Resolution JPRF-F-2024-0105: Homologation of Provisioning Standards Between Popular and Solidarity Financial Sector and Public and Private Financial Sectors

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-F-2024-0105 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 226 of the Constitution of the Republic of Ecuador establishes that State institutions, their agencies, dependencies, public servants, and persons acting under a state authority shall exercise only the competencies and faculties attributed to them in the Constitution and the law; having the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of rights recognized in the Constitution;

That, Article 309 of the Fundamental Norm stipulates that the national financial system is composed of the public, private, and popular and solidarity sectors, which intermediates public resources, and prescribes that each of these sectors shall have specific and differentiated norms and control entities, which will be responsible for preserving their security, stability, transparency, and solidity;

That, Article 13 of the Organic Monetary and Financial Code, Book I, reformed following the promulgation of the Organic Reformatory Law to the Organic Monetary and Financial Code for the Defense of Dollarization, created the Financial Policy and Regulation Board, part of the Executive Function, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care service policy and regulation;

That, Article 14 ibidem, in number 2, determines that, within the scope of the Financial Policy and Regulation Board, it corresponds to issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial system;

That, the Organic Monetary and Financial Code, Book I, in its Article 14.1, prescribes that, for the performance of its functions, the Financial Policy and Regulation Board must fulfill certain duties and exercise certain faculties; among which are those indicated in numbers 7 letter c, and 26, which are: to issue the prudential regulatory framework to which financial entities must be subject, a framework that must be coherent, not give rise to regulatory arbitrage, and cover levels of provisions for credit and financial operations, which may be defined by segments, economic activities, and other criteria; and, to establish, with the purpose of stimulating development, economic reactivation, and financial stability, with adequate technical backing, the system of provisions applicable to credit, financial, commercial, and other operations, in the execution of which such parameters will be considered and guaranteed at all times the principles of financial stability and solidity;

That, the unnumbered Article added after Article 6 of the aforementioned Organic Code, states that organisms with regulatory, normative, or control capacity will seek to adopt as a reference framework the international technical standards related to the scope of their competence for the issuance of norms and for the exercise of their functions, strictly adhering to the normative hierarchy established in the Constitution of the Republic of Ecuador;

That, Article 150 of the aforementioned Organic Code prescribes that entities of the national financial system will be subject to the regulation issued by the Financial Policy and Regulation Board, regulation that must recognize the nature and particular characteristics of each of the sectors of the national financial system, in accordance with what is provided in Article 151 ibidem;

Resolution No. JPRF-F-2024-0105 Page 2 of 3

---

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, the Fiftieth Fourth Transitory Provision of the Organic Monetary and Financial Code, Book I, establishes that the resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Financial Policy and Regulation Board, and the norms issued by control organisms, will maintain their validity until the Monetary Policy and Regulation Board and the Financial Policy and Regulation Board decide what corresponds, within the scope of their competencies;

That, Article 9 of Section III "Constitution of Provisions", Chapter XVIII "Classification of Risk Assets and Constitution of Provisions by Entities of the Public and Private Financial Sectors under the Control of the Superintendence of Banks", Title II "National Financial System" of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, states the following:

"Art. 9.- Without prejudice to other legal consequences that may be applicable, entities of the public and private financial sectors must constitute provisions equivalent to 100% of the credit amount for the risks inherent to the interest rate, when it exceeds the maximum rate permitted by law, above which the credit will be considered usurious. It is clearly established that these provisions do not imply any authorization to charge interest rates higher than those established by law and/or by the Monetary and Financial Policy and Regulation Board."

That, the Acting Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0047-M of April 11, 2024, submits to the President of the Board the Technical-Legal Report No. JPRF-CTCJ-2024-005 of April 11, 2024, issued by the Technical Secretariat of this Board, which determines the appropriateness of the repeal of Article 9 of Section III "Constitution of Provisions", Chapter XVIII "Classification of Risk Assets and Constitution of Provisions by Entities of the Public and Private Financial Sectors under the Control of the Superintendence of Banks", Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the aim of not giving rise to regulatory arbitrage, promoting normative homologation between the popular and solidarity financial sector and the public and private financial sectors;

That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on April 11, 2024, and carried out via video conference on April 15, 2024, reviewed Memorandum No. JPRF-ST-2024-0047-M of April 11, 2024, issued by the Acting Technical Secretary of the Board; as well as the aforementioned Technical-Legal Report No. JPRF-CTCJ-2024-005, in addition to the corresponding draft resolution;

That, the Financial Policy and Regulation Board, in an ordinary session held in person and by technological means through video conference, convened on April 11, 2024, and carried out on April 15, 2024, reviewed and approved the following Resolution; and,

In exercise of its functions,

Resolution No. JPRF-F-2024-0105 Page 3 of 3

---

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | RESOLVES: SINGLE ARTICLE.- Article 9 of Section III "Constitution of Provisions", Chapter XVIII "Classification of Risk Assets and Constitution of Provisions by Entities of the Public and Private Financial Sectors under the Control of the Superintendence of Banks", Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is repealed. SINGLE GENERAL PROVISION.- The Superintendence of Banks will notify the content of this Resolution to its controlled entities. FINAL PROVISION.- This Resolution will enter into force from the present date, without prejudice to its publication in the Official Register, and will be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance. BE IT COMMUNICATED.- Given in the Metropolitan District of Quito, on April 15, 2024. THE PRESIDENT, Mgs. María Paulina Vela Zambrano The preceding Resolution was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on April 15, 2024.- I CERTIFY. ACTING TECHNICAL SECRETARY Mgs. Luis Alfredo Olivares Murillo