Banking Board of Ecuador

RESOLUTION No. JB-2015-3456

THE BANKING BOARD

CONSIDERING:

THAT through a communication received by the Regional Intendancy of Guayaquil on September 27, 2013, Mrs. Evita Lorena Arévalo Castro filed an administrative complaint against the National Development Bank (Banco Nacional de Fomento), in the following terms:

"(...) when I insert my debit card No. 6031 6000 2203 3525 (National Development Bank), the screen displays the text INSUFFICIENT FUNDS. Therefore, I decided to go to the Bank to ask for information on why I do not have a balance available in my checking account, if on July 24, 2013, I had an available balance (sic) of $4,124.12 US dollars, as evidenced by the receipt given to me by the National Development Bank's ATM, which was my last transaction, and by the report provided to me, which shows that I made it at said Banking Institution. From August 22, 2013, to September 5, 2013, I filed this complaint immediately and to this day I have received no response from the Bank. (sic).

For the reasons stated above, I request that a thorough investigation be carried out in order to clarify the truth of the facts and for which I feel harmed (...)";

THAT through Official Letter No. DAYEU-ISFP-REQ-2013-1301 of October 23, 2013, the full content of the complaint filed against said bank was forwarded to it, granting it a period of 5 days to present the pertinent explanations and defenses; in response to said requirement, with an official letter received by the control body on February 6, 2014, the financial entity presented the explanations and defenses related to the claim presented by Mrs. Evita Lorena Arévalo Castro, justifying its actions, mainly as follows:

"(...) upon analyzing the transaction records, a change is observed in the frequency of amounts withdrawn by ATMs and a change in the location where transactions were made by our customer (...).

However, the customer accessed ATMs of other Banks, where there could have been a possible compromise of the information on her debit card (...)";

THAT with Official Letter No. IRG-DAYEU-V-R-2014-371 of May 6, 2014, the administrative resolution regarding the complaint presented by Mrs. EVITA LORENA ARÉVALO CASTRO was issued, in which the Regional Intendancy of Guayaquil accepted the claimant's petition, resolving to order the National Development Bank to proceed to restore the sum of US$ 2,481.70 corresponding to cash withdrawals made from her checking account No. 3001054748 on the days 22, 23, 25, 26, 27, 28, 29, 30 of August 2013; and on the 1st, 2nd, 3rd, 4th, and 5th of September of the same year, as the balance of the credit note in favor

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of the user for the concept of BANRED Insurance, which amounts to US$ 1,800.00;

THAT through a communication received by this control body on May 22, 2014, the National Development Bank filed an appeal for reconsideration against the administrative act contained in Official Letter No. IRG-DAYEU-V-R-2014-371 of May 6, 2014;

THAT through Official Letter No. IRG-DAYEU-V-R-2014-803 of July 16, 2014, the Regional Intendancy of Guayaquil rejected the appeal for reconsideration filed;

THAT through a communication entered into the Superintendence of Banks on August 1, 2014, Mrs. Ángela Mercedes Avilés Gómez, Commercial Manager (E) of the National Development Bank Guayaquil, with the professional sponsorship of lawyer Nicolás Rodríguez Campos, filed before the Banking Board an appeal for review against the administrative act contained in Official Letter No. IRG-DAYEU-V-R-2014-803 of July 16, 2014, arguing mainly:

i. That the National Development Bank, as of August 2014, does not have the service of notifications by SMS and email.

ii. That the National Development Bank has presented all the documentation requested except that which is not in its possession since it does not correspond to it to have it as is the case of the videos of other institutions.

iii. That the sanctions imposed by the Superintendence of Banks will be done within the scope of its administrative competence, so it estimates that it does not correspond to this Control Body to order the reimbursement of the value US$ 2,481.70, all the more so that the Superintendencies by constitutional principle are: TECHNICAL ORGANISMS OF SURVEILLANCE, AUDIT, INTERVENTION AND CONTROL.

iv. That it has been demonstrated in the present administrative proceeding that the client EVITA LORENA ARÉVALO CASTRO is the sole and exclusive responsible for the handling, care and/or custody of the debit card and the compliance with the terms of the agreement and in particular the incorrect use of it;

THAT with Official Letter No. JB-2014-2122 of August 11, 2014, the Secretary of the Banking Board (S), accepted the appeal for review filed for processing; and, with Official Letter No. JB-2014-2123 of the same date, notified Mrs. Evita Lorena Arévalo Castro, regarding the acceptance of said appeal;

THAT through Official Letters No. SAL-2014-00226; SAL-2014-00237; and, SAL-2014-00247 of August 27, September 4, and September 11, 2014 respectively, the Subdirection of

