Banking Board Resolution JB-2015-3322

Banking Board of Ecuador

RESOLUTION No. JB-2015-3322

THE BANKING BOARD

CONSIDERING:

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

THAT Mr. Galicio Alberto Candelario Castro, through a communication received at the Regional Intendancy of Guayaquil on November 14, 2012, filed a claim against Banco Pichincha C.A., requesting that the entity be ordered to reverse the sum of US$325.00 charged to his Visa Práctica Banco Pichincha C.A. credit card No. 4732930002818990 for the concept of five cash advances not made by him via automated teller machines (ATMs);

THAT, having accepted the claim for processing, the Intendancy of Guayaquil, through letter No. IDG-DAYEU-ISFP-REQ-2012-1161, dated November 21, 2012, transferred to the knowledge of the Deputy President of Banco Pichincha C.A. the claim presented by Mr. Galicio Alberto Candelario Castro, and requested explanations and defenses regarding the case. In response to the requirement, the banking entity, through letter No. BP-ACEC-2013-0143, dated February 14, 2013, presented among other things the following documentation: a) Copy of the Credit Card Issuance and Use Contract duly signed by the parties; b) Copy of the record of delivery of issued cards and PINs; c) Report on the computation of the daily limit authorized to perform cash withdrawal transactions through ATMs; and, d) Certified copies of the audit tapes corresponding to the transactions that are the subject of the claim. Arguing principally the following:

"(...) Once the corresponding verifications were made in our ATM archives, it was established that the transactions subject of the claim were carried out with the credit card (...) issued in the name of Mr. GALICIO ALBERTO CANDELARIO CASTRO, holder of the aforementioned card,...

The credit card and personal PIN of Mr.... constitute the only mechanism to access the cash advance service through an ATM, therefore the strict custody and care taken with the card, as well as keeping the personal PIN secret, are exclusive responsibilities of the CARDHOLDER... (sic).

... Regarding the videos, we must inform you that by internal procedures they are kept for a determined period of time, after which they are overwritten, which is why the videos requested in your letter are not available." (sic);

THAT, through letter No. IRG-DayEU-V-R-2013-0249, dated June 6, 2013, the Regional Intendancy of Guayaquil issued the administrative resolution, regarding

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the claim presented by Mr. Galicio Alberto Candelario Castro, in the following terms:

"(...)

1. ACCEPT the claim presented by Mr.... against... BANCO PICHINCHA C.A., on the grounds that it has not been evidenced that the claimant has given improper use to the credit card issued in his favor by the controlled institution. Furthermore, as the videos from the ATMs where the transactions were made were not sent, it was evidenced, thus, the lack of one of the security measures required by the regulations.

2. ORDER... BANCO PICHINCHA C.A. to proceed to reverse to Mr. GALICIO ALBERTO CANDELARIO CASTRO the sum of US$ 325.00 charged to the credit card..." (sic);

THAT, through a letter entered at the Regional Intendancy of Guayaquil on June 19, 2013, Banco Pichincha C.A. filed an appeal for reconsideration against the administrative act contained in letter No. IRG-DayEU-V-R-2013-0249, dated June 6, 2013, which was resolved by the Regional Intendant of Guayaquil through letter No. IRG-DayEU-RP-2014-010, dated February 14, 2014, rejecting said claim and ratifying the appealed letter;

THAT, through a communication received at the Superintendency on February 25, 2014, Mr. Antonio Acosta Espinosa, Deputy President of Banco Pichincha C.A., with the legal sponsorship of Dr. Pablo Cadena Merlo and lawyer María José Araujo Álvarez, filed an administrative review appeal before the Banking Board against letter No. IRG-DayEU-V-R-2014-010, dated February 14, 2014, arguing principally the following: Lack of motivation of the resolution of the public authority which leads to its nullity as indicated in literal l) of numeral 7, of article 76 of the Constitution; that he insists that the entity has no responsibility in this case, since the cash advances subject of the claim were made with the credit card issued in the name of Mr. Galicio Alberto Candelario Castro, and that the credit card and personal PIN whose custody and care are the responsibility of the client are the only mechanism to access the ATM systems; that the transactions subject of the claim were carried out over 5 days without the client informing the bank that they were not made by him; that the client did not request the cancellation of his card until a month and days after the first claimed transaction; and, that the control organism alleges without basis that it has failed procedures that caused the present harm to the claimant, by not sending the videos regarding the claimed transactions, noting that in letter No. IDG-DayEU-ISFP-REQ-2012-1161 no video was requested, therefore the return of the values cannot be ordered;

THAT, through letter No. JB-2014-524 of March 8, 2014, the Secretary of the Banking Board accepted the administrative review appeal for processing; and, through letter No. JB-2014-525 of the same date, notified Mr. Galicio Alberto Candelario Castro regarding the acceptance of said appeal;

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THAT regarding the argument of the lack of constitutional motivation consigned which leads to the nullity of the resolution of the public authority, and that the grounds of the appeal for reconsideration have not been entirely the object of analysis and motivation by this Superintendency, it is specified that in this case, the Regional Intendancy of Guayaquil, prior to the respective analysis and motivation of each of the grounds indicated by the parties, in application of the provisions contained in the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, resolved both the initial claim and the appeal for reconsideration filed;

