Resolution JPRF-V-2022-040: Reform of Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions regarding corrective and remedial measures

Resolution No. JPRF-V-2022-040 FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, number 6 of article 132 of the Constitution of the Republic of Ecuador prescribes that: “The National Assembly will approve as laws the general norms of common interest. (…) A law will be required in the following cases: (…) 6. Granting public control and regulation bodies the authority to issue general norms in matters within their competence, without being able to alter or innovate legal provisions.”;

That, article 213 of the Supreme Norm establishes that: “Superintendencies are technical bodies for surveillance, auditing, intervention, and control of economic, social, and environmental activities, and of the services provided by public and private entities, with the purpose that these activities and services adhere to the legal framework and attend to the general interest. (…)”;

That, article 226 of the Magna Carta provides: “State institutions, their bodies, dependencies, public servants, and persons acting by virtue of a state power will exercise only the competencies and faculties attributed to them in the Constitution and the law. They will have the duty to coordinate actions for the fulfillment of their ends and to make effective the enjoyment and exercise of rights recognized in the Constitution.”;

That, article 3 of the Organic Code of Monetary and Financial System, Book I, establishes as objectives of said normative body the following: “(…) 2. Ensure that the exercise of monetary, financial, securities, and insurance activities is consistent and integrated; (…) 4. Seek the sustainability of the national financial system and of the insurance and securities regimes and guarantee the fulfillment of obligations of each of the sectors and entities that constitute them; 5. Mitigate systemic risks and reduce economic fluctuations; 6. Protect the rights of users of financial, securities, and insurance services (…)”;

That, article 13 of the Organic Code of Monetary and Financial System, Book I, creates the Financial Policy and Regulation Board as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation;

That, number 2 of article 14 of the aforementioned Organic Code, regarding the scope of competence of the Financial Policy and Regulation Board, mandates: “2. Issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial, securities, insurance, and prepaid comprehensive health care services systems in accordance with what is provided in article 309 of the Constitution of the Republic of Ecuador (…)”;

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That, the penultimate paragraph of the aforementioned article 14 ibidem determines that: “For the fulfillment of these functions, the Financial Policy and Regulation Board will issue norms in matters proper to its competence, without being able to alter legal provisions. The Financial Policy and Regulation Board may issue regulations by segments, economic activities, and other criteria. (…)”;

That, number 9 of article 14.1 of the Organic Code of Monetary and Financial System, Book I, states that it is the faculty of the Financial Policy and Regulation Board: “Issue the non-prudential regulatory framework for all financial, securities, insurance, and prepaid comprehensive health care service entities, which will include, among others, norms on accounting, transparency and information disclosure, market integrity, and consumer protection”;

That, letter a) of number 15 of the aforementioned article 14.1 of the Organic Code in question, provides that it is the faculty of the Financial Policy and Regulation Board: “Establish, within the framework of its competencies, any measure that contributes to: a. Prevent and seek to eradicate fraudulent and prohibited practices, including money laundering and the financing of crimes such as terrorism, considering current and applicable international standards”;

That, number 25 of article 14.1 ibidem includes as a faculty of the Financial Policy and Regulation Board the ability to: “Apply the provisions of this Code and resolve cases not provided for in it, within the scope of its competence”;

That, the article numbered following article 1 “Guiding principles of the securities market” of the Organic Code of Monetary and Financial System, Book II (Securities Market Law), establishes that: “(…) The guiding principles of the securities market that guide the conduct of the Monetary and Financial Policy and Regulation Board, the Superintendency of Companies and Securities, and participants are: 1. Public faith; 2. Investor protection; 3. Transparency and publicity; 4. Symmetric, clear, truthful, complete, and timely information; 5. Free competition; 6. Equal treatment for securities market participants; 7. The application of good corporate practices; 8. Respect and strengthening of the regulatory power of the Monetary and Financial Policy and Regulation Board, subject to the Constitution of the Republic, public policies of the Securities Market, and the Law; and, 9. Promote financing and investment in the national development regime and a democratic, productive, efficient, and solidarity market. The principles expressed in this article must always be interpreted in the sense that most favors the investor.

