Banking Board Resolution JB-2015-3457

Banking Board of Ecuador

RESOLUTION No. JB-2015-3457

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 Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, and the norms issued by 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 it was handling 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, which grants the control body competence to hear and resolve this review appeal;

THAT through communication entered into the control body on August 21, 2013, Mr. Luis Alfredo Onofre Molina filed a complaint against the National Development Bank (Banco Nacional de Fomento), stating that: "(...) I maintain a savings account at the National Development Bank, Naranjal Branch. I went to the Bank to make a query about the balance of my account maintained at said Bank. My surprise upon checking the balance of my account was on date 07/10/2013. The balance the Bank gave me upon making said query was $6,340.55, so I realized that there have been systematic withdrawals that I have not (sic) made. The withdrawals were made in amounts of $100 and $90 for a total amount of $3,800. These withdrawals have been made since July 16, 2013, until August 5 of this year. My suspicion arises because I have the doubt that they have given my debit card away; the PIN is known only to me and the Bank. In virtue thereof, I request that you conduct an investigation, asking the Development Bank to send the videos from the days when the withdrawals were made so that in this way we can identify the actors of the fraud (...)." (sic);

THAT through Official Letter No. DAYEU-ISFP-REQ-2013-1121 of September 25, 2013, the User Attention and Education Directorate of the Guayaquil Regional Intendancy accepted the complaint for processing and requested explanations and defenses from the National Development Bank. From the review of the file, the financial institution did not present the defenses requested by the Superintendence of Banks.

THAT with Official Letter No. DAYEU-V-R-2014-423 of May 13, 2014, the control body, after the analysis carried out, resolved as follows:

(...)

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In merit of the above, and in exercise of the powers delegated by the Superintendent of Banks and Insurance (...), this Office resolves:

1. ACCEPT the complaint presented by Mr. LUIS ALFREDO ONOFRE MOLINA, with citizen ID No. 092696201-0, against the controlled financial institution NATIONAL DEVELOPMENT BANK.

2. ORDER the NATIONAL DEVELOPMENT BANK to proceed with the return of the sum of THREE THOUSAND EIGHT HUNDRED 00/100 DOLLARS OF THE UNITED STATES OF AMERICA (US$ 3,800.00) for alleged improper withdrawals from his savings account, because the financial institution has not submitted any documentation supporting said report, and send to this Office within a term of eight days counted from the receipt of this official letter the documentation that accredits compliance with this resolution.

(...)";

THAT through writing entered into the Superintendence on June 4, 2014, Engineer Erika Palma Portilla, Commercial Manager of the Guayaquil Branch of the National Development Bank, with the professional sponsorship of lawyers María Angélica Pazmiño Muñoz and Licenia Rizzo Zambrano, filed an appeal for reconsideration against the administrative act contained in Official Letter No. DAYEU-V-R-2014-423 of May 13, 2014;

THAT through Official Letter No. DAYEU-V-R-2014-793 of July 18, 2014, the User Attention and Education Directorate of the Guayaquil Regional Intendancy, regarding the appeal for reconsideration filed and the documentation provided by the representatives of the financial institution, resolved as follows;

"(...)

1. ACCEPT PARTIALLY the appeal for reconsideration filed by the NATIONAL DEVELOPMENT BANK; and, consequently, nullify paragraph 2 of the dispositive part of Official Letter No. IRG-DAYEU-V-R-2014-423 of May 13, 2014, in relation to the amount subject to the complaint;

2. ORDER the controlled financial institution NATIONAL DEVELOPMENT BANK to proceed to restore to Mr. LUIS ALFREDO ONOFRE MOLINA the sum of US$ TWO THOUSAND NINETY DOLLARS OF THE UNITED STATES OF AMERICA (US$ 2,090.00) in savings account No. 0450076841, a value not indemnified by Liberty Seguros S.A., corresponding to transactions carried out at ATMs and not authorized by him, the financial entity being able to exercise its right of recourse against the institutions owning the ATMs where the challenged withdrawals were made, and send to this Office, within a term of eight days, counted from

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receipt of this official letter, the documentation that accredits compliance with this resolution.

