Resolution JPRF-V-2023-078: Reform to the Standard on Credit Rating Agencies in the Securities Sector

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Financial Management Governmental Platform. Yellow Block, 5th floor | Postal Code: 170507 | Quito - Ecuador | THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING:
That, Article 82 of the Constitution of the Republic of Ecuador prescribes that the right to legal security is based on respect for the Constitution and the existence of prior, clear, public legal norms applied by competent authorities; That, Article 226 of the Magna Carta establishes that State institutions, their agencies, dependencies, public servants, 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; having the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of rights recognized in the Constitution; That, Article 227 of the Fundamental Norm determines that public administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, coordination, participation, planning, transparency, and evaluation; That, Article 13 of the Organic Monetary and Financial Code, Book I, reformed from the promulgation of the Organic Law Reforming the Organic Monetary and Financial Code for the Defense of Dollarization, created the Financial Policy and Regulation Board, part of the Executive Function, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for formulating credit, financial, securities, insurance, and prepaid comprehensive health care service policy and regulation; That, Article 14 ibidem, in numbers 2 and 3, states that the Financial Policy and Regulation Board will issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the securities system; as well as, issue micro-prudential regulations for the securities sector, based on proposals presented by the respective superintendencies, within their respective scopes of competence and without prejudice to their independence; indicating, in its antepenultimate paragraph, that, for the fulfillment of its functions, this organism will issue norms in matters proper to its competence, without being able to alter legal provisions, being able to issue norms by segments, economic activities, and other criteria; That, the aforementioned Organic Monetary and Financial Code, Book I, in its article 14.1, establishes that, for the performance of its functions, the Financial Policy and Regulation Board must comply with certain duties and exercise certain faculties, among which are those indicated in numbers 1, 7, 9, and 27, which are, respectively: (i) regulate the creation, constitution, organization, activities, operation, and liquidation of securities entities; (ii) issue the prudential regulatory framework to which securities entities must adhere, which must be coherent and not give rise to regulatory arbitrage; (iii) issue the non-prudential regulatory framework for all securities entities, which will include, among others, norms of transparency and information disclosure, market
integrity, and consumer protection; and, (iv) exercise the other functions, duties, and faculties assigned to it by the aforementioned Code and the law; That, Article 9 of the Organic Monetary and Financial Code, Book II (Securities Market Law), in its numbers 1, 4, 6, 19, and 20, determines that, among the attributions of this Board related specifically to the securities market are those of: (i) establish the general policy of the securities market and regulate its operation; (ii) issue the resolutions necessary for the application of the Securities Market Law; (iii) regulate the creation and operation of risk rating agencies; (iv) authorize the related activities of risk rating agencies that are necessary

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Financial Management Governmental Platform. Yellow Block, 5th floor | Postal Code: 170507 | Quito - Ecuador | for the adequate development of the securities market; and, (v) ensure the observance and compliance of the norms governing the securities market; That, Article 78 of the same Organic Code, in its Book I, establishes that the Superintendence of Companies, Securities, and Insurance will exercise vigilance, audit, intervention, control, and supervision of the securities market, for which it will be governed by the provisions of the Companies Law, Securities Market Law, the Organic Monetary and Financial Code itself, and the regulations issued by the Financial Policy and Regulation Board. Likewise, Article 10 of the Organic Monetary and Financial Code, Book II, states that this control organism will exercise the functions of vigilance, audit, intervention, and control of the securities market with the purpose that the activities of this market are subject to the legal order and attend to the general interest; That, General Provision Twenty-Ninth of the Organic Monetary and Financial Code, Book I, provides that: "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, Transitory Provision Fifty-Fourth ibidem prescribes: "Transitory Regime of Resolutions of the Codification of the Board of Monetary and Financial Policy and Regulation. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Board of Monetary and Financial Policy and Regulation and the norms issued by the control organisms will maintain their validity until the Board of Monetary Policy and the Board of Financial Policy and Regulation resolve what corresponds, within the scope of their competencies."; That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0068-M of September 08, 2023, sends to the President of the Board the following reports:
i) Technical Report No. JPRF-CTVS-2023-004 of September 07, 2023, issued by the Technical Coordination of Policy and Regulation of the Securities and Insurance System of the Board, which states that in consideration of the operational impact of the norm applicable to risk rating agencies in the securities sector, contained in Chapters I and II of Title XVI "Risk Rating Agencies", of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, of Book II, a reform is necessary in order to adapt them to the development and operation of the securities sector, homologate the norm with the financial and insurance sector, as well as promote improvements in the development of the Ecuadorian securities market by adopting international best practices; ii) Legal Report No. JPRF-CJF-2023-037 of September 07, 2023, issued by the Legal Coordination of Policy and Financial Norms of the Board, which concludes that the Financial Policy and Regulation Board, as responsible for formulating policy and regulation for the securities sector, has competence and legal faculty to: (i) regulate the creation, constitution, organization, activities, operation, and liquidation of securities entities; (ii) issue the prudential regulatory framework to which securities entities must adhere, which must be coherent and not give rise to regulatory arbitrage; (iii) issue the non-prudential regulatory framework for all securities entities, which