Resolution JPRF-F-2024-0122: Adjustments to the Extraordinary Merger Process for Public and Private Financial Sector Entities

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-F-2024-0122 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 132, number 6 of the Constitution of the Republic of Ecuador determines that a law will be required for: “6. Granting public control and regulatory bodies the authority to issue general norms in matters within their competence, without being able to alter or innovate legal provisions.”; That, Article 226 of the Magna Carta mandates that 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; That, Article 227 ibid establishes that the Public Administration constitutes a service to the community that is governed by the principles of effectiveness, efficiency, quality, hierarchy, coordination, participation, and among others; That, Article 308 of the Fundamental Law prescribes that financial activities are a matter of public order; That, Article 309 of the Constitution of the Republic of Ecuador indicates that “the National Financial System is composed of the public, private, and popular and solidary sectors (…)”. Each of these sectors will have specific and differentiated control norms and entities, which will be responsible for preserving their security, stability, transparency, and solidity; That, Article 13 of the Organic Monetary and Financial Code, Book I, created the Financial Policy and Regulation Board, part of the Executive Function and as a legal entity of public law, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That, Article 14, number 2 of the Code ibid, stipulates that it corresponds to the Financial Policy and Regulation Board “2. Issue the 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 (…)”; That, Article 14.1 of the aforementioned Organic Code, orders the Financial Policy and Regulation Board to fulfill the following faculties, among which are: “1. Regulate the creation, constitution, organization, activities, operation, and liquidation of financial entities; (…) 27. Exercise the other functions, duties, and faculties assigned to it by this Code and the law.”; That, Article 150 of the Code supra prescribes that entities of the national financial system will be subject to the regulation issued by the Financial Policy and Regulation Board; That, Article 170 of the aforementioned Organic Code provides that “merger is the union of two or more entities of the national financial system of the same sector, by which they commit to joining their assets and forming a new society, which acquires by universal title the rights and obligations of the intervening societies. Merger also occurs when one or more entities are absorbed by another that continues to subsist.”;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, the second paragraph of Article 171 of the cited normative body states that “extraordinary merger occurs between an entity that is in a situation of technical equity deficiency and another entity that is not in such a situation; in this case, the express acceptance of the legal representative of the entity that is not in a situation of technical equity deficiency will always be necessary, who for this effect is authorized to make this decision. For this case, the general meeting of shareholders or the body that acts in its place of the entity that is not in technical equity deficiency, shall be considered convened to resolve the extraordinary merger. If the general meeting of shareholders or the body that acts in its place does not attend this summons, the control body will order the mandatory meeting of these collegiate bodies to resolve what corresponds, with the members who are present.”; That, the second paragraph of Article 172 of the Code supra prescribes that “the extraordinary merger process is exempt from ordinary merger procedures and will be regulated by the Monetary and Financial Policy Board. This merger will be exempt from the payment of taxes. Savings and credit cooperatives will have the same exemption when merging with others”; That, the Twenty-Ninth General Provision of the Organic Monetary and Financial Code, Book I, added by the Organic Law Reforming the Organic Monetary and Financial Code for the Defense of Dollarization, provides that in the current legislation where mention is made of the “Monetary and Financial Policy Board”, it shall be replaced by “Financial Policy and Regulation Board”; That, through Resolution No. JPRF-F-2023-085 of October 16, 2023, the Financial Policy and Regulation Board incorporated Section II “Extraordinary Merger Process for Entities of the Public and Private Financial Sector” into Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions; That, by Letter No. SB-DS-2024-0293-O of July 24, 2024, the Bank Superintendence submits to the Financial Policy and Regulation Board a proposal for reform to Section II “Proposal for Extraordinary Merger for Entities of the Public and Private Financial Sector”, Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, attaching the corresponding Technical-Legal Report No. SB-INJ-2024-0733-M of July 17, 2024. That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0089-M of October 21, 2024, submits to the President of the Board the Technical Report No. JPRF-CTSF-2024-009 of October 18, 2024 and the Legal Report No. JPRF-CJF-2024-048 of October 17, 2024, as well as the respective draft resolution; That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on October 21, 2024 and carried out via video conference on October 23, 2024, reviewed the Memorandum No. JPRF-ST-2024-0089-M of October 21, 2024, issued by the Technical Secretary of the Board; as well as the Technical Report No. JPRF-CTSF-2024-009 of October 18, 2024 and the Legal Report No. JPRF-CJF-2024-048 of October 17, 2024, issued by the Technical Coordination of Policy and Regulation of the Financial System and by the Legal Coordination of Policy and Financial Norms, and the corresponding draft resolution;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on October 21, 2024 and carried out via video conference on October 23, 2024, reviewed and approved the following Resolution; and, In exercise of its functions, RESOLVES: ARTICLE FIRST.- Substitute the text of Article 6 of Section II “Extraordinary Merger Process for Entities of the Public and Private Financial Sector”, Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following: “Process of Selecting the Absorbing Entity: The Bank Superintendence, in case there are several entities interested in merging, will apply the selection criteria contained in the preceding article and will select the absorbing entity that meets all of them and, in the case that several entities meet all the aforementioned criteria, the selection will be considered according to the order of presentation of the applications. Once the absorbing entity is selected, the Bank Superintendence will request the signing of the confidentiality agreement and will send the information of the entity in deficiency to the selected absorbing entity, which must present its extraordinary merger proposal to absorb the unviable financial entity according to the parameters determined by the control body. The legal representative of the selected absorbing entity must expressly accept the merger proposal, for which they must have the approval of the General Meeting of Shareholders or the governing body that acts in its place. This acceptance is necessary to continue with the process.” ARTICLE SECOND.- Substitute the text of Article 7 of Section II “Extraordinary Merger Process for Entities of the Public and Private Financial Sector”, Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following: “Of the unperfected merger: If there is no entity interested in the extraordinary merger process, the Bank Superintendence will order the exclusion and transfer of assets and liabilities or the liquidation of the financial entity that sought to be absorbed.” ARTICLE THIRD.- Substitute the text of Article 8 of Section II “Extraordinary Merger Process for Entities of the Public and Private Financial Sector”, Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following: “Merger Resolution: The Bank Superintendence will issue the corresponding extraordinary merger resolution and prepare an extract that the absorbing financial entity will publish once, in a major national circulation newspaper or in legally authorized technological media.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | To proceed with the issuance of the Resolution, it must be justified that all necessary measures have been exhausted, such as capitalization, supervision, and control in order to safeguard the start of the extraordinary merger process, which must be motivated and must contain, at least, the following:

1. The disposition of the supervisory and control authority for the extraordinary merger by absorption;
2. Name of the absorbing and absorbed financial entities;
3. The assumption, by universal title, of the assets and the entirety of the assets and liabilities of the absorbed entity;
4. The cessation of the functions of the administrators and legal representatives of the financial entity to be absorbed and the prohibition of carrying out operations in the name of their administered or represented entities, especially granting new credits. Those who violate this prohibition will be personally liable for the amounts of the operations, without prejudice to civil or criminal liability, as applicable;
5. The disposition that property registrars, in the cantons where the absorbed financial entity has real estate or real rights over them, register or take note on the margin of the transfer of ownership of these in favor of the absorbing financial entity by virtue of the merger; and,
6. The disposition of the extinction of the absorbed entity and the corresponding annotation in the cadastre. As a consequence of the issuance of the extraordinary merger resolution, the absorbing entity assumes as employer of all personnel and the ownership, by universal title, of the information systems and platforms, of the movable and immovable assets of the absorbed entity, and of the credits, privileges, guarantees, intellectual property rights, and other rights that belonged to the absorbed entity.” ARTICLE FOURTH.- Incorporate the following articles following Article 8 of Section II “Extraordinary Merger Process for Entities of the Public and Private Financial Sector”, Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following text: “Art. 9.- Implementation of the Merger: For the implementation of the extraordinary merger, the absorbing entity will be subject to the norms issued by the Bank Superintendence regarding this process. Art. 10.- Supervision and Follow-up: The Bank Superintendence will carry out continuous follow-up of the absorbing entity to ensure that the extraordinary merger is effectively implemented and that the entity maintains adequate levels of solvency and liquidity. The absorbing entity must submit progress information to the Bank Superintendence, with the detail, periodicity, and format that it determines, as well as external audit reports required by the control body.” ARTICLE FIFTH.- Reform the Second General Provision of Section II “Extraordinary Merger Process for Entities of the Public and Private Financial Sector”, Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following text:

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | “SECOND.- The absorbing entity must submit to the control body, within the period determined by it, evidence of all actions carried out within the framework of the extraordinary merger process until its completion.” ARTICLE SIXTH.- Incorporate a General Provision following the Fifth General Provision of Section II “Extraordinary Merger Process for Entities of the Public and Private Financial Sector”, Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following text: “SIXTH.- Once the extraordinary merger implementation process is completed, during a period of one (1) year, extendable for an additional one (1) year at the discretion of the Bank Superintendence, the absorbing entity must apply a weighting of zero (0) to the assets that have been absorbed that count in the technical equity.” ARTICLE SEVENTH.- Incorporate a Single Transitional Provision in Section II “Extraordinary Merger Process for Entities of the Public and Private Financial Sector”, Chapter V “On Mergers, Conversions, and Associations”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following text: “SINGLE TRANSITIONAL PROVISION.- Within sixty (60) days, the Bank Superintendence will issue the control norm regarding the extraordinary merger process for public and private financial entities.” 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 (2) days from its issuance. COMMUNICATE.- Given in the Metropolitan District of Quito, on October 23, 2024. THE PRESIDENT, Mgs. María Paulina Vela Zambrano The aforementioned 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 23, 2024.- I CERTIFY. TECHNICAL SECRETARY, Mgs. Luis Alfredo Olivares Murillo