Resolution No. JB-2015-3462 of the Banking Board

Banking Board of Ecuador

RESOLUTION No. JB-2015-3462

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 of September 12, 2014, whose text states that resolutions contained in the Compilation of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, and the norms issued by the control bodies, will remain in force insofar as they do 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 that 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 by means of a document presented to the Superintendence of Banks and Insurance on March 28, 2014, Mr. Homero Geovanny Romero Vera filed a complaint against the National Development Bank (Banco Nacional de Fomento), in which he stated:

"(...)

By means of this document, I address you to request the due process of investigation for the reimbursement of values, since on November 16 and 17, 2013, from my savings account 0570129532 which I hold at the National Development Bank, the value of $583.00 (FIVE HUNDRED EIGHTY-THREE AND 00/100 AMERICAN DOLLARS) was stolen from me.

On Monday, November 18, 2013, immediately upon discovering what happened, I proceeded to request the blocking of my debit card and the respective user request for the return of the stolen values from the National Development Bank, Santa Elena Branch, who referred me to customer service at the Headquarters in the city of Quito, but on repeated occasions I have made phone calls and have not received a convincing response.

For this reason, I appeal to you as the highest regulatory body of the financial system to carry out the corresponding procedures in order to recover the values that were illegally stolen from my savings account. Attached is the respective documentation.

(...)";

THAT by letter No. DAyEU-ISFP-REQ-2014-657 of April 7, 2014, Federico Sandoval Valverde, Director of User Attention and Education, requested the Acting Commercial Manager of the National Development Bank - Guayaquil Branch, to submit defenses and explanations regarding the complaint filed by Mr. Homero Geovanny Romero Vera;

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THAT through letter No. 04430 of April 24, 2014, entered into this Superintendence of Banks and Insurance on April 25, 2014, Mr. Marco Ruales Valverde, Engineer, Director of the Customer Attention Unit, Official of the National Development Bank, in response to the requirement of the control body, sent copies of the documents held in the file of the complaint of Mr. Homero Geovanny Romero Vera to the Superintendence of Banks and Insurance;

THAT by letter No. DAyEU-V-R-2014-655 of July 2, 2014, Federico Sandoval Valverde, Director of User Attention and Education of the Guayaquil Intendancy, resolved that the National Development Bank proceed to restore to Mr. Homero Geovanny Romero Vera the sum of USD $583.00 debited from his savings account No. 0570129532 and send the relevant documentation to the control body regarding compliance with what was established within forty-eight hours, counted from the receipt of the aforementioned letter;

THAT through communication entered into the Superintendence of Banks on July 14, 2014, Engineer Erika Mariela Palma Portilla, Commercial Manager of the National Development Bank, Guayaquil Branch, filed an appeal for reconsideration against the administrative act contained in letter No. DAyEU-V-R-2014-655 of July 2, 2014;

THAT by letter No. IRG-DAyEU-V-R-2014-840 of August 5, 2014, lawyer Vicente Espinoza Reyes, National Director of User Attention and Education, rejected the appeal for reconsideration, and ratified the content of letter No. DAyEU-V-R-2014-655 of July 2, 2014;

THAT through communication entered into this Superintendence on August 18, 2014, the Acting Commercial Manager of the National Development Bank, Guayaquil Branch, MGT. Ángela Mercedes Avilés Gómez, filed an appeal for review before the Banking Board against the administrative act contained in letter No. IRG-DAyEU-V-R-2014-840 of August 5, 2014, through which lawyer Vicente Espinoza Reyes, National Director of User Attention and Education, rejected the appeal for reconsideration, and ratified the content of letter No. DAyEU-V-R-2014-655 of July 2, 2014;

THAT the appeal for review was accepted for processing by lawyer Pablo Cobo Luna, Secretary of the Banking Board, by letter No. JB-2014-2283 of August 26, 2014;

THAT among the factual and legal grounds exposed by the Acting Commercial Manager of the National Development Bank, Guayaquil Branch, MGT. Ángela Mercedes Avilés Gómez, the following are noted:

• That the financial entity made the management before the Sub-Department of Operational Risk and Liberty Insurance, and from the Review Examination it was concluded that no commitments with the client's card were evidenced in the transactions carried out at ATMs of the National Development Bank, and being carried out normally and that it could eventually have been exposed to manipulation by third parties.

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• That the credit note dated 11/04/2014 in favor of Mr. Homero Geovanny Romero Vera has not been considered; where he is returned by insurance ASTM COMP 116960, the value of US$ 291.50.

• That there is no prior pronouncement from a competent authority as required by the nature of the facts denounced by Mr. Homero Geovanny Romero Vera; in effect, the alleged fraudulent use of the debit card would imply the commission of a criminal offense, the existence of which corresponds to be determined by constitutional mandate by the competent Criminal Judge.

• That the National Development Bank educates the user through talks given by the servers of the User Service Counter that are maintained and given debit cards, on the back of waiting tickets or transaction receipts, clearly the security recommendations are indicated, security videos are passed to them and there are permanently placed advertising banners with content of information and brochures of the securities that must be taken;

THAT the National Development Bank, through the appeal for review, states that the client did not apply the basic security recommendations for the handling of the debit card, which were made known through different means, however, in the file of the present case it is not evidenced that Mr. Homero Geovanny Romero Vera, has compromised at any time the custody of the debit card, which was granted by the financial institution;

THAT literal a) of article 51 of the General Law of Institutions of the Financial System, states that banks are authorized to "Receive resources from the public 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 from the aforementioned norm it is determined that the National Development Bank assumes the obligation to keep or safeguard the deposited values with diligence and professional care, as well as it is responsible for the other services offered to its clients such as the ATM service, therefore, it is obliged to evaluate and demand the security measures as a depositary of the money that its clients have entrusted to it;