will include, among others, norms of transparency and information disclosure, market integrity, and consumer protection; and, (iv) exercise the other functions, duties, and faculties assigned to it by the Organic Monetary and Financial Code and the law; in accordance with what is provided in article 14.1, numbers 1, 7, 9, and 27, of the Organic Monetary and Financial Code, Book I;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Financial Management Governmental Platform. Yellow Block, 5th floor | Postal Code: 170507 | Quito - Ecuador | and, in addition, has the attribution of: (i) regulate the operation of the securities market; (ii) issue the resolutions necessary for the application of the Securities Market Law; (iii) regulate the creation and operation of risk rating agencies, as well as the services they provide; (iv) authorize the related activities of risk rating agencies that are necessary for the adequate development of the securities market; and, (v) ensure the observance and compliance of the norms governing the securities market; in accordance with what is prescribed in article 9, numbers 1, 4, 6, 19, and 20 of the Organic Monetary and Financial Code, Book II (Securities Market Law); That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on September 15, 2023, and carried out through video conference on September 19, 2023, learned of Memorandum No. JPRF-ST-2023-0068-M of September 08, 2023, issued by the Technical Secretary of the Board; as well as the aforementioned reports from the Technical Coordination of Policy and Regulation of the Securities and Insurance System and from the Legal Coordination of Policy and Financial Norms, in addition to the corresponding draft resolution; That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on September 15, 2023, and carried out through video conference on September 19, 2023, learned of and approved the following Resolution; and, In exercise of its functions, RESOLVES:
ARTICLE FIRST.- The text of article 2 of Section I "Authorization of Operation and Registration in the Public Registry of the Securities Market", of Chapter I "Risk Rating Agencies", Title XVI "Risk Rating Agencies", Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is substituted by the following:
"Art. 2.- Authorization of operation and registration in the Public Registry of the Securities Market: Upon completion of the constitution procedure of a risk rating company, the administrator who exercises legal representation will present a communication to the Superintendent of Companies, Securities, and Insurance or their delegate, requesting that they grant the respective authorization for its operation and registration in the Public Registry of the Securities Market. To this request, the following documentation will be attached for review and approval at least:

1. Information related to the company:
   1.1. Registry sheet, through the Integrated Securities Market System or another system provided by the Superintendence of Companies, Securities, and Insurance.
   1.2. Organization and Technical Capacity, organizational chart of the risk rating company, accompanied by a description of it, in which the personnel available or to be available is shown, indicating the definition and description of the positions established in the organization. In addition, it must provide:
   1.2.1. Detail of personnel performing technical functions in the company, classified by professional or technical title and by experience in financial risk assessment.
   1.2.2. List of main partners.
   1.2.3. List of administrators.
   1.2.4. List of persons to whom executive positions will be assigned.
   1.2.5. List and description of all types of services provided by the entity.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Financial Management Governmental Platform. Yellow Block, 5th floor | Postal Code: 170507 | Quito - Ecuador |
1.2.6. Detail of physical and technological infrastructure (software and hardware), applicable to the activity.
1.3 Internal regulations of the company, which will include the technical rating procedure to be used.
1.4. Professional history of the firm; of its affiliates and associates;
1.5. Code of ethics based on the guidelines of the International Organization of Securities Commissions, IOSCO.
1.6. Association or representation agreements with international firms, duly authenticated and translated, as provided in current legislation.
The agreement must establish the level of technical and methodological support that the international firm will provide to the local rating agency; as well as, commitments in terms of suitability and independence that the local rating agency must comply with. The agreement must also establish the responsibility and limitation of responsibilities of the associated firm regarding the actions that the local rating agency will perform.
1.7. Foreign firms and/or their members who will perform the rating in the country will present the updated authorization granted by the Ministry of Labor or whoever exercises its competencies. Additionally, it must have an attorney-in-fact in Ecuador, in accordance with the norms related to the domiciliation of foreign companies contained in the Companies Law.
1.8. Information handling norms related to the control of privileged, reserved, and stock market secrecy information in the terms provided in the Securities Market Law.
1.9. Certificate issued by the Financial and Economic Analysis Unit or whoever acts in its place, of not being registered in the database of persons with pending conviction sentences, of the partners or shareholders, legal representative, or attorney-in-fact.
1.10. Tariff of all those services that are provided, which must be recorded in their offices in a site visible to the public and published on their website, if they have one.
1.11. Board of Directors or General Meeting Minutes in which the policies and procedures to identify, administer, and disseminate conflicts of interest are approved; internal control and regulatory compliance policies; and, compensation policies for technical analysts and rating committee members that demonstrates that the remuneration of personnel involved in the rating process does not affect the production of independent and objective ratings.
1.12. Sworn declaration signed by the legal representatives of the company in which it is recorded that the information attached for obtaining the authorization of operation and registration in the Public Registry of the Securities Market is true and the documents and certificates attached are authentic.
1.13. Ownership Structure.
2. Information related to the main partners, their representatives, administrators, and those in charge of the direction of a risk rating company:
2.1 From all persons who are main partners, legal representatives, and those in charge of the direction of the risk rating agency, copies of university degrees, brief curriculum vitae, and copies of criminal records must be attached.
