Social Balance Standard for Savings and Credit Cooperatives and Mutual Savings and Credit Associations for Housing

Resolution No. JPRF-F-2022-048 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 226 of the Constitution of the Republic of Ecuador prescribes that State institutions, their agencies, dependencies, public servants, and persons acting by virtue of a state power shall exercise only the competencies and faculties attributed to them in the Constitution and the law; That, Article 283 ibid states that the economic system is social and solidary, recognizing the human being as subject and end and promoting a dynamic and balanced relationship between society, the State, and the market, in harmony with nature; whose objective is to guarantee the production and reproduction of the material and immaterial conditions that enable good living. Determining, furthermore, that it will be composed of public, private, mixed, popular, and solidary forms of economic organization; and providing that the popular and solidary economy will be regulated in accordance with the law and will include the cooperative, associative, and community sectors; That, Article 284 of the aforementioned Fundamental Charter prescribes that among the objectives of economic policy are ensuring an adequate distribution of income and national wealth, and promoting socially and environmentally responsible consumption; That, the Magna Carta, in its Article 308, determines that financial activities are a public order service, and may be exercised, with prior authorization from the State, in accordance with the law; and its fundamental purpose is to preserve deposits and meet financing requirements for the achievement of the country's development objectives; and it expresses that financial activities will efficiently intermediate the captured resources to strengthen national productive investment, and socially and environmentally responsible consumption; That, Article 309 of the Supreme Norm consacrates that the national financial system is composed of the public, private, and popular and solidary sectors, which intermediate public resources; each of these sectors will have specific, autonomous, and differentiated control norms and entities, which will be responsible for preserving their safety, stability, transparency, and solidity; additionally establishing that the directors of the control entities will be administratively, civilly, and criminally responsible for their decisions; That, Article 311 ibid states that the popular and solidary financial sector will be composed, among others, of savings and credit cooperatives and associative or solidary entities, whose service initiatives will receive differentiated and preferential treatment from the State, to the extent that they promote the development of the popular and solidary economy; That, Article 13 of the Organic Monetary and Financial Code, Book I, reformed by the Organic Reforming Law to the Organic Monetary and Financial Code for the Defense of Dollarization, published in the Official Register Supplement No. 443 of May 3, 2021, 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 services policy and regulation; That, the unnumbered article added following Article 6, ibid, refers to international best practices, and mandates that, bodies 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 regulations and for the exercise of their functions;

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That, Article 9 of the aforementioned Code states that regulatory and control bodies will have the duty to coordinate actions to fulfill their purposes and make effective the enjoyment and exercise of rights recognized in the Constitution; That, Article 14 of the Organic Monetary and Financial Code, Book I, which refers to the scope of the Financial Policy and Regulation Board, determines that this collegiate body is responsible for formulating financial policy; issuing regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial system; and also, issuing micro-prudential regulations for the national financial sector, based on proposals presented by the respective superintendencies, within their areas of competence and without prejudice to their independence; That, number 9 of Article 14.1 of the aforementioned Organic Code establishes that it is the responsibility of the Financial Policy and Regulation Board to fulfill the duty and exercise the faculty of "issuing the non-prudential regulatory framework for all financial entities, securities, insurance, and prepaid comprehensive health care services, which will include, among others, norms on accounting, transparency and information disclosure, market integrity, and consumer protection." That, as established in Articles 150 and 151 of the Organic Monetary and Financial Code, Book I, entities of the national financial system will be subject to the regulation issued by the Financial Policy and Regulation Board, which must recognize the nature and particular characteristics of each of the sectors of the national financial system; That, Article 163 ibid determines that the popular and solidary financial sector is composed of: (i) savings and credit cooperatives; (ii) central cajas; (iii) associative or solidary entities, communal cajas and banks, and savings cajas; (iv) entities providing auxiliary services to the financial system; and, (v) mutual savings and credit associations for housing; That, Article 444 of the aforementioned Organic Code mandates that popular and solidary financial entities are subject to the regulation of the Financial Policy and Regulation Board and the control of the Superintendency of the Popular and Solidary Economy, who, in the policies they issue, will keep in mind the nature and characteristics specific to the popular and solidary financial sector; That, Article 445 ibid refers to the nature and objectives of savings and credit cooperatives, and determines that savings and credit cooperatives are distinguished as open or closed, understanding that those are closed whose members have a common bond uniting them as a profession, labor relationship, guild, or family, such determination being required to appear in the entity's bylaws; That, Article 449 of the same Organic Monetary and Financial Code, Book I, mandates that savings and credit cooperatives must maintain solvency and financial prudence indices that allow them to meet their obligations and maintain their activities in accordance with the regulations issued for this effect, considering the particularities of the segments of savings and credit cooperatives; and expressly provides that such regulations must establish, among others, norms regarding social balance;