THAT article 3, chapter I, title X "On the management and administration of risks", book I of the Compilation of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, states that:

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

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THAT financial institutions have the responsibility to manage their risks comprehensively with formal management processes, and therefore, must be aware of the risk exposures they are assuming;

THAT contracts celebrated between the institutions of the financial system with service providers, with the aim of providing their clients with broader 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 given by the banking entities to their clients, being thus, the obligation of the controlled entity to take all precautions and security measures;

THAT the controlled entity affirms that a credit note was made in favor of Mr. Homero Geovanny Romero Vera, for the value of USD $291.50, of which there is no documentation proving what the Bank affirms, since in the defenses sent by the financial institution, contained in letter No. 04430 of April 24, 2014, and in the appeal for reconsideration presented on July 14, 2014, the movements of the savings account No. 570129532 of the claimant are verified until April 4, 2014;

THAT regarding the lack of prior pronouncement from a competent authority, it is pertinent to mention that article one of the Organic Law of Institutions of the Financial System, provides as follows:

"Article 1.- Public financial institutions, insurance and reinsurance companies are governed by their own laws regarding their creation, activities, functioning and organization. They will be subject to this Law regarding the application of solvency and financial prudence norms and to the control and surveillance that the Superintendence will carry out within the legal framework that regulates these institutions in everything that is applicable according to their legal nature (...)";

THAT the aforementioned norm clearly empowers the Superintendence of Banks to carry out control and surveillance precisely on financial institutions within the legal framework that regulates them;

THAT the third paragraph of article 5 of chapter IV, title XX, book I, of the Compilation of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, states as follows:

"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 has the delegation of said authority, will issue the corresponding disposition.

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 issuing institution of the credit card or where the client holds their account, if said withdrawals originated in an incorrect procedure of the controlled institution, this one being able to repeat against the

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institution owning or operating the ATM due to whose defects or lack of security measures the fraud occurred";

THAT in accordance with article 1 of the General Law of Institutions of the Financial System and article 18, paragraph II "On the Processing of complaints from users of the Financial System", of chapter III "Code of Rights of the Financial System", title XIV, book I of the Compilation of Resolutions of Banks and Insurance and the Banking Board, "The Superintendence of Banks and Insurance in the exercise of its constitutional and legal functions of regulation and supervision, preventive and corrective, will have as a fundamental principle the protection of the rights of the user of the financial system.";

THAT from the explanations and defenses sent by the National Development Bank it has been evidenced that the claimant was not attended to in a timely manner by the banking entity, since he filed his complaint with the bank on November 18, 2013, without obtaining any response according to what is evidenced in the case file, failing to comply with what is established in numeral 12.2 of article 12, of section IV, chapter V, title XIV, book I of the Compilation of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, in which the obligation on the part of the entity to attend and resolve the complaints and claims presented by financial users within a period of up to fifteen days in the case of claims originating in the country is established;

THAT additionally, the controlled entity had the responsibility to initiate an investigation of the case, being of utmost importance for this effect, the request for videos of the questioned transactions to the entities owning the ATMs where they were carried out, on November 16 and 17, 2013. The controlled entity only requested the videos on April 21, 2014, that is, when the period that financial entities had to maintain the images of the withdrawals in question had already expired, constituting an incorrect procedure on the part of the financial entity;

THAT it is impossible to establish if the withdrawals for the amount of US$ 583.00 were carried out by the user, since the financial entity did not send the videos, determining an evident lack of security;

THAT what is stated in the previous paragraph denotes the non-compliance with what is established in numeral 39.12 of article 39 of section VIII "On security measures", chapter I, title II, book I of the Compilation of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, which states:

"Article 39.- ATMs of financial institutions must comply with the following security measures:

39.12 Video recording or archiving system.- Financial institutions must maintain an archive of tapes, digital video disk (DVD) discs or any other recording system or its equivalent in photographic cameras that covers at least ninety (90) days of image archive(...)";

THAT the aforementioned norm refers to video and security systems that financial institutions must have and that are applicable to ATMs, from which it is derived, that if the National Development Bank offers the ATM service

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through the BANRED network, it must ensure that the security measures required in the regulations are implemented;

THAT based on what has been stated, it is concluded that the bank, when offering its products and services, must implement computer and technological security, so that transactions carried out both in its own ATMs and in those of the BANRED network have the necessary security to avoid frauds, which in the case analyzed has not happened, in such virtue what is required in article 5, chapter IV, title XX, book I of the Compilation of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, previously cited, has been configured;

THAT the National Legal Intendancy, through memorandum INJ-DNJ-SAL-2015-0116 of February 4, 2015, recommended to the Banking Board to reject the claim contained in the appeal filed by the Commercial Manager of the National Development Bank, Guayaquil Branch (e); and,

IN exercise of its legal attributes,

RESOLVES:

SINGLE ARTICLE.- REJECT the claim contained in the appeal for review filed by economist Ángela Mercedes Avilés Gómez, Commercial Manager of the National Development Bank, Guayaquil Branch (e); and, consequently, CONFIRM letter No. DAyEU-V-R-2014-840 of August 5, 2014, through which lawyer Humberto Moya González, Regional Intendant of Guayaquil, rejected the appeal for reconsideration, and ratified the content of letter No. IRG-DAyEU-V-R-2013-0655 of July 2, 2014, with which it was ordered to the controlled entity to restore to Mr. Homero Geovanny Romero Vera the value of USD $583.00 debited from his savings account No. 0570129532, corresponding to the unauthorized withdrawals, carried out on November 16 and 17, 2013.

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

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

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

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