Single Text of Decree-Law No. 1 of 1999 Regarding the Securities Market and the Securities Market Superintendence of Panama

SINGLE TEXT Ordered by the National Assembly, comprising Decree-Law 1 of 1999 and its amending laws and Title II of Law 67 of 2011 Regarding the securities market in the Republic of Panama and the Securities Market Superintendence

THE NATIONAL ASSEMBLY DECREES: Preliminary Title Securities Market Superintendence Chapter I Creation, Objectives, and Organs

Article 1. Scope. For the purposes of this Title, the Securities Market Law shall be understood to refer to the provisions in this Law regarding the Securities Market Superintendence and Decree-Law 1 of July 8, 1999, and its regulations.

Article 2. Securities Market Superintendence. The Securities Market Superintendence, hereinafter referred to as the Superintendence, is created as an autonomous entity of the State, with legal personality, its own assets, and administrative, budgetary, and financial independence. The Superintendence shall have exclusive competence to regulate and supervise issuers, investment companies, intermediaries, and other participants in the securities market. To guarantee its autonomy, the Superintendence shall have the following powers and advantages:

1. To act independently in the exercise of its functions and be subject to the oversight of the Comptroller General of the Republic, as established by the Political Constitution of the Republic and this Law. This oversight shall not in any way interfere with the administrative powers of the Superintendence.
2. To have funds separate and independent from the Central Government and the right to administer them.
3. To draft its own budget proposal, which, once discussed and approved by the relevant instances of the Executive Branch and the National Assembly, shall be incorporated into the General State Budget.
4. To select, appoint, and dismiss its personnel and set their remuneration, in accordance with its internal regulations, which must be drafted by the Superintendent.
5. To establish its organizational and administrative structure.
6. To have the power to hire external consultants, lawyers, and accountants deemed necessary to fulfill its functions and duties under the Securities Market Law. It may also set the remuneration and terms of engagement for such persons. Appointments and contracts may be permanent or temporary.
7. To enjoy the guarantees and immunities established in favor of the State and public entities.
8. To be exempt from the payment of taxes, duties, fees, charges, contributions, or tributes of a national nature, with the exception of social security contributions, educational insurance, professional risk insurance, mandatory complementary funds, fees for public services, import tax, and tax on the transfer of tangible movable goods and the provision of services.

Article 3. Objectives of the Superintendence. The Superintendence shall have as its general objective the regulation, supervision, and oversight of securities market activities developed in the Republic of Panama or from it, promoting legal certainty for all market participants and guaranteeing transparency, with special protection of investors' rights.

Article 4. Securities Market Activities. The following shall be considered securities market activities:

1. The registration of securities and authorization of public offerings of securities.
2. Investment advisory services.
3. Securities and financial instrument intermediation.
4. The opening and management of investment and custody accounts.
5. The administration of investment companies.
6. The custody and deposit of securities.
7. The administration of securities and financial instrument trading systems.
8. The clearing and settlement of securities and financial instruments.
9. Credit rating.
10. The service of providing prices on securities.
11. Self-regulation as referred to in the Securities Market Law.
12. The supply of information to the securities market, including the collection and processing thereof.
13. Other activities provided for in the Securities Market Law or determined through other laws, provided they constitute activities of managing, utilizing, and investing resources captured from the public, carried out through securities or financial instruments. Entities carrying out any of the activities indicated in this article, in Panama or from it, shall be subject to the supervision of the Securities Market Superintendence. Banks (except when they are securities houses), financial companies, as well as entities and natural or legal persons expressly exempted by law, shall not be subject to the oversight of this entity.

Article 5. Organs of the Superintendence. The Superintendence shall have a Superintendent and a Board of Directors. The Executive Branch shall appoint the Superintendent and five members of the Board of Directors, who shall be subject to ratification by the National Assembly, as established by Law 3 of 1987. The two additional members shall be designated as provided in the following article, and shall not be subject to ratification by the National Assembly.1