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That, Articles 460 and 461 ibid refer to the nature and objectives of mutual savings and credit associations for housing, stating that these will be governed by the provisions of the Organic Monetary and Financial Code, and in what is not specifically regulated for them, will be subject to the applicable regulations for savings and credit cooperatives prescribed in the aforementioned Organic Code, as well as to the regulations issued by the Board, and to the provisions contained in their bylaws; That, Article 466 of the Organic Monetary and Financial Code, Book I, mandates that mutual savings and credit associations for housing must maintain solvency and financial prudence indices that allow them to meet their obligations and maintain their activities in accordance with the regulations issued by the Financial Policy and Regulation Board, considering the aspects determined in the aforementioned Article 449; thus establishing the link regarding the regulation that must establish norms regarding social balance, concerning these mutual savings and credit associations for housing; That, the Twenty-Ninth General Provision of Book 1 of the Organic Monetary and Financial Code, Book I, added by the Organic Reforming Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides: "In the current legislation where mention is made of the 'Financial Monetary and Policy Regulation Board', replace it with 'Financial Policy and Regulation Board'."; That, the Fifty-Fourth Transitional Provision of the aforementioned Organic Code, added by the Organic Reforming Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides: "Transitional Regime of Resolutions of the Codification of the Financial Monetary and Policy Regulation Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Financial Monetary and Policy Regulation Board and the norms issued by control bodies will maintain their validity until the Financial Monetary and Policy Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies."; That, Article 442 of the same Organic Code provides that in everything not provided for in said legal instrument, entities of the popular and solidary financial sector will be governed by what is provided in the Organic Law of the Popular and Solidary Economy; That, the Organic Law of the Popular and Solidary Economy, in its Article 2, states that all natural persons, legal persons, and other forms of organization that make up the popular and solidary economy and the Popular and Solidary Financial Sector are governed by said law; and, in its Article 4, determines that persons and organizations covered by the aforementioned law will be guided in the exercise of their activities, among others, by the principles of social and environmental responsibility, solidarity, and accountability; That, the Second General Provision of the Organic Law of the Popular and Solidary Economy provides that organizations subject to this law will incorporate in their management reports the social balance that will attest to the level of compliance with the principles and their social objectives, regarding the preservation of their identity, their impact on social and community development, environmental, educational, and cultural impact;