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That, numbers 2, 4, 6, and 12 of article 10 of the Organic Code of Monetary and Financial System, Book II (Securities Market Law), provide that: “In addition to the functions indicated in the Companies Law, the Superintendency of Companies, Securities and Insurance, for the purposes of this Law, will exercise the functions of surveillance, auditing, intervention, and control of the securities market with the purpose that the activities of this market adhere to the legal framework and attend to the general interest, and will have the following attributions: (…) 2. Inspect, at any time, companies, entities, and other persons who intervene in the securities market, with broad verification powers over their operations, accounting books, information, and any document or instrument necessary to examine, without being able to oppose banking or stock secrecy, in accordance with the norms issued by the Monetary and Financial Policy and Regulation Board, requiring that controlled institutions comply with corrective and remedial measures in cases as provided; (…) 4. Ensure the observance and compliance of the norms governing the securities market; (…) 6. Know and sanction violations of this Law, its regulations, resolutions, and other secondary norms; (…) 12. Ensure the stability, solidity, and correct functioning of institutions subject to its control and, in general, that they comply with the norms governing their functioning (…)”;

That, the final paragraph of the aforementioned article 10 of the Organic Code of Monetary and Financial System, Book II (Securities Market Law), provides that: “The Superintendency, for the fulfillment of these attributions and functions, may issue all acts that are necessary. Likewise, it may issue administrative control acts in matters proper to its competence, without being able to alter or innovate legal provisions nor the regulations issued by the Monetary and Financial Policy and Regulation Board.”;

That, the Attorney General's Office of the State, in attention to the consultation raised by the Superintendency of Companies, Securities and Insurance by Letter No. SCVS-INPAI-00048495 of August 15, 2022, through Letter No. 20129 dated September 05, 2022, pronounces itself in the following manner:

“In attention to the terms of your consultation, it is concluded that the Superintendency of Companies, Securities and Insurance, in its capacity as a control body, is authorized to adopt corrective and remedial measures regarding entities and operators of the securities market, in accordance with number 2 of article 10 of the Securities Market Law, which are distinct and therefore autonomous from sanctions applicable for the commission of administrative infractions. It corresponds to the Financial Policy and Regulation Board to develop normatively the applicable corrective measures, in the exercise of the regulatory power that assists that collegiate body, established in article 1 of the Securities Market Law and expressly provided by the final part of number 2 of article 10 of the same law.”;

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That, letter f) of article 3 of the Organic Law of the Attorney General's Office of the State states that: “The following functions correspond exclusively to the Attorney General of the State: (…) f. Answer consultations and advise public sector organisms and entities, (…), on the intelligence or application of legal norms or of another legal order. The pronouncement will be obligatory for the Public Administration, on the matter consulted, in the terms indicated in this law (…)”;

That, article 13 ibidem prescribes that: “Without prejudice to the faculties of the Legislative Function, the Constitutional Tribunal, and the Judicial Function, determined in the Political Constitution of the Republic and in the law, the Attorney General of the State will advise and answer legal consultations with a binding character, on the intelligence or application of constitutional, legal, or other legal order norms, at the request of the highest authorities of organisms and entities of the public sector (…) In any case, when issuing its pronouncements, the Attorney General of the State is obliged, under the responsibilities provided in the Political Constitution of the Republic and the law, to safeguard the control of the legality of public sector acts and the interests of the State.”;

That, through Letter No. SCVS-INMV-DNFCDN-2022-00053748-O of September 09, 2022, the Superintendent of Companies, Securities and Insurance, engineer Marco López Narváez, presents to the Financial Policy and Regulation Board a draft regulation of corrective and remedial measures, in application of what is provided in the penultimate paragraph of article 14.1 of the Organic Code of Monetary and Financial System, Book I, regarding the implementation of said measures. For this effect, it attaches the Pronouncement of the Attorney General of the State, contained in Letter No. 20129 of September 05, 2022 cited above; the Technical Report No. SCVS.INMV.DNFCDN.DRMV.FCDN.090.062 of September 09, 2022, approved by lawyer Winsther Miranda Salvador, National Director of Supervision, Consultations and Regulatory Development (E) of said institution, which addresses the technical and legal justifications of the control and supervision organism as support for the systematic regulation for the design and implementation of corrective and remedial measures; and, the draft resolution;

That, the Fiftieth Fourth Transitory Provision of article 106 of the Organic Law Reforming the Organic Code of Monetary and Financial System for the Defense of Dollarization, published in the Official Register Supplement No. 433 of May 03, 2021, states that: “Resolutions contained in the Codification of Monetary, Financial, Securities and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board and norms issued by control bodies will maintain their validity until the Monetary and Financial Policy and Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies.”;

That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0073-M of October 12, 2022, sends to the President of the Board the Technical-Legal Report No. JPRF-CTCJ-2022-009 of October 12, 2022, which establishes the

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conclusion and recommendation regarding the draft regulation of corrective and remedial measures subject of this Resolution;

That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on October 12, 2022 and carried out through video conference on October 13, 2022, reviewed the Memorandum No. JPRF-SETEC-2022-0073-M of October 12, 2022, issued by the Technical Secretary of the Board; as well as the Technical-Legal Report No. JPRF-CTCJ-2022-009 of October 12, 2022, approved by the Technical Coordination and the Legal Coordination of the aforementioned Board, and the corresponding draft Resolution;