Chapter II Board of Directors

Article 6. Composition and Remuneration of Members. The Board of Directors shall act as the highest consultative, regulatory, and policy-setting body of the Superintendence and shall be composed of seven members with the right to speak and vote. Five of the members of the Board of Directors shall be elected according to the requirements established in the following article; from among these, a president and a secretary shall be elected, who shall hold office for a term of one year, which may be extended for an equal period. The other two directors shall be designated by the boards of directors of the Panama Banking Superintendence and the Panama Insurance and Reinsurance Superintendence, respectively, from among their own members, for a term of two years, renewable. Members of the Board of Directors shall not receive remuneration or representation expenses, except for per diems fixed by the Executive Branch for their attendance at Board of Directors meetings and travel allowances for their participation in official missions.2

Article 7. Requirements. To be a member of the Board of Directors, one must:

1. Be a Panamanian citizen.
2. Hold a university degree and have a minimum of ten years of experience in the financial sector.
3. Not have been convicted by a competent national or foreign authority of crimes against economic patrimony, against the economic order, against Public Administration, against public faith, against collective security, or of a crime with a minimum prison sentence of four years, nor have been sanctioned for a serious or very serious infringement by a financial sector supervisory entity in Panama or in a foreign jurisdiction.
4. Not have kinship with another director or with the Superintendent, up to the fourth degree of consanguinity or second degree of affinity, nor be the spouse of another director or of the Superintendent.
5. Not hold a full-time public office, except that of professor at university centers.
6. Not have been judicially declared bankrupt, in creditors' agreement, or in a state of manifest insolvency.
7. Not be the direct or indirect owner of more than 5% of the shares of an entity licensed by the Superintendence or of registered issuers.
8. Not be a director or dignitary of an entity licensed by the Superintendence or of registered issuers.
9. Not be a director or dignitary of an entity that owns 25% or more of the shares of an entity licensed by the Superintendence or of registered issuers.
10. Not engage in an activity requiring a natural person license issued by the Superintendence.

1 MODIFIED by Article 1 of Law No. 56 of October 2, 2012. 2 MODIFIED by Article 292 of Law No. 12 of April 3, 2012.

Article 8. Term of Office. Members of the Board of Directors shall serve for a renewable term of five years, except for the members designated by the boards of directors of the Panama Banking Superintendence and the Panama Insurance and Reinsurance Superintendence, respectively, who shall have a renewable term of two years. The appointment of Board of Directors members shall be made in such a way as to ensure, at all times, staggered renewal. In the event of the early termination of a director's position, their replacement shall be appointed for the remainder of the corresponding term. Transitory Paragraph. To allow for the staggered renewal of the five directors whose original Board of Directors corresponds to the Superintendence, in the initial appointment, one director shall be appointed for a term of five years, one director for a term of four years, one director for a term of three years, one director for a term of two years, and one director for a term of one year.3

Article 9. Quorum and Decisions. For a valid quorum of attendance at Board of Directors meetings, the presence of at least four of its members is required, in which case the approval of matters must have four votes. When the quorum is greater than four, decisions shall be adopted by simple majority.

3 MODIFIED by Article 293 of Law No. 12 of April 3, 2012.

Article 10. Powers. The powers of the Board of Directors are:

