Resolution JPRF-F-2024-0119: Reforming the Norm for the Exclusion and Transfer of Assets and Liabilities

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-F-2024-0119 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 82 of the Constitution of the Republic of Ecuador recognizes the right to legal security, which 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 incorporates the principle of legality, understanding 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 by law; That, Article 311 of the Supreme Norm determines that the popular and solidarity financial sector shall be composed of savings and credit cooperatives, associative or solidarity entities, communal banks and savings banks; That, Article 7 of the Organic Code of Monetary and Financial Affairs, Book I, prohibits public servants of regulatory or control entities from acting in cases where their interests conflict with those of the organism or entity in which they serve, or where a fact causing a conflict of interest is evident or arises; That Article 13 of the Organic Code of Monetary and Financial Affairs, Book I, creates the Financial Policy and Regulation Board, part of the Executive Function, as a public law legal person, with administrative, financial, and operational autonomy; That, Article 14.1 of the aforementioned Code determines that, for the performance of its functions, the Financial Policy and Regulation Board has the faculty to regulate the creation, constitution, organization, activities, operation, and liquidation of financial, securities, insurance, and prepaid comprehensive health service entities; and to exercise the other functions, duties, and faculties assigned to it by law; That, Article 296 of the aforementioned Organic Code contains the process of exclusion and transfer of assets and liabilities of financial entities in forced liquidation; That, the Technical Secretary, Acting, of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0080-M of August 15, 2024, submits to the President of the Board the Technical Report No. JPRF-CTSF-2024-007 and the Legal Report No. JPRF-CJF-2024-040, both dated August 14, 2024, as well as the respective draft resolution; That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on August 15, 2024, and carried out via video conference on August 16, 2024, reviewed the Memorandum No. JPRF-ST-2024-0080-M of August 15, 2024, issued by the Technical Secretary, Acting, as well as the Technical Report No. JPRF-CTSF-2024-007 and the Legal Report No. JPRF-CJF-2024-040, both dated August 14, 2024, issued by the Technical Coordination of Financial System Policy and Regulation and by the Legal Coordination of Financial Policy and Norms, and the corresponding draft resolution; That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on August 15, 2024, and carried out via video conference on August 16, 2024, reviewed and approved the following Resolution; and, In exercise of its functions,

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | RESOLVES: ARTICLE FIRST.- Substitute Section I "Partial Exclusion and Transfer of Assets and Liabilities of Entities of the National Financial System", of Chapter XXVI "On the Exclusion and Transfer of Assets and Liabilities", 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:

"SECTION I EXCLUSION AND TRANSFER OF ASSETS AND LIABILITIES OF ENTITIES OF THE NATIONAL FINANCIAL SYSTEM Art. 1.- In order to adequately protect public deposits and prior to declaring the forced liquidation of a financially unviable entity, the control organism, by resolution, which shall enter into force from its issuance, shall order the suspension of operations, the exclusion and transfer of assets and liabilities, and appoint a temporary administrator who will assume the functions of the dismissed administrators and exercise the legal representation of the financially unviable entity, from the date of the corresponding resolution. Art. 2.- From the date of the resolution suspending operations and the exclusion and transfer of assets and liabilities of the financially unviable entity, the rights of its shareholders or partners are lost, and administrators cease in their functions automatically; any acts of disposition or administration of the entity's assets resulting from these operations shall be null and void in accordance with the law. Art. 3.- The temporary administrator, in coordination with the control organism, shall determine the assets of the financially unviable entity susceptible to being excluded and transferred, totally or partially, as the case may be, for negotiation with other entities of the National Financial System, observing what is provided in Article 296, of Book I of the Organic Code of Monetary and Financial Affairs. Art. 4.- For the process of total or partial exclusion and transfer of assets and liabilities, the temporary administrator shall compensate active and passive obligations due, in accordance with what is provided in Article 1672 of the Civil Code. Art. 5.- As part of the coordination work between the temporary administrator and the control organism is the identification of potential participants in the process of exclusion and transfer of assets and liabilities, in accordance with what is provided in Article 296 of Book I of the Organic Code of Monetary and Financial Affairs. The information communicated shall correspond to the most recent information gathered as a result of on-site or off-site supervision processes. The control organism shall determine the operations that must be exempted from suspension and that are indispensable for the conservation of the entity's assets, the recovery of credits, and the payment of workers' remuneration, in accordance with Art. 293 of Book I, of the Organic Code of Monetary and Financial Affairs. Art. 6.- Control organisms, as part of the coordination, may communicate and share, in advance and confidentially, regarding the process of exclusion and transfer of assets and liabilities that will take place, with potential participating entities in the same.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Art. 7.- If total exclusion and transfer of assets and liabilities cannot be effected, the temporary administrator, in coordination with the control organism, shall partially exclude and transfer the liabilities of the financially unviable entity along with the assets covering said liabilities, taking into account the depositor base as of the date of the resolution suspending operations and excluding and transferring assets and liabilities, in the following order:

1. Amounts not covered by deposit insurance, excluding accrued interest, except those corresponding to persons linked to the entity;
2. Amounts covered by deposit insurance excluding accrued interest until completing the amount of transferred assets;
3. Accrued interest on transferred deposits as provided in numerals 1 and 2 of this article; and,
4. Remaining liabilities. The temporary administrator shall apply a linear pro-rata not proportional to liabilities up to the amount of assets to be excluded. In the case of total exclusion and transfer of assets and liabilities, the depositor base as of the date of the resolution suspending operations and excluding and transferring assets and liabilities shall be used. Art. 8.- In the partial or total exclusion and transfer of assets and liabilities, the temporary administrator must communicate to the control organism within a period of 5 days from assuming office, if the application of Article 80 numeral 7 of Book I of the Organic Code of Monetary and Financial Affairs is required, in which case the control organism will notify the mechanism of participation of the offering entity and the information required by COSEDE for the analysis of the least cost rule. Art. 9.- The financial entity assuming the assets and liabilities shall respect the originally agreed terms of maturity and interest rate on the balances of active and passive operations transferred. The interest corresponding to these transferred operations shall be applied from the date on which such operations were received. Art. 10.- Once the exclusion and transfer of assets and liabilities has been effected, the financially unviable entity shall enter the process of forced liquidation in accordance with Book I of the Organic Code of Monetary and Financial Affairs, and deposits not transferred up to the legally insured amount shall be paid from deposit insurance, according to the sector entity involved. Art. 11.- Upon expiration of the period established in Article 296, Book I of the Organic Code of Monetary and Financial Affairs for the exclusion and transfer of assets and liabilities, the temporary administrator shall perform account reconciliation, the accounting closing of financial statements, and present to the control organism, within a term of 3 days, the final management report to which the initial and final financial statements duly signed shall be attached. While the control organism issues the administrative act of forced liquidation, the entity shall maintain the suspension of operations and the temporary administrator shall retain the position of legal representative of the entity, without being able to celebrate new transfer agreements of

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | assets and liabilities, being authorized to perform only the operations authorized by the control organism. The control organism shall issue the forced liquidation resolution, within a term of 3 days from the expiration of the period of the resolution suspending operations and excluding and transferring assets and liabilities provided in Art. 296, Book I, of the Organic Code of Monetary and Financial Affairs. ARTICLE SECOND.- Add the following General Provisions to Section I of Chapter XXVI "On the Exclusion and Transfer of Assets and Liabilities", Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions:

"GENERAL PROVISIONS FIRST.- Control organisms are authorized to grant temporary exceptions to the application of general norms issued by the Financial Policy and Regulation Board to national financial system entities receiving assets and liabilities in exclusion and transfer processes. The exceptions must relate to the amount of assets and liabilities assumed and must avoid putting the liquidity and/or solvency of the receiving entity at risk. Control organisms shall report semi-annually to this Collegiate Body the temporary exceptions they have granted in application of this authorization. SECOND.- Control organisms, by general norm, shall establish the procedure for designation, the requirements, and the responsibilities of persons who will act as temporary administrators of financially unviable entities. THIRD.- Superintendencies, within the scope of their competencies, shall issue control norms for the application of this resolution." ARTICLE THIRD.- Add the following Transitional Provision to Section I of Chapter XXVI "On the Exclusion and Transfer of Assets and Liabilities", Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions:

"UNIQUE TRANSITIONAL PROVISION.- The Superintendence of Banks, the Superintendence of Popular and Solidarity Economy, and the Corporation of Deposit Insurance, Liquidity Fund, and Private Insurance Fund, within the scope of their competencies, shall modify or issue their internal regulations, in order to facilitate the execution of the processes of exclusion and transfer of assets and liabilities, in accordance with this resolution." UNIQUE GENERAL PROVISION.- In case of doubt regarding the content or scope of the provisions of this Resolution, it shall be resolved by the respective control organism, within the scope of its competencies. FINAL PROVISION.- This Resolution shall enter into force from the present date, without prejudice to its publication in the Official Register, and shall be published on the institutional 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 August 16, 2024.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | 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 August 16, 2024.- I CERTIFY. ACTING TECHNICAL SECRETARY Mgs. Luis Alfredo Olivares Murillo