(...)";

THAT through writing entered into the control body on July 29, 2014, Mrs. Ángela Mercedes Avilés Gómez, Commercial Manager of the Guayaquil Branch of the National Development Bank, with the professional sponsorship of lawyers Nicolás Rodríguez Campos, María Angélica Pazmiño Muñoz, and Licenia Rizzo Zambrano, filed before the Banking Board a review appeal against the administrative act contained in Official Letter No. DAYEU-V-R-2014-793 of July 18, 2014;

THAT the appellant based this review appeal on the following arguments:

• That the evidence provided by the National Development Bank was not considered by the control body when issuing the resolution in this administrative process;

• That the National Development Bank, since it was notified of the administrative complaint, has been the only banking institution to collaborate with the control body, presenting all the required documentation;

• That the customer did not apply basic security recommendations for the handling of the debit card;

THAT with Official Letter No. JB-2014-2202 of August 15, 2014, the Secretary of the Banking Board, acting, accepted the review appeal for processing; and, through Official Letter No. JB-2014-2203 of August 15 of the same month and year, Mr. Luis Alfredo Onofre Molina was notified of the appeal filed by the financial institution;

THAT the appellant, in determining the challenged administrative act, refers to Official Letter No. IGR-DAYEU-V-R-2014-793 of July 18, 2014, issued by the User Attention and Education Directorate of the Guayaquil Regional Intendancy. Regarding this, from the analysis of the filed appeal, it emerges that due to a typing error it was incorrectly typed, given that from the facts and arguments raised by the financial institution it emerges that the correct administrative act being challenged is Official Letter No. DAYEU-V-R-2014-793 of July 18, 2014, with which the control body partially accepted the appeal for reconsideration filed by the National Development Bank and ordered that the sum of USD$ 2,090.00 be restored in favor of Mr. Luis Alfredo Onofre Molina, a value that was not indemnified by the company Liberty Seguros S.A., as insurance for card and magnetic band cloning BANRED;

THAT having made the due clarification and correctly determining the administrative act being challenged and in relation to the grounds presented by the appellant, it is necessary to point out the following:

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THAT regarding the argument that the documents provided by the National Development Bank were not considered as evidence by the control body when issuing its resolution; regarding this, it is worth mentioning that through Official Letter No. IRG-DAYEU-ISFP-REG-2013-1121 of September 25, 2013, the User Attention and Education Directorate of the Guayaquil Regional Intendancy admitted the complaint filed by Mr. Luis Alfredo Onofre Molina for processing and granted the financial institution a term of five days to present the defenses of the case; notwithstanding the above, and despite the term granted by the control body having expired excessively, the National Development Bank did not present explanations regarding the complaint, before which the control body, through Official Letter No. DAYEU-V-R-2014-423 of May 13, 2014, resolved the complaint based on the documentation that was in the file at that date;

THAT as recorded on folio 54 of the file, on June 4, 2014, the National Development Bank entered into the Superintendence the writing with which it filed the appeal for reconsideration against Official Letter No. DAYEU-V-R-2014-423 of May 13, 2014, a writing to which 34 folios were attached with documents referring to the complaint presented by Mr. Luis Alfredo Onofre Molina, before which the User Attention and Education Directorate of the Guayaquil Regional Intendancy, under the legal premise of having new elements of fact and law not known by the control body, resolved to partially accept the appeal for reconsideration raised by the National Development Bank. From the above, the information and documents presented by the Financial Institution constituted the grounds that served as support for the challenged administrative act to be modified, as established in Article 3 of Chapter II "Norms for the application of appeals for reconsideration and review in matters related to the financial system and the social security system; and of appeal in matters of private insurance, regarding administrative acts of the Superintendence of Banks and Insurance"; of Title XVI "Of Sanctions and of appeals in the administrative venue"; of Book I "General Norms for institutions of the financial system" of the Codification of Resolutions of the Superintendence of Banks and of the Banking Board, whereby the argument regarding the non-observance of the evidence provided by the financial institution is inadmissible;

