Banking Board Resolution JB-2015-3403

Banking Board of Ecuador

RESOLUTION No. JB-2015-3403

THE BANKING BOARD

CONSIDERING:

THAT the second paragraph of the Third Transitory Provision of the Organic Code of Monetary and Financial Affairs 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 effective date of that Code, within a period of one hundred and eighty days, extendable at the discretion of the Monetary and Financial Policy and Regulation Board;

THAT through a complaint submission form addressed to entities subject to the control of the Superintendence of Banks, dated December 17, 2013, Mr. Virgilio Abdón Ordóñez Ramírez filed a complaint against the National Bank for Development (Banco Nacional de Fomento) seeking that the regulatory body order the aforementioned financial institution to return the sum of "4,000.00" for unauthorized withdrawals made via an automated teller machine (ATM). The complainant alleges that between September 2 and September 17, 2013, withdrawals were made from his account via an ATM at the headquarters of the National Bank for Development;

THAT with regard to the aforementioned complaint, the Regional Intendancy of Guayaquil, via letter No. SBS-IRG-DAyEU-V-R-2014-327 of April 17, 2014, resolved as follows:

"(...) 2. ORDER THE NATIONAL BANK FOR DEVELOPMENT to proceed to return to Mr. VIRGILIO ABDÓN ORDÓÑEZ RAMÍREZ the sum of... (US$4,582.00)... debited from checking account No. 0993774736...";

THAT through a communication received by the Superintendence of Banks on April 30, 2014, the National Bank for Development filed an appeal for reconsideration (recurso de reposición) against letter No. SBS-IRG-DAyEU-V-R-2014-327 of April 17, 2014. Through letter IRG-DAyEU-V-R-2014-626 of June 16, 2014, the Regional Intendancy of Guayaquil rejected the claims contained in the aforementioned appeal for reconsideration and ratified the content of letter No. SBS-IRG-DAyEU-V-R-2014-327 of April 17, 2014;

THAT through a communication received by the Superintendence of Banks on July 11, 2014, Ms. Erika Palma Portilla, Commercial Manager of the National Bank for Development, filed before the Banking Board an appeal for review (recurso de revisión) against letter No. IRG-DAyEU-V-R-2014-626 of June 16, 2014;

THAT the client delivers money to a financial institution with the option to withdraw it, in part or in full, at the moment he requires it, while the depositary entity assumes the obligation to keep or safeguard the deposited values and to satisfactorily attend to all withdrawal operations requested by the holder, with diligence and professional care;

THAT integral risk management is one of the responsibilities attributed to institutions that are part of the Financial System; in this regard, the Codification

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of Resolutions of the Superintendence of Banks and the Banking Board, in its articles 2 and 3 of Chapter I, Title X, Book I, provides as follows:

"Article 2.- For the purposes of the application of this chapter, the following definitions are determined:

2.1 Risk.- It is the possibility that an event generating losses affecting the economic value of institutions occurs;

2.2 Risk Management.- It is the process by which financial system institutions identify, measure, control/mitigate, and monitor the risks inherent to the business, with the objective of defining the risk profile, the degree of exposure the institution is willing to assume in the development of the business, and the hedging mechanisms, to protect own and third-party resources that are under its control and administration;

(...)

2.9 Operational Risk.- It is the possibility that losses occur due to events originating from failures or insufficiencies in processes, people, internal systems, technology, and in the presence of unexpected external events. It includes legal risk but excludes systemic and reputational risks.

It groups a variety of risks related to internal control deficiencies; inadequate systems, processes, and procedures; human errors and fraud; failures in information systems; occurrence of adverse external or internal events, that is, those that affect the institution's ability to respond to its commitments in a timely manner, or compromise its interests;

ARTICLE 3.- Financial system institutions have the responsibility to manage their risks, for which purpose they must have formal integral risk management processes that allow them to identify, measure, control/mitigate, and monitor the risk exposures they are assuming.