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That, the penultimate paragraph of Article 14.1 of the Organic Monetary and Financial Code, Book I, determines that the Superintendent of the Popular and Solidary Economy may propose regulation projects for consideration by the Financial Policy and Regulation Board, with the backing of the respective technical reports; That, through Letter No. SEPS-SGD-2021-29568-OF of November 24, 2021, the Superintendent of the Popular and Solidary Economy (SEPS) presents to the President of the Financial Policy and Regulation Board the proposal for the "Social Balance Standard for Savings and Credit Cooperatives and Mutual Savings and Credit Associations for Housing," for consideration by the collegiate body of the aforementioned Board, in application of what is established in the penultimate paragraph of Article 14.1 and in Article 74 of the Organic Monetary and Financial Code, Book I; for which, it attached: (i) Technical Report No. SEPS-INR-DNSES-2021-076 of March 4, 2021, signed by the National Risk Superintendent of the Superintendency of the Popular and Solidary Economy; (ii) Legal Report s/n of March 9, 2021, signed by the National Director of Norms of the Superintendency of the Popular and Solidary Economy; and, (iii) draft resolution; That, the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0083-M of December 12, 2022, sends to the President of the Board the following reports: (i) Technical Report No. JPRF-CT-2022-0040 of December 6, 2022, issued by the Technical Coordination and authorized by the Technical Secretariat of the Board, through which, it recommends the issuance of the "Social Balance Standard for Savings and Credit Cooperatives and Mutual Savings and Credit Associations for Housing" and its incorporation into the Codification of Monetary, Financial, Securities, and Insurance Resolutions, so that the aforementioned norm goes in line with the provisions of Article 449 of the Organic Monetary and Financial Code, Book I, and in accordance with what was observed in the application of international best practices; and, (ii) Legal Report No. JPRF-CJ-2022-0049 of December 6, 2022, issued by the Legal Coordination of the Board, which concludes that: (i) the Financial Policy and Regulation Board, as responsible for the formulation of policy and regulation of the financial system, has legal competence to issue the non-prudential regulatory framework for all financial entities, which will include, among others, norms on accounting, transparency and information disclosure, market integrity, consumer protection, and regulations regarding norms on the aspect of social balance, in accordance with what is established in number 9 of Article 14.1 of the Organic Monetary and Financial Code, Book I, in concordance with what is established in Articles 449 and 466 ibid; (ii) the Superintendent of the Popular and Solidary Economy has the power to propose regulation projects to the Financial Policy and Regulation Board, within the framework of its competencies, in accordance with what is established in the penultimate paragraph of Article 14.1 of the Organic Monetary and Financial Code, Book I; and (iii) the norm proposed to be incorporated into the Codification of Monetary, Financial, Securities, and Insurance Resolutions is legally viable in light of the legal considerations exposed by said Coordination in the aforementioned report, in the terms indicated in Technical Report No. JPRF-CT-2022-0040 of December 6, 2022, issued by the Technical Coordination and authorized by the Technical Secretariat of this Board;

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That, the Financial Policy and Regulation Board, in ordinary session convened by technological means on December 13, 2022 and carried out through video conference on December 15, 2022, learned of Memorandum No. JPRF-SETEC-2022-0083-M of December 12, 2022, issued by the Technical Secretariat of the Board; as well as the aforementioned reports from the Technical Coordination and the Legal Coordination, in addition to the corresponding draft resolution; That, the Financial Policy and Regulation Board, in ordinary session convened by technological means on December 13, 2022 and carried out through video conference on December 15, 2022, learned of and approved the following Resolution; and, In exercise of its functions, RESOLVES: SINGLE ARTICLE.- Issue and incorporate as Section XXVII of Chapter XXXVI "Popular and Solidary Financial Sector", Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following Standard: "SECTION XXVII: SOCIAL BALANCE STANDARD FOR SAVINGS AND CREDIT COOPERATIVES AND MUTUAL SAVINGS AND CREDIT ASSOCIATIONS FOR HOUSING SUBSECTION I: OBJECT, SCOPE, AND DEFINITIONS Article 1.- Scope: This Standard will apply to Savings and Credit Cooperatives, and Mutual Savings and Credit Associations for Housing, hereinafter "entity" or "entities", according to their nature, complexity of their operations, and segment to which they belong. Article 2.- Object: Define the minimum aspects that entities must incorporate in their management reports, which attest to the level of compliance with the principles and social objectives, regarding the preservation of their identity, their impact on social and community development, environmental, educational, and cultural impact. Article 3.- Definitions: The terms used in this Standard will have the following meaning: Social Balance.- It is a socio-economic management tool that facilitates entities to measure themselves and account to their members especially and to all other stakeholder groups impacted by their actions, regarding the fulfillment of their essence or identity, that is, from the principles established in the Law and the values and principles of cooperativism and social objectives. Fair Trade.- It is a commercial exchange relationship based on dialogue, transparency, respect, and equity, giving priority to people, respect for gender equity, children's rights, payment of fair prices, safety in the work environment, and protection of the environment, mainly.

