present, due to the condition of the checking account, which in the analyzed case did not happen, in such virtue the requirement established in article 5, chapter IV, title XX, book I of the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board has been configured, proceeding to fine the bank under the provisions of article 134 of the General Law of Institutions of the Financial System;

THAT the National Legal Intendancy, through memorandum INJ-DNJ-SAL-2015-0318 of April 15, 2015, recommended to the Banking Board to reject the claim contained in the appeal for reconsideration filed;

AND, in exercise of its legal attributes,

RESOLVES:

SINGLE ARTICLE.- REJECT the claim contained in the appeal for reconsideration filed by Mr. Fernando Pozo Crespo, General Manager of Banco Pichincha CA; and, consequently, CONFIRM the content of Resolution No. JB-2014-2891 issued by the Banking Board on April 15, 2014, with which the claim contained in the appeal for review proposed by the bank is rejected and consequently letter No. INSFPR-D1-2013-1831, of September 19, 2013 is confirmed, with which, economist Valeria Llerena E., National Intendant of the Private Financial Sector, rejected the appeal for reconsideration filed by Banco del Pichincha C.A. and ratified the

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letter No. INSFPR-D1-2013-1470 of July 25, 2013, with which a monetary sanction was imposed on the Deputy President of Banco Pichincha C.A.

LET IT BE COMMUNICATED.- Given at the Superintendence of Banks, in Quito, Metropolitan District, on the thirteenth of May of two thousand fifteen.

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

I CERTIFY.- Quito, Metropolitan District, on the thirteenth of May of two thousand fifteen.

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