2.2 Academic titles of the personnel who will intervene in the rating process, related to the activity performed by the rating agency, duly registered in Senescyt.
In case of not having documentation that demonstrates that the personnel has a professional title, they must accredit 10 years of experience in banking, financial, securities, or insurance matters, specifically in financial risk management and rating methodologies duly demonstrated.
Likewise, the professional history must be attached, along with the documentation that evidences the courses taken, accumulated experience, and professional capacity in the exercise of their functions of risk rating in the financial, securities, or insurance system.
2.3. Sworn declarations of the members of the rating committee, administrators, manager, and those in charge of risk rating that they are not subject to the disqualifications and prohibitions contemplated in the Securities Market Law and its complementary norms.
The Superintendent of Companies, Securities, and Insurance or their delegate will study the request and the documentation presented, and after verifying that the company can fulfill its corporate purpose, will issue the resolution authorizing the operation of the risk rating company and its registration in the Public Registry of the Securities Market."
ARTICLE SECOND.- Following the first paragraph of article 3 of Section I "Authorization of Operation and Registration in the Public Registry of the Securities Market", of Chapter I "Risk Rating Agencies", Title XVI "Risk Rating Agencies", Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following text is incorporated:
"The suspension will be ordered without prejudice, if applicable, to the initiation of the administrative sanctioning procedure provided for in the norms issued by the Superintendence of Companies, Securities, and Insurance, in concordance with the Organic Code of Administrative Procedures (COA).
The Superintendent of Companies, Securities, and Insurance may suspend the effects of the registration of risk rating companies registered in the Public Registry of the Securities Market, in accordance with the causes established in article 22 of the Securities Market Law, for a term not exceeding thirty days.
If in the judgment of the Superintendence of Companies, Securities, and Insurance, the causes of the suspension still subsist at the end of the term referred to in the previous paragraph, the suspension may be extended until completing a maximum term of one hundred and eighty days. Upon expiration of this extension without the respective causes of the suspension having been remedied, the Superintendence of Companies, Securities, and Insurance will cancel the registration, without prejudice to resolving the intervention or dissolution of the company, or to imposing on this or its administrators the sanctions to which there is cause, in accordance with the Securities Market Law and the provisions of the Companies Law."
ARTICLE THIRD.- The text of number 5 of article 4 of Section II "Maintenance of Registration in the Public Registry of the Securities Market and Submission of Continuous Information" of Chapter I "Risk Rating Agencies", Title XVI "Risk Rating Agencies", Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is substituted by the following:
"5. Inform the stock exchanges about the reviews it has carried out on the securities and issuing companies, and; to the Superintendence of Banks or Superintendence of Popular and Solidarity Economy, when it concerns the rating of securities of financial entities. In both cases, it must be informed within a term of three days from the occurrence of the fact."

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Financial Management Governmental Platform. Yellow Block, 5th floor | Postal Code: 170507 | Quito - Ecuador |
ARTICLE FOURTH.- Following number 6 of article 4 of Section II "Maintenance of Registration in the Public Registry of the Securities Market and Submission of Continuous Information" of Chapter I "Risk Rating Agencies", Title XVI "Risk Rating Agencies", Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following text is incorporated:
"7. Inform relevant facts regarding the risk rating agency to the securities market, in general, and to the control organisms, within a term of 3 days.
8. Annually update the Manual containing the Organizational and Corporate Governance Structure; the norms of control of privileged, reserved, and stock market secrecy information in the terms provided in the Securities Market Law, in accordance with the facts that have occurred; and in accordance with current norms.
9. Annually submit a certificate issued by the international risk rating agency regarding the validity of the agreement.
Additionally, it must submit to the Superintendence of Companies, Securities, and Insurance a report containing the percentage of income from the same client and, if applicable, from the economic group and financial group, and the detail of fees for services provided."
ARTICLE FIFTH.- The text of the third paragraph of article 6 of Section III "Risk Rating Committee" of Chapter I "Risk Rating Agencies", Title XVI "Risk Rating Agencies", Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is substituted by the following paragraphs:
"Members must possess a title of at least third level or accredit a minimum experience of ten years in corporate credit analysis, business, or project evaluation; in the economic, financial, and accounting field.
No analyst of the risk rating agency may be part of the rating committee that grants the category to the security."
ARTICLE SIXTH.- Following the final paragraph of article 7 of Section III "Risk Rating Committee" of Chapter I "Risk Rating Agencies", Title XVI "Risk Rating Agencies", Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following text is incorporated:
"The meetings of the rating committee may be held in person or virtually.
Virtual meetings must comply with the security requirements determined by the control entity."
ARTICLE SEVENTH.- The text of article 24 of Section III "General Provisions" of Chapter II "Risk Rating", Title XVI "Risk Rating Agencies", Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is substituted by the following:
"Art. 24.- Dissemination of information through the website of the risk rating agency: With the purpose of guaranteeing transparency in its actions and allowing market actors and users to have their own criteria, risk rating firms will obligatorily publish on their website the following information related to the firm:
a) Financial statements, cut off at