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Legal Advice of the National Legal Direction of the National Legal Intendancy, requested the technical criterion of the Regional Intendancy of Guayaquil, regarding the grounds of the appeal for review filed against the administrative act contained in Official Letter No. IRG-DAYEU-V-R-2014-803 of July 16, 2014;

THAT with Official Letter No. IRG-DAYEU-2014-344 of October 28, 2014, the Regional Intendancy of Guayaquil sent the requested report, indicating that the appealed administrative act was based both on the constitutional regulatory framework, as well as the legal framework in force at the date of its issuance, and ratified Official Letter No. IRG-DAYEU-V-R-2014-803 of July 16, 2014;

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 of September 12, 2014, whose text states that the resolutions contained in the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, and the norms issued by the control bodies, will maintain their validity in everything that does not oppose what is established 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 appeals and other administrative procedures that it was hearing as of the date of its entry 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 the Superintendence of Banks, as the competent body, in accordance with articles 1 and 180, letter b) of the General Law of Institutions of the Financial System, as well as what is provided in article 5 of chapter IV regarding the "Procedure for the attention of complaints against Institutions of the Financial System", title XX "Of the Superintendence of Banks and Insurance", book I "General norms for the application of the General Law of Institutions of the Financial System" of the Codification of Resolutions of the Superintendence of Banks and Banking Board, has the function and attribution to ensure the stability, solidity and correct functioning of the institutions subject to its control; to supervise that they comply with the norms that govern them; and, to require that said institutions present and adopt the corresponding corrective measures when necessary; under this context, based on the legal and regulatory provisions referred to, it is inferred that this control body has the legal and normative faculty to hear the complaints of financial users, and in case of determining an incorrect procedure on the part of the entities, to order the restitution of values to them, therefore the administrative acts that it issues for the purpose of resolving them, arise from the attributes of control and supervision, in whose activity, the protection of the interests of the public must be taken into account;

THAT according to the first argument exposed in point 2 of this legal report, it is important to remember that all entities of the financial system are obliged to establish control procedures and mechanisms that allow

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register the profile of each client regarding their transactional habits in the use of electronic channels and cards and define procedures to monitor online and allow or reject in a timely manner the execution of unusual transactions, which must be immediately notified to the client via mobile messaging, email or other mechanism. The aforementioned is established in article 4, chapter V "Of Operational Risk Management", title X "Of Risk Management and Administration", book I, of the aforementioned Codification;

THAT regarding this, it is important to indicate that according to the transaction log attached by the bank, it is observed that before the claimed transactions, the user regularly makes money withdrawals at ATMs of the same bank located in Daule or Guayaquil, however, all the claimed transactions change pattern and are carried out in the city of Quito, which should have been notified with the pertinent alerts to Mrs. Evita Lorena Arévalo Castro; however, there was no type of action on the part of the bank;

THAT regarding the second argument, it is worth indicating that the contracts celebrated between the institutions of the financial system with service providers, in order to provide their clients with a wider coverage of ATMs, are the exclusive responsibility of such entities, not being able to transfer the operational risk of said service to the users, since this is offered on behalf of and as part of the facilities provided by the banking entities to their clients, being thus the obligation of the controlled institution to take all the precautions and pertinent security measures;

THAT it is necessary to point out that in the case of a card donation, it is not possible to hold the user responsible, when the responsibility falls on the institution, which must implement security measures that provide a certain "customer service", such as anti-skimming devices that prevent the information contained in the users' debit cards from being susceptible to appropriation by third parties;

THAT according to the argument exposed by the bank, that this control body should not or cannot give attention to the claimant's request, in virtue that it corresponds to be attended by the Judicial Function, it is important to mention what article 6 of chapter IV regarding the "Procedure for the attention of complaints against Institutions of the Financial System", title XX "Of the Superintendence of Banks and Insurance", book I "General norms for the application of the General Law of Institutions of the Financial System" of the Codification of Resolutions of the Superintendence of Banks and Banking Board indicates:

"ARTICLE 6.- If it is documented that the specific matter that motivates the complaint is under the knowledge and resolution of the ordinary justice at the instance of the claimant, user of the financial system, the Superintendence of Banks and Insurance will abstain from continuing to process it, in

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attention to the principle of independence of the Judicial Function, enshrined in numeral 1 of article 168 of the Constitution of the Republic, which agrees with article 8 of the Organic Code of the Judicial Function, which will be communicated to the parties, making them aware that, for this reason, the suspension or filing of the process has been ordered, as appropriate.

