2018 – YEAR OF THE CENTENNIAL OF UNIVERSITY REFORM

COMMUNICATION “A” 6475 23/03/2018

TO FINANCIAL ENTITIES:

Reference: Circular

CREFI 2 - 106
LISOL 1 - 786
RUNOR 1 - 1389

"Authorities of financial entities". "Minimum capital of financial entities". "Liquidity coverage ratio". "Stable net funding ratio". "Guidelines for risk management in financial entities". Adjustments.

We address you to inform that this Institution has adopted the resolution which, in its pertinent part, provides:

Replace Section 4 of the rules on “Authorities of financial entities” with the provisions attached in the Annex to this communication.
Order that, for the purpose of observing the separation of managerial and administrative functions until 31 December 2018, financial entities shall be classified according to the provision in point 1 of this communication, considering the average of assets for July, August and September 2017.
- Financial entities that, as a consequence of the preceding paragraph, are incorporated into Group “A” must observe the separation of executive and administrative functions within 60 calendar days counted from the date of diffusion by the Superintendence of Financial and Currency Entities (SEFyC) of the corresponding list.
Establish that compliance with the rules on “Liquidity coverage ratio”, “Stable net funding ratio”, “Minimum capital of financial entities” and “Guidelines for risk management in financial entities” will continue until 31 December 2018 with the scope in force as of the date of diffusion of this communication.
- Starting 1 January 2019, compliance with the cited rules will depend on the classification assigned to each financial entity pursuant to point 1 of this communication.
Replace, effective 1 January 2019, point 7.2 of the rules on “Minimum capital of financial entities” with the following:

7.2. Limit for entities belonging to Group “B”.
The requirement determined through the application of the expression described in point 7.1 may not exceed 17 % of the average of the last 36 months – prior to the month in which the determination of the requirement corresponds – of the minimum capital requirement for credit risk calculated as provided in Section 2.
The previously established maximum limit shall be reduced to 11 % when the financial entity has a rating of 1, 2 or 3 according to the assessment granted by SEFyC at the time of the latest inspection, regarding all of the following aspects: the entity as a whole, its information systems and the work of those responsible for evaluating its internal control systems.
In cases where the financial entity has a rating of 1 or 2 in all the cited aspects, the maximum limit shall decrease to 7 %.
For this purpose, the latest reported rating will be considered for the calculation of the requirement that must be integrated in the third month following the month in which the notification takes place.
The applicable limit shall be applied provided the financial entity is not a branch or subsidiary of a foreign bank classified as systemically important (G‑SIB); otherwise, the operational risk requirement will be computed at 100 % as provided in point 7.1.
Replace, effective 1 January 2019, in the provisions that refer to “financial entities belonging to Groups ‘B’ and ‘C’” with “financial entities belonging to Group ‘B’”.

Finally, we inform you that we will promptly send the pages that, in replacement of those previously provided, must be incorporated into the referenced rules.

Respectfully,

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA

Darío C. Stefanelli Agustín Torcassi

Principal Manager of Issuance and Normative Applications Deputy General Manager of Rules

ANNEX

Section 4. Separation of Executive and Administrative Functions

The separation of executive and administrative functions shall be carried out according to the group in which the financial entity is classified as provided in point 4.1 and in accordance with point 4.2.

For these purposes, administrative functions are understood to be those belonging to the Board of Directors – or equivalent authority of the financial entity – and executive functions are those related to the implementation of policies set by the governing body, such as the functions of the General Manager, Chief Executive Officer and managers, which involve a functional subordination relationship to the President (or equivalent authority) of the entity.

4.1. Classification of Entities

4.1.1. Group A: composed of those entities whose asset amount is greater than or equal to 1 % of the total assets of the financial system. For the computation of this indicator, the average of assets for the months of July, August and September of the previous year shall be considered, based on data arising from the corresponding reporting regime.
4.1.2. Group B: composed of financial entities that are not included in Group A.

The indicator provided in point 4.1.1 shall be considered individually, except for controlling financial entities subject to consolidated supervision, in which case it shall be computed on a consolidated monthly basis.

Entities classified in Group “A” whose indicator falls between 1 % and 0.50 % inclusive will remain in Group “A for the following calendar year and will only be placed in Group “B” if – for the subsequent calendar year – the indicator continues to be below 1 %.

Entities classified in Group “B” whose indicator falls between 1 % and 1.5 % inclusive will remain in Group “B” for the following calendar year and will only be placed in Group “A” if – for the subsequent calendar year – the indicator continues to be greater than or equal to 1 %.

4.2. Separation of Executive and Administrative Functions

4.2.1. Entities of Group “A: separation between executive and administrative functions must exist.
4.2.2. Entities of Group “B: separation of executive and administrative functions is not required.

B.C.R.A. "Authorities of financial entities"

Annex to Comm. “A” 6475

4.3. Periodicity

The classification of the entity into the groups indicated in point 4.1 shall be performed once per year and shall apply for the calendar year following the computation. The Superintendence of Financial and Currency Entities (SEFyC) will annually publish the list of financial entities classified in Group “A”.

4.4. Intervention of SEFyC

For those entities in which directors perform executive functions, if after a year of performing those functions SEFyC observes substantially unfavorable changes in the entity’s internal controls, this may lead to the cessation of that executive function, without necessarily requiring the involved person to end their director mandate.

4.5. Public Financial Entities

Public financial entities – defined in point 1.3 of the rules on “Authorization and composition of capital of financial entities” – regardless of the group to which they belong, must have separation between executive and administrative functions.

4.6. New Entities

New financial entities shall be considered as belonging to Group “B” (point 4.1.2) until they have the necessary information to perform the calculation provided in point 4.1.1.

At the time of holding the respective assembly or meeting of the supervisory body, as appropriate, in which the persons proposed to serve on the governing body are designated, it must be recorded in the minutes that the proposed persons do not cause a breach of these provisions.