1. To adopt, reform, and revoke agreements that develop the provisions of the Securities Market Law.
2. To recommend to the Executive Branch the regulation of the Securities Market Law through executive decrees.
3. To recommend the adoption of corporate governance principles for registered issuers.
4. To adopt rules of good commercial conduct and ethical norms that persons subject to regulation and supervision by the Superintendence must follow.
5. To adopt the principles, norms, interpretations, guides, technical pronouncements, practices, and general rules issued by national or international accounting organizations that must be used in the preparation of financial statements, as well as to adopt the form and content thereof and establish the form and content of any other financial information that the Board of Directors determines registered issuers, investment companies, entities licensed by the Superintendence, and any other person subject to the provisions of the Securities Market Law must present.
6. To recognize, prior to a favorable opinion from the Superintendent, jurisdictions whose legislations have sufficient elements to be considered a recognized jurisdiction as defined in the Securities Market Law. Recognition may be general or partial by subject matter and may be revoked or expanded at the discretion of the Board.
7. To adopt norms to ensure the independence of authorized public accountants who prepare and examine the financial statements of registered issuers, investment companies, and entities licensed by the Superintendence.
8. To authorize the initiation of class action proceedings.
9. To resolve appeals against resolutions of the Superintendent or those issued by reason of delegation made by the Superintendent.
10. To evaluate the modification of registration and supervision fee amounts annually, which may be increased according to the accumulated inflation rate since the year in which the last increase entered into force, according to publications by the Comptroller General of the Republic. This review will require the prior presentation to the Board of Directors of a study regarding more competitive markets than the Panamanian jurisdiction and will require the affirmative vote of five of its members. While funds resulting from surpluses exist, increases in fee amounts cannot be made.
11. To adopt the sanctioning procedure based on the principles and guidelines established in Decree-Law 1 of 1999.
12. To approve the goals and objectives of the Superintendence.
13. To approve or reject the annual budget proposal of the Superintendence submitted by the Superintendent for the corresponding constitutional procedure.
14. To approve the administrative organizational structure of the Superintendence and its functions, as well as to review it when deemed appropriate.
15. To approve the internal work rules and the internal regulations of the Superintendence.
16. To approve performance bonus programs for Superintendence officials or any other incentive that promotes their productivity.
17. To approve contracts through exceptional procedures that the Superintendence requires for amounts greater than thirty thousand balboas (B/.30,000.00) and less than one hundred thousand balboas (B/.100,000.00), in accordance with the circumstances provided for in the Public Procurement Law and its regulations on said procedure.
18. To issue the administrative norms necessary for the fulfillment of the functions and powers of the Superintendence.
19. To approve the Code of Ethics and Conduct of the Superintendence for its officials and directors. The Code must establish, among other norms, guidelines regarding conflicts of interest, direct or indirect interests in registered securities and regulated entities, disclosure obligations, and information separation and applicable sanctions.
20. To exercise other powers assigned by the Securities Market Law and other regulations. The Board of Directors may delegate some of the functions described above to the Superintendent when deemed necessary and provided it does not conflict with its powers.

Article 11. Advisory Council of the Board of Directors. The Advisory Council of the Board of Directors of the Securities Market Superintendence is created, composed of organizations formally constituted in the Republic of Panama that represent the stock market or investor sector. For these purposes, the Advisory Council of the Board of Directors of the Superintendence shall be composed, in principle, of the following organizations:

1. Panamanian Capital Market Chamber.
2. Association of Securities Sales Agents of Panama.
3. Chamber of Securities Issuers of Panama.
4. Association of Compliance Officers of Panama. These organizations must formalize their representative, duly chosen from among their members, before the Superintendence. In the event that other organizations are formed, they must first accredit themselves with the Securities Market Superintendence, for which the Board of Directors of the Superintendence shall decide, by resolution, their admission into the Advisory Council, which will allow them to designate their corresponding representative. The representatives of the Advisory Council shall be appointed by the organizations they represent for a term of two years, with the right to extension, and shall act in an honorary capacity, without receiving any type of emolument or per diem for the meetings held. The representatives of the Advisory Council must not have been sanctioned by the Superintendence for serious or very serious offenses. The Advisory Council shall have the function of issuing its prior opinion on agreements of general application submitted to its consideration by the Board of Directors, and its opinions shall not be binding. The President of the Advisory Council may participate in Board of Directors meetings to which they are invited with the right to speak. The representatives of the Advisory Council are empowered to choose among themselves the president and the secretary.

Chapter III Superintendent

Article 12. Office of Superintendent. The Superintendent shall be the legal representative of the Superintendence and shall be in charge of the administration and management of its daily operations. They shall serve as a full-time official and shall be remunerated with a salary, in accordance with what the Executive Branch shall determine for this purpose. They shall be appointed for a term of five years, renewable for one time only, and shall take office on January 1 following the start of the ordinary presidential term. Nevertheless, the Superintendent shall remain in office until the incoming Superintendent is ratified by the National Assembly. They shall participate with the right to speak in Board of Directors meetings, except when matters are to be discussed, in the opinion of the Board, without their presence. The Superintendent may not practice liberal professions nor hold any office or activity, remunerated or not, that is contrary to or interferes with the public interests entrusted to them in the exercise of their functions. In the event of the early termination of the Superintendent's position, their replacement shall be appointed for the remainder of the corresponding term. In the temporary absence of the Superintendent, the legal representation of the Superintendence shall fall upon the President of the Board of Directors. In such cases, the Board of Directors shall appoint as interim Superintendent an official of the Superintendence. The Superintendent shall comply with and execute the agreements and resolutions adopted by the Board of Directors, and shall ensure that the norms and policies established in matters of the securities market are complied with. Likewise, they shall submit to the consideration of the Board of Directors the adoption of decisions that correspond to it. Transitory Paragraph. The first Superintendent of the securities market shall be appointed once this Law has been promulgated and shall hold office until December 31, 2014.