The provisions in the previous paragraph are excepted for complaints relating to cases that, in parallel, are under the knowledge of the ordinary justice in criminal matters, in which case the Superintendence of Banks and Insurance will hear and resolve them, within the scope of its competence.";

THAT with reference to the fact that the client is the sole and exclusive responsible for the handling and care of the debit card, the bank has not proven in any way that its client has been negligent or careless in the adequate use of her card and/or security code;

THAT literal a) of article 51 of the General Law of Institutions of the Financial System, in force at the date of the presentation of this appeal, states that banks are authorized to "Receive public resources in demand deposits. Demand deposits are banking obligations, comprising monetary deposits payable upon presentation of checks or other payment and registration mechanisms; savings deposits payable upon presentation of savings books or other payment and registration mechanisms;

THAT the above is reinforced by what is determined in the Constitution of the Republic of Ecuador in its article 308 which says "(...) Financial activities are a public order service, and may be exercised, with prior authorization of the State, in accordance with the law; their fundamental purpose will be to preserve deposits and meet the requirements of Financing for the achievement of the country's development objectives. (...)" (emphasis added);

THAT from the cited regulatory framework, it is determined that the bank assumes the obligation to keep or custody the deposited values and to satisfactorily attend any type of operation, with diligence and professional care, as well as being responsible for the other services offered to its clients, it is obliged to evaluate and demand the securities in case in order to be able to fulfill its obligations as a custodian of the monies that its clients have entrusted to it. In concordance with the aforementioned, article 3, chapter I, title X, provides:

"ARTICLE 3.- Financial system institutions have the responsibility to manage their risks, to which effect they must have formal processes of integral risk management that allow identifying, measuring, controlling / mitigating and monitoring the risk exposures they are assuming. ";

THAT finally, it is evident that the bank made a credit note for the value of US$ 1,800.00 dollars to the checking account of the claimant, amount that was covered by the "BANRED Insurance", recognizing thus the financial entity that there was an operational error, with which it is demonstrated that the complaint of Mrs. Evita Lorena Arévalo

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Castro, is procedent and that the National Development Bank, is responsible for the fraudulent transactions;

THAT it is necessary to cite article 5, of chapter IV "Procedure for the attention of complaints against Institutions of the Financial System", title XX "Of the Superintendence of Banks and Insurance", book I "General norms for the application of the General Law of Institutions of the Financial System", of the Codification of Resolutions of the Superintendence of Banks and Insurance and of the Banking Board, which empowers the Control Body to order the return of the values claimed by the controlled institutions, in exercise of the functions and attributions that both the constitutional and legal norms establish, since it disposes that:

"(...) If the situation that motivated the complaint referred to in the previous paragraph, originated in an incorrect procedure of the controlled institution, which had caused harm to the claimant, the Superintendence of Banks and Insurance may order the return of the claimed values, in exercise of the functions and attributions 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 may not exceed fifteen (15) days from the notification to send, under the legal warnings, the proof of compliance with the order issued.

For claims 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 institution issuing the credit card or where the client maintains their account, if said withdrawals originated in an incorrect procedure of the controlled institution, this one being able to repeat against the institution owning or operating the ATM due to whose defects or lack of security measures the fraud occurred.";

THAT the National Legal Intendancy, through memorandum INJ-DNJ-SAL-2015-0227 of March 17, 2015, recommended to the Banking Board to reject the petition contained in the appeal filed by the Commercial Manager (E) of the National Development Bank Guayaquil; and,

IN exercise of its legal attributions,

RESOLVES

SINGLE ARTICLE.- REJECT the petition contained in the appeal for review presented by Mrs. Ángela Mercedes Avilés Gómez, Commercial Manager (E) of the National Development Bank Guayaquil; and, consequently RATIFY Official Letter No. IRG-DAYEU-V-R-2014-803 of July 16, 2014, through which the Regional Intendancy of Guayaquil rejected the appeal for reconsideration filed, and resolved to ratify

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the administrative act contained in Official Letter No. IRG-DAYEU-V-R-2014-371 of May 6, 2014.

NOTIFY.- Given at the Superintendence of Banks and Insurance, in Quito, Metropolitan District, on the fourth of June of the two thousand fifteen.

Econ. Rodrigo Landeta Parra
GENERAL INTENDENT (S)
PRESIDENT OF THE BANKING BOARD SESSION (E)

I CERTIFY.- Quito, Metropolitan District, on the fourth of June of the two thousand fifteen.

Lcdo. Pablo Cobo Luna
SECRETARY OF THE BANKING BOARD

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Banking Board of Ecuador