That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on October 12, 2022 and carried out through video conference on October 13, 2022, reviewed and approved the following Resolution; and,

In exercise of its functions,

RESOLVES:

ARTICLE FIRST.- Reform Book II “Securities Market” of the Codification of Monetary, Financial, Securities and Insurance Resolutions as follows:

In article 1 containing the Glossary of Terms, following the term “Securities Market Law” of letter “L”, incorporate the following letter and term:

“M Corrective and Remedial Measure: It is an order emanating from the Superintendency of Companies, Securities and Insurance, in its capacity as a control body, in the exercise of its legal attributions, directed at companies, entities, and other persons who intervene in the securities market, with the effect of preventing, impeding, suspending, correcting and/or reversing a determined conduct, adjusting it to the legal framework and good practices, and preventing said conduct or situation from occurring again, in safeguard of the general interest and the protection of the public interest. The corrective and remedial measure does not constitute an administrative sanctioning act, and will be fulfilled within the term established by the control body and of mandatory compliance. The corrective and remedial measure, being a disposition of compliance with the legal framework in the administrative sphere, does not have an indemnificatory nature; therefore, it does not exclude the right of the harmed party to present the civil and/or penal claims or actions that they have.”

ARTICLE SECOND.- Incorporate following Chapter I “Norm for the Determination of Minimum Capitals of Stock Exchanges, Securities Houses, Risk Rating Agencies, Fund Administrators and Trusts, of the Centralized Depositories for Compensation and Settlement of Securities and of the Provider and Administrator Society of the Unified Stock System SIUB”, of Title I “General Provisions” of Book II “Securities Market” of the Codification of Monetary, Financial, Securities and Insurance Resolutions, the following Chapter:

“Chapter II: On Corrective and Remedial Measures Article 1.- Disposition of Corrective and Remedial Measures.- The control body, in the exercise of its legal attributions, may motivatedly dispose the fulfillment of one or several corrective and remedial measures to companies, entities, and other persons who intervene in the securities market. The determination of the corrective and remedial measure must clearly indicate the anomalous or irregular situation that has been detected and the adjustment that corresponds. The application of the corrective and remedial measure must be subject to the principles of efficacy, efficiency, and effectiveness, so that its application leads to preventing, impeding, suspending, correcting and/or reversing the detected situation, safeguarding that it serves as an instrument for the protection of the general interest and the tutelage of the public interest. Article 2.- Evaluation of Corrective and Remedial Measures.- The control body must follow up with companies, entities, and other persons who intervene in the securities market, so that they duly comply with the corrective and remedial measures disposed. The controlled subject will be obligated to justify that they have complied, within the granted time, with the execution of the measures ordered by the control body. The control body will verify the compliance of the measure, for which it will require the controlled parties to present evidentiary means, as well as will carry out the corresponding inspections. If the control body were to ascertain that the controlled parties to whom corrective and remedial measures have been disposed have not complied with them or have done so late, partially, or deficiently, it will adopt the pertinent actions within the framework of the attributions conferred by the Constitution, the Law, and this Codification. Article 3.- Corrective and Remedial Measures to be disposed by the Control Body.- The control body will dispose to companies, entities, and other persons who intervene in the securities market, among other corrective and remedial measures, the following: a. Order to give, do, or not do to prevent, impede, suspend, correct and/or reverse the anomalous or irregular situation that has been detected.

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b. The realization of audits and/or special reports of procedures agreed upon with a duly qualified firm, in the terms and conditions that are acceptable to the control body. c. Any other corrective and remedial measure that, in the exercise of its legal attributions, it considers convenient and that does not contravene the norms of the legal framework. Article 4.- Opportunity of Application of Corrective and Remedial Measures.- The control body, in exercise of its attributions, in accordance with the faculties conferred by the Constitution, the Law, and this Codification, may order corrective and remedial measures to companies, entities, and other persons who intervene in the securities market, through motivated disposition, in a prior, concomitant, or posterior form to the sanction, when this measure corresponds.

SINGLE GENERAL PROVISION.- In case of doubt regarding the content or scope of the provisions of this Resolution, it will correspond to the Superintendency of Companies, Securities and Insurance to answer them. FINAL PROVISION.- This Resolution will enter into force from the present date, without prejudice to its publication in the Official Register. Publish this Resolution on the website of the Financial Policy and Regulation Board, within a maximum term of two days from its issuance.

COMMUNICATE.- Given in the Metropolitan District of Quito, on October 13, 2022. 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 October 13, 2022.- I CERTIFY. TECHNICAL SECRETARY Dr. Nelly Arias Zavala