(...)");

THAT from letters Nos. SBS-IRG-DAyEU-V-R-2014-327, IRG-DAyEU-V-R-2014-626, and IRG-DAYEU-V-R-2014-288, dated April 17, June 16, and October 2, 2014, respectively, it is inferred that in the present case there was likely cloning of the debit card of Mr. Virgilio Abdón Ordóñez Ramírez and that the decision of the National Bank for Development to deny the refund of the withdrawals challenged by the complainant is based on the fact that, according to the entity, the situation occurred because the user had compromised his card information;

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THAT it is not appropriate to hold Mr. Virgilio Abdón Ordóñez Ramírez responsible for the cloning of the debit card, based solely on the fact that the complainant used the card at ATMs of banks associated with BANRED, that is, in the manner in which he was contractually authorized to do so; this situation, by itself, does not constitute a breach of the obligation to care for the card and keep the PIN confidential, nor does it exonerate the banking entity from its obligation to be a guarantor and custodian of the money deposited with it, nor does it transfer to the user the risks inherent to the organization and execution of the ATM service;

THAT it is worth highlighting that the contracts entered into between financial system institutions and BANRED, among other service providers, with the aim of providing their clients with broader ATM coverage, are the exclusive responsibility of such entities, and they cannot transfer the operational risk of said service to users, since this is offered on behalf of and as part of the facilities granted by banking entities to their clients;

THAT the use by Mr. Virgilio Abdón Ordóñez Ramírez of BANRED ATMs cannot be assimilated as an error, misuse, negligence, or breach, on the part of the complainant, of the obligations to safeguard the debit card with utmost diligence and to keep the respective PIN confidential, nor did it transfer to him the risks inherent to the organization and execution of the service supplied by the National Bank for Development, nor does it exonerate the banking entity from its obligation to be a guarantor and custodian of the money deposited with it;

THAT the order to return values to the client, in the face of a complaint such as the one at hand, has legal basis in Article 5, of Chapter IX, Title XX, Book I, of the Codification of Resolutions of the Superintendence of Banks and the Banking Board, when the regulatory body observes an incorrect procedure in the management of the financial institution. In light of the criteria expressed by lawyer Humberto Moya González, Regional Intendant of Guayaquil, as stated in letters Nos. SBS-IRG-DAyEU-V-R-2014-327, IRG-DAyEU-V-R-2014-626, and IRG-DAYEU-V-2014-288, dated April 17, June 16, and October 2, 2014, respectively, the incorrect procedure incurred by the financial institution consists of the following: "From the confidential review report transcribed, it is inferred that in the present case there was likely cloning of the debit card of Mr. Virgilio Abdón Ordóñez Ramírez, and that the decision of the National Bank for Development not to proceed with the refund of the withdrawals challenged by the complainant is based on the fact that the user accessed ATMs of other banks associated with BANRED (...)".

"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

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and Insurance or the official who holds the delegation of said authority, will issue the corresponding order.

If the situation that motivated the complaint referred to in the previous paragraph originated in an incorrect procedure of the controlled institution, which caused harm to the complainant, the Superintendence of Banks and Insurance may order the return of the claimed values, in exercise of the functions and attributes contemplated in letters b) and o) of Article 180 of the General Law of Financial System Institutions, granting the legal representative of the entity a period that may not exceed fifteen (15) days from notification to send, under the legal warnings, the proof of compliance with the order issued. (...)";

THAT the National Legal Intendancy, through memorandum INJ-DNJ-SAL-2015-0095 of February 3, 2015, recommended to the Banking Board to reject the claim contained in the appeal filed by the Commercial Manager of the National Bank for Development; and,

In exercise of its legal powers,

RESOLVES:

SINGLE ARTICLE.- REJECT the petition contained in the appeal for review filed; and, consequently, RATIFY letter No. IRG-DAyEU-V-R-2014-626 of June 16, 2014, which confirmed the content of letter No. SBS-IRG-DAyEU-V-R-2014-327 of April 17, 2014.

NOTIFY.- Given at the Superintendence of Banks and Insurance, in Quito, Metropolitan District, on the eighth day of May of the year 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 eighth day of May of the year two thousand fifteen.

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