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Equity.- It focuses on creating equal conditions for people or vulnerable groups, for which greater efforts and resources are required, seeking to achieve social balance. It also refers to equality of opportunity to access products and services as a means of developing a just society. Local Structures.- Are organizations of the popular and solidary economic sector, which have their points of attention in a community, parish, canton, or province of the country. Funding Sources.- Are monetary resources that may come from capital contributions, deposits, or payments made by members or clients, as well as resources provided by financial institutions and other national or foreign organizations. Baseline.- Is the set of variables and indicators that define the initial situation of the entity with reference to the development of Social Balance. Project.- Is the set of activities carried out in an orderly manner with the objective of creating a product, service, or generating a specific result. Social Responsibility.- Is the form of management in which entities take into consideration the repercussions their activities have on society, and in which they contribute to the fulfillment of the mission, vision, principles, and values by which they are governed, both in their own internal methods and processes and in their relationship with others, seeking the preservation of the environment and the sustainability of future generations. Areas of Influence.- Is the territory where the entity has presence or where the impact of its decision-making occurs. SUBSECTION II: PRINCIPLES OF THE POPULAR AND SOLIDARY FINANCIAL SECTOR Article 4.- Principles: Entities in the exercise of their activities will be guided by the principles prescribed in the Organic Law of the Popular and Solidary Economy, as applicable. Article 5.- Principles of Cooperativism: Without prejudice to what is established in Article 4 of this Standard, entities will be governed by the following principles of cooperativism: Principle 1.- Free and voluntary association.- Entities are societies of persons who have united voluntarily to satisfy their common economic, social, and cultural needs; who accept the responsibilities that come with association, without discrimination of gender, race, social class, political or religious ideology. Principle 2.- Democratic control.- Entities are democratically self-managed by their members, who have the obligation to control their organization, and participate actively in the definition of internal policies and in decision-making. Those elected to represent their entity in the assembly or general meeting and in the boards of administration and oversight, answer to the members. All members have the right to one vote. Principle 3.- Economic participation.- Members participate equitably and democratically in the capital. In the participation of members in profits and surpluses, social and economic justice will be guaranteed.

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Principle 4.- Autonomy and independence.- Entities are autonomous mutual aid organizations, managed by their members. If they relate to other organizations or have external funding sources, they do so on terms that ensure democratic control by their members and maintain the autonomy of the entity. Principle 5.- Education, training, and information.- Entities provide cooperative education and training, technical assistance, communication to their members, board members, legal representative, and employees, in order to effectively contribute to improving their capacities and the development of the entities in their areas of influence. Entities inform the general public about the nature, benefits of the popular and solidary economy, and cooperation. Principle 6.- Cooperation and integration of the popular and solidary economic sector.- Entities serve their members effectively and strengthen the popular and solidary economy movement, working jointly or through local, national, regional, and international structures. Principle 7.- Commitment to the community.- The entity develops its activity with social, community, and environmental commitment and promotes fair trade, oriented towards the well-being of its members and the community. SUBSECTION III: SOCIAL BALANCE MANAGEMENT Article 6.- Methodology: For Social Balance management, entities may apply the methodology defined by the Superintendency of the Popular and Solidary Economy, which is in accordance with the segments established in Section I, Standard for the segmentation of entities of the popular and solidary financial sector, of Chapter XXXVI: Popular and Solidary Financial Sector, established in the Codification of Monetary, Financial, Securities, and Insurance Resolutions. Article 7.- Social Balance Manual: Entities must prepare a Social Balance Manual according to their structure and size, which will contain at least the following: a) General and specific objectives; b) Policies, processes, and procedures for Social Balance management and monitoring; c) The roles and responsibilities of those participating in Social Balance; d) Training strategies on Social Balance topics; e) Social Balance measurement methodology; and, f) Parameters for the presentation of analysis and results. The manual must be updated periodically, in accordance with the reality of the entity, and must be available to the Superintendency of the Popular and Solidary Economy. Article 8.- Social Balance Report: Entities will incorporate in their management reports the Social Balance, as of the close of each fiscal year, which must reflect the fulfillment of their va