JPRF-F-2024-0100 — Modification of Technical Notes for Calculating Technical Equity of Private Financial Sector Entities and Popular and Solidarity Financial Sector Entities

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th Floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-F-2024-0100 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 services, 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 227 of the Supreme Norm prescribes that public administration constitutes a service of the community that is governed, among other principles, by the principles of effectiveness, efficiency, and quality; That, Article 308 of the Magna Carta determines that financial activities are a service of public order, 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; That, Article 309 of the Fundamental Norm states that the national financial system is composed of the public, private, and popular and solidarity sectors, which intermediated public resources; each of these sectors will have specific, autonomous, and differentiated control norms and entities, which will be responsible for preserving their security, stability, transparency, and solidity; That, the Article subsequent to Article 6 of the Organic Code of Monetary and Financial Affairs, Book I, prescribes 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 regulations and for the exercise of their functions, strictly adhering to the normative hierarchy established in the Constitution of the Republic of Ecuador.”; That, Article 13 ibidem, which was reformed by the Organic Reforming Law to the Organic Code of Monetary and Financial Affairs 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 legal entity of public law, with administrative, financial, and operational autonomy, responsible for formulating credit, financial, securities, insurance, and prepaid comprehensive health services policy and regulation; That, Article 14 of the cited Organic Code determines that, within the scope of competencies of the Financial Policy and Regulation Board, it corresponds to formulate financial policy; issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial system; and also, issue micro-prudential regulations for the national financial sector, based on proposals presented by the respective superintendencies, within their scopes of competence and without prejudice to their independence; That, Article 14.1 ut supra, in number 7, letters b) and c), states that it corresponds to the Financial Policy and Regulation Board to fulfill the duty and exercise the faculty to issue the prudential regulatory framework to which financial entities must adhere, a framework that must be coherent, not give rise to arbitrary arbitrage, and must establish “minimum capital levels; technical equity and risk-weighted assets, their composition, method of calculation, and modifications”; as well as “levels of concentration of credit and financial operations: and, applicable provisions, to the aforementioned operations”;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th Floor | Postal Code: 170507 | Quito - Ecuador | That, Articles 150 and 151 of the aforementioned normative body determine that financial entities 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 160 ibidem establishes that the national financial system is integrated by the public financial sector, the private financial sector, and the popular and solidarity financial sector; That, Article 444 of the cited Organic Code and Article 144 of the Organic Law of Popular and Solidarity Economy dispose that popular and solidarity financial entities are subject to the regulation of the Financial Policy and Regulation Board and to the control of the Superintendency of Popular and Solidarity Economy; That, Article 190 of the Organic Code of Monetary and Financial Affairs, Book I, refers to the solvency and technical equity of entities of the national financial system, financial groups, and popular and solidarity groups; That, General Provision Twenty-Ninth ut supra, added by the Organic Reforming Law to the Organic Code of Monetary and Financial Affairs for the Defense of Dollarization, disposes: “In the current legislation where mention is made of the ‘Board of Monetary and Financial Policy and Regulation’, replace it with ‘Financial Policy and Regulation Board’; That, through Resolution No. JPRF-F-2023-071 of June 30, 2023, the Financial Policy and Regulation Board reformed Chapter VIII “Relationship between total technical equity and assets and contingencies weighted by risk of entities of the public and private financial system”, and Subsection II “Technical Equity and Risk-Weighted Assets”, Section VI “Solvency, Technical Equity, and Assets and Contingencies Weighted by Risk Norm for Savings and Credit Cooperatives, Central Boxes, and Mutual Savings and Credit Associations for Housing”, Chapter XXXVI “Popular and Solidarity Financial Sector”, contained in Title II “National Financial System”; Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions; That, the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0023-M of February 28, 2024, submits to the President of the Board the Technical-Legal Report No. JPRF-CTCJ-2024-003 of February 27, 2024, issued by the Technical Coordination of Financial System Policy and Regulation and the Legal Coordination of Financial Policy and Norms; That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on February 28, 2024, and carried out via video conference on February 29, 2024, reviewed the Memorandum No. JPRF-ST-2024-0023-M of February 28, 2024, issued by the Technical Secretariat of the Board; as well as the Technical-Legal Report No. JPRF-CTCJ-2024-003, in addition to the corresponding draft resolution; That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on February 28, 2024, and carried out via video conference on February 29, 2024, reviewed and approved the following Resolution; and, In exercise of its functions,

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th Floor | Postal Code: 170507 | Quito - Ecuador | RESOLVES: ARTICLE FIRST.- The text of Note 9 contained in Article 7 of Section III “Constitution of Total Technical Equity”, Chapter VIII “Relationship between Total Technical Equity and Assets and Contingencies Weighted by Risk for Entities of the Public and Private Financial System”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is modified, as follows: “Note 9. In the calculation of secondary technical equity, the totality of provision deficiencies must be considered when delays or defaults occur. In the case of entities subject to a provision deferral schedule approved by the control body, only the breaches of the schedule will be considered.” ARTICLE SECOND.- The table titled “Secondary Technical Equity” of Article 81 of Subsection II “Technical Equity and Risk-Weighted Assets”, Section VI “Solvency, Technical Equity, and Assets and Contingencies Weighted by Risk Norm for Savings and Credit Cooperatives, Central Boxes, and Mutual Savings and Credit Associations for Housing”, Chapter XXXVI “Popular and Solidarity Financial Sector”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is replaced, as follows:

Secondary Technical Equity Weighting Method of Aggregation Code Description COAC Mutualists Central Boxes CONAFIPS 100% Sum 2801 Contributions for future capitalizations X 100% Sum 330115 Donations [5] X 100% Sum 34 Other equity contributions [6] X 50% Sum 3305 Reserves for revaluation of equity X 45% Sum 35 Surplus from valuations X 100% Sum 3601 Accumulated profits or surpluses X 100% Sum 3603 Profit or surplus of the period X 50% Sum 5 - 4 Income minus expenses [4] X 100% Sum 149989 Voluntary generic provision [3] [7] X 100% Subtraction Provision deficiency [3] [8] X [3] and [4] refer to the notes of Article 80 of this subsection. The total of the secondary technical equity elements will be limited in amount to a maximum of one hundred percent (100%) of the total of the primary technical equity elements.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th Floor | Postal Code: 170507 | Quito - Ecuador | ARTICLE THIRD.- The following note is incorporated immediately after Note 7 contained in Article 81 of Subsection II “Technical Equity and Risk-Weighted Assets”, Section VI “Solvency, Technical Equity, and Assets and Contingencies Weighted by Risk Norm for Savings and Credit Cooperatives, Central Boxes, and Mutual Savings and Credit Associations for Housing”, Chapter XXXVI “Popular and Solidarity Financial Sector”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions: “Note 8. In the calculation of secondary technical equity, the totality of provision deficiencies must be considered when delays or defaults occur. In the case of entities subject to a provision deferral schedule approved by the control body, only the breaches of the schedule will be considered.” FINAL PROVISION.- This Resolution will enter into force on March 1, 2024, without prejudice to its publication in the Official Register; and, it will be published on the official website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance. NOTIFY.- Given in the Metropolitan District of Quito, on February 29, 2024. THE PRESIDENT, Master María Paulina Vela Zambrano The resolution above 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 February 29, 2024.- I CERTIFY. TECHNICAL SECRETARY, Master Nelly Arias Zavala