THAT regarding the assertion of the National Development Bank, regarding the bank's collaboration concerning the complaint filed by Mr. Luis Alfredo Onofre Molina, it must be specified that in accordance with what Articles 77 and 80 of the General Law of Institutions of the Financial System establish, institutions that make up the public and private financial system are obliged to provide all necessary facilities so that the Superintendence of Banks fulfills the legal functions entrusted to it, for which banks must provide access to their books, archives, and other documents that justify their operations, in order to guarantee that the activities carried out are subject to the legal order, attending to the general interest; and, in turn, exercise the sanctioning power in cases of non-compliance with the provisions issued within the scope of its competence;

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THAT regarding the argument of the appellant in the sense that the customer did not apply basic security recommendations for the handling of the debit card, it is necessary to point out that, the bank, upon receiving public funds, has the obligation of safeguarding the delivered funds; in virtue thereof, the National Development Bank, on the basis of the "BANRED" service contract, under no concept can claim that the customer must present his complaint before the institution owning the ATMs where the point of compromise occurred, since the commercial relationship is with the institution with which he signed the contract, so the use of third-party ATMs arises as a service offered by the bank, whereby the burden of proof rests on the financial institution;

THAT the obligation that the National Development Bank has as guardian of the deposited values is to restore them at the time of the request of the owner or holder of the account, in the forms previously agreed upon in the legal document, under the protection of what Article 51 of the General Law of Institutions of the Financial System establishes. In this sense, having agreed on the restitution of values through ATM withdrawals, this should have been surrounded by optimal security, which did not happen in the present case, failing to comply with what is established in Article 3, of Chapter I "Of integral management and risk control", Title X "Of risk management and administration", of Book I "General Norms for the application of the General Law of Institutions of the Financial System", of the Codification of Resolutions of the Superintendence of Banks and of the Banking Board, whereby the transfer of responsibility to the customer is inadmissible;

THAT Articles 52 and 66 of the Constitution of the Republic establish that people have the right to dispose of and access public and private services of optimal quality, as well as to receive non-misleading information about their content and characteristics; in virtue thereof, the financial entity, upon receiving money from its clients, assumes the obligation and responsibility to keep and safeguard the deposited values with diligence and professional care. Regarding this, the National Development Bank, when offering services through electronic channels, is obliged to put at the service of users policies on the dissemination of the conditions surrounding the use of the same, including the security measures implemented and their possible risks when accessing said services, in this sense the cited bank cannot disclaim its responsibility over the integral control that minimizes the risk of exposure of its clients, nor the co-responsibility in the service offered by companies associated with the interbank payments network "BANRED";

THAT on folio 41 of the file, the Audit Report of customer complaints for transactions not made at ATMs, signed by Mr. Roberto Silva, Submanager of Operational Risk, of the financial institution, is recorded, in which the following considerations are established:

"(...)

According to security incidents at ATMs of vandalism, skimming, or malware evidenced and reported by member institutions

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of the BANRED Security Committee, and received by our Institution from the beginning of the review period, a possible coincidence has been evidenced with an ATM used by the client:

1. On July 8, 2013, the BANRED Security Committee reports that in ATM 2060065 of the Pichincha Bank (sic), as a possible point of compromise due to acts of vandalism, the dates July 05 to 06, 2013;

(...)

In view of which, it is recommended: "(...) the Customer Attention Unit initiates the process of reviewing requirements to apply the 'Secure Transaction' insurance to this case, as established by BANRED.";

THAT the internal report issued by the official of the National Development Bank revealed the possible vulnerability to which ATMs belonging to the BANRED interbank network are exposed, which evidences that on the date the complaint occurred, the bank did not maintain for its transactional channels an efficient fraud prevention system, which caused third parties with bad intentions to withdraw the funds that the claimant maintained in the controlled institution, failing to comply with the security measures that ATMs must have, as established in Articles 37 and 40 of Chapter I "Opening and closing of offices in the country and abroad, of private and public financial institutions subject to the control of the Superintendence of Banks and Insurance", of Title II "Of the Organization of Institutions of the Private Financial System", of Book I "General Norms for the application of the General Law of Institutions of the Financial System;