Article 13. Requirements to be Superintendent. To be Superintendent, one must:

1. Be a Panamanian citizen.
2. Hold a university degree and have a minimum of ten years of experience in the financial sector, either private or public.
3. Not have been convicted by a competent national or foreign authority of crimes against economic patrimony, against the economic order, against Public Administration, against public faith, and against collective security, or of a crime with a minimum prison sentence of four years, nor have been sanctioned for a serious or very serious infringement by a financial sector supervisory entity in Panama or in a foreign jurisdiction.
4. Not have kinship, up to the fourth degree of consanguinity or second degree of affinity, nor be the spouse of any of the members of the Board of Directors.
5. Not hold a full-time public office, except that of professor at university centers at a different schedule than the Superintendence.
6. Not have been judicially declared bankrupt, in creditors' agreement, or in a state of manifest insolvency.
7. Not be the direct or indirect owner of shares of an entity licensed by the Superintendence or of registered issuers, except in the case that they are a beneficiary of a trust or private interest foundation whose terms prevent beneficiaries from having knowledge and influence over the investments made by the trustee or the founding council.
8. Not be a director of an entity holding the shares of a society licensed by the Superintendence or of registered issuers.

Article 14. Powers of the Superintendent. The powers of the Superintendent are:

1. To resolve requests for the registration of securities for public offerings and any others presented to the Superintendence in accordance with the Securities Market Law.
2. To cancel ex officio or at the request of the parties the registrations of securities recorded in the Superintendence.
3. To suspend public offerings that violate provisions of the Securities Market Law or when so provided by law.
4. To issue, suspend, revoke, cancel, and deny licenses whose granting is the responsibility of the Superintendence in accordance with the provisions of the Securities Market Law.
5. To receive notifications in cases of the opening of branches or subsidiaries in Panama and abroad by entities licensed by the Superintendence.
6. To examine, supervise, and oversee the activities of entities licensed by the Superintendence, as well as their main executives, securities brokers, and analysts within the functions inherent to their licenses, as appropriate.
7. To examine, supervise, and oversee the activities of investment companies.
8. To supervise and oversee foreign branches of entities licensed by the Superintendence, in accordance with procedures established by agreement.
9. To issue, cancel, or deny the registration of credit rating entities and price-providing entities according to procedures established by agreement.
10. To carry out the inspections, investigations, and proceedings provided for in the Securities Market Law, subject to the investigation and sanctioning procedure of the Superintendence.
11. To impose the sanctions established by the Securities Market Law.
12. To authorize the draft articles of association and reforms related to the securities market activity, when it involves a change of corporate name, merger, liquidation, and reduction of share capital when it implies an effective refund of contributions by entities licensed by the Superintendence.
13. To establish cooperation links with supervisory entities of other jurisdictions to strengthen control mechanisms and update preventive regulations.
14. To establish cooperation links with public institutions or private institutions of a guild or educational nature.
15. To issue certifications related to the existence and activities of entities licensed by the Superintendence or by the National Securities Commission based on the information recorded in the Superintendence.
16. To issue certifications regarding the registration of securities in the Superintendence.
17. To initiate class action proceedings, with the decision of the Board of Directors of the Superintendence, and to use any other actions and measures within their reach to enforce the Securities Market Law.
18. To issue opinions expressing the administrative position of the Superintendence regarding the application of the Securities Market Law.
19. To issue the necessary circulars with instructions for the compliance of the Securities Market Law and the norms that develop it.
20. To acquire goods and contract services necessary for the proper functioning of the Superintendence and to execute or carry out the functions entrusted to them by the Securities Market Law.
21. To prepare the annual budget proposal, the annual report on the activities and projects of the Superintendence, and submit them to the consideration of the Board of Directors.
22. To set salaries and other emoluments, as well as to select, appoint, transfer, promote, grant leave with or without pay, and dismiss employees and officials of the Superintendence and apply the corresponding disciplinary sanctions.
23. To ensure the execution and efficient administration