THAT regarding the argument that the bank has no responsibility in this case, since the transactions subject of the claim were made with the credit card issued in the name of the claimant, which according to the audit tapes provided by the entity were reported as successful, and that the card and PIN whose custody and care are the responsibility of the client are the only mechanism to access the ATM systems, as well as, that said transactions were carried out for five (5) days without the client informing the bank that they were not made by him, nor requesting the cancellation of his card until a month and days after the first claimed transaction; it must be indicated that, precisely what originated the user's claim before the controlled entity is the use of his credit card without his authorization, to carry out the questioned cash advances; from this fact, given that, as reflected in the statement of account issued by the bank in October 2012, a copy of which is in the file, said advances occurred between September 1 and 16, 2012 in ATMs owned by the same; and, that while it is the client's responsibility to take care of his credit card, it is no less true that the controlled institution cannot, with such arguments, pretend to transfer to the user the risks inherent to the organization and execution of the ATM service that it has made available to its clients, on the contrary, it is obliged to provide the necessary securities, through adequate risk management, in accordance with what is provided in article 2, numeral 2.9, chapter I "On Comprehensive Risk Management and Control", title X "On Risk Management and Administration", book I "General Norms for the application of the General Law of Institutions of the Financial System" of the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, which dispose:

"ARTICLE 2.- For the purposes of the application of this chapter, the following definition is determined:

(...)

2.9 Operational Risk (...)

Groups a variety of risks related to deficiencies in internal control; inadequate systems, processes and procedures; human errors and frauds; failures in computer systems; occurrence of adverse external or internal events, that is, those that affect the institution's capacity to respond to its commitments in a timely manner or compromise its interests..." (Emphasis added).

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Furthermore, from the file formed around this appeal, it is observed that there is no documentary support to substantiate the client's responsibility for the mishandling of his credit card and personal and non-transferable PIN;

THAT the argument that the Superintendency alleges without basis that it has failed procedures that caused the present harm to the claimant, by not sending the videos of the claimed transactions and that in letter No. IDG-DayEU-ISFP-REQ-2012-1161 no video was requested to it, does not proceed, since as recorded in numerals 8 and 10 of the annex to the aforementioned letter, the respective sending was requested, specifically on which the bank itself pronounced itself in the defense letter No. BP-ACEC-2013-0143, dated February 14, 2013, by stating: "... Regarding the videos we must inform you that by internal procedures they are kept for a determined period of time, after which they are overwritten, which is why the videos requested in your letter are not available." (sic).

THAT if the bank had presented the videos, these would have allowed verifying the facts subject of the claim; if videos do not exist, it is evident that there are not sufficient security measures in the ATMs, and that such insufficiency caused harm to the client;

THAT regarding what was mentioned in the preceding consideration, the controlled entity, by not properly substantiating its defenses, did not consider nor comply with the renumbered articles 38 and 40 contained in chapter I, title II, book I of the aforementioned Codification, related to the security measures it must have, which state:

"ARTICLE 38.- With regard to video surveillance systems (cameras) it must be considered that:...

38.2 Fixed location cameras, at a minimum, must adequately cover the places of access to the public and staff of the financial institution and the customer service counters; and,

38.3 Image recording and storage systems must guarantee the archive of at least three (3) months of recording, through tapes, digital video discs (DVD) or any other system.

(...)

"ARTICLE 40.- The ATMs of financial institutions must comply with the following security measures:...

40.11 Video recording system.- For its operation, each ATM must have an exclusive video recorder, which must record the recording without degrading the definition captured by its cameras.";

THAT it is important to note that the administrative acts issued by the Superintendency arise from the control and supervision attributes as determined by articles 1 and 180 letter b) of the General Law of Institutions of the Financial System, in whose activity the interests of the

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public must be taken into account, therefore becoming inappropriate the argument exposed by the appellant that this control organism cannot order the return of values, more so when in the present case it has been determined non-compliance on its part with what the aforementioned regulations demand;

THAT as indicated, the arguments expressed by the appellant do not disprove the grounds for issuing the appealed letter No. IRG-DayEU-V-R-2014-010 of February 14, 2014, consequently, in this case the requirement provided for in article 5 of chapter IV, title XX, book I of the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board has been fulfilled, since Banco Pichincha C.A. incurred in an incorrect procedure by not complying with the security norms provided in the aforementioned Codification, which were transcribed in the preceding considerations;

THAT the National Legal Intendancy, through memoranda INJ-DNJ-SAL-2014-1022 and INJ-DNJ-SAL-2015-0106 of December 17, 2014 and February 4, 2015, respectively, recommended to the Banking Board to reject the claim contained in the administrative review appeal filed;

AND,

In exercise of its legal attributes,

RESOLVES:

SINGLE ARTICLE.- REJECT the claim contained in the administrative review appeal filed by Mr. Antonio Acosta Espinosa, Deputy President of Banco Pichincha C.A.; and, consequently CONFIRM the administrative act contained in letter No. IRG-DayEU-V-R-2014-010 of February 14, 2014, through which the Regional Intendancy of Guayaquil rejected the appeal for reconsideration filed by the bank, against letter No. IRG-DayEU-V-R-2013-0249 of June 6, 2013, with which it was resolved that the referred banking entity "... proceed to reverse to Mr. GALICIO ALBERTO CANDELARIO CASTRO the sum of US$ 325.00 (...),".

NOTIFY.- Given at the Superintendency of Banks, in Quito, Metropolitan District, on the first of April 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 first of April of two thousand fifteen.

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