THAT the aforementioned audit report recommends that the National Development Bank apply the "Secure Transaction" insurance, before which the insurer proceeded to indemnify the financial institution for the amount of USD$ 1,800.00, a value that was subsequently credited to the claimant's account, therefore, the financial institution accepted its responsibility for the service offered;

THAT the User Attention and Education Directorate of the Guayaquil Regional Intendancy, based on the documentation provided by the bank, verified that the amount debited from the account of Mr. Luis Alfredo Onofre Molina amounts to a total value of USD$ 3,890.00, and not the amount erroneously recorded in Official Letter No. DAYEU-V-R-2014-423 of May 13, 2014, because the documents and information related to the case were sent to this control body on the date the appeal for reconsideration was filed. Therefore, since the complaint is for the sum of USD$ 3,890.00 and the indemnified value is USD$ 1,800.00, the unreimbursed amount is USD$ 2,090.00, corresponding to unauthorized transactions and those carried out at BANRED ATMs;

THAT the first paragraph of Article 1 and letters b) and o) of Article 180 of the General Law of Institutions of the Financial System in concordance with Article 213 of the

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Constitution of the Republic, determine that the Superintendence of Banks is in charge of supervising and controlling the financial system, in all of which, the protection of the public interest is taken into account, so it must ensure the stability, solidity, and correct functioning of the institutions subject to its control; monitoring that they comply with the legal norms that govern them; and requiring that said institutions present and adopt the corresponding corrective measures when necessary;

THAT Article 5 of Chapter IV "Procedures for the attention of complaints against Institutions of the Financial System", Title XX. "Of the Superintendence of Banks and Insurance", Book I "General Norms for the application of the General Law of Institutions of the Financial System" of the Codification of Resolutions of the Superintendence of Banks and of the Banking Board, establishes:

"ARTICLE 5.- If the result of the analysis carried out by the Superintendence determines the need for the controlled institution to introduce corrective measures that 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 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 claimant, the Superintendence of Banks and Insurance may order the return of the claimed values, in exercise of the functions and powers contemplated in letters b) and o) of Article 180 of the General Law of Institutions of the Financial System, granting the legal representative of the entity a term that cannot exceed fifteen (15) days from the notification it sends, under the legal warnings, the record of compliance with the order issued.";

THAT from the review and analysis carried out, it emerges that the National Development Bank transferred the responsibility of the facts to Mr. Luis Alfredo Onofre Molina for being the person who safeguards the card and passwords, without considering that the bank has the obligation not only to safeguard the deposited money, but also to provide security in the channels of the offered services. In this sense, there is responsibility of the National Development Bank in the disputed transactions since on the date of the complaint the bank did not maintain for its transactional channels an efficient fraud prevention system, which caused third parties with bad intentions to make unauthorized withdrawals of the funds that the claimant maintained in the controlled institution, which evidences that what is established in Article 5 of Chapter IV, Title XX, Book I of the aforementioned Codification of Resolutions was complied with, since the situation that motivated the complaint originated in incorrect procedures of the controlled institution detailed in this resolution;

THAT the National Legal Intendancy, through memorandum INJ-DNJ-SAL-2015-0078 of January 28, 2015, recommended to the Banking Board to reject the claim

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contained in the appeal filed by the Commercial Manager of the Guayaquil Branch of the National Development Bank; and,

IN exercise of its legal powers,

RESOLVES:

SINGLE ARTICLE.- REJECT the claim contained in the review appeal filed by Mgr. Ángela Mercedes Avilés Gómez, Commercial Manager of the Guayaquil Branch of the National Development Bank, consequently CONFIRM the administrative act contained in Official Letter No. DAYEU-V-R-2014-793 of July 18, 2014, with which the appeal for reconsideration was partially accepted and, the National Development Bank was ordered to restore in favor of Mr. Luis Alfredo Onofre Molina the sum of USD$ 2,090.00; the financial entity being able to exercise its right of recourse against the institutions owning the ATMs where the challenged withdrawals were made

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

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