Circular No. 14/23

To: Securities Intermediaries, Investment Funds, and External Auditors.

Subject: Disclosure in Annual Financial Statements of Transitional Measures to Mitigate the Impact of Fair Value on Investment Portfolios of Securities Intermediaries and Investment Funds.

Viewing:

a. Law No. 249-17 of the Securities Market of the Dominican Republic, which repeals and substitutes Law No. 19-00 of May 8, 2000, promulgated on December 19, 2017 (hereinafter, "Law No. 249-17").

b. Standard establishing general provisions on the information that issuers and market participants must submit periodically.

c. Regulation for Securities Intermediaries.

d. Regulation for Management Companies and Investment Funds.

e. Fourth Resolution of the National Securities Market Council, R-CNMV-2023-29-MV, dated December 5, 2023, which establishes the extension of the validity of the transitional and exceptional measures adopted to mitigate the impact of fair value on the investment portfolios of securities intermediaries and investment funds.

f. Accounting Manual and Chart of Accounts for Securities Intermediaries.

Considering:

a. That Article 17, numeral 14), of Law No. 249-17 empowers the Superintendent of the Securities Market to: "issue the resolutions, circulars, and instructions required for the development of this law and its regulations."

b. That the Securities Market Superintendence, in its capacity as the regulatory body of the Securities Market and in accordance with Article 7 of Law No. 249-17, shall have as its objective to promote an orderly, efficient, and transparent securities market, protect investors, ensure compliance with the law, and mitigate systemic risk, through the regulation and supervision of natural and legal persons operating in the securities market.

c. That the Superintendent of the Securities Market is the highest executive authority of the Securities Market Superintendence, having charge of its direction, control, and representation.

d. That Article 25 of Law No. 249-17 establishes that it corresponds to the Securities Market Superintendence the development of technical or operational norms derived from said law and applicable regulations and necessary norms.

e. That the accounting of market participants must be carried out subject to the provisions on the matter established by the International Financial Reporting Standards (hereinafter, "IFRS") and the International Accounting Standards (hereinafter, "IAS"), issued by the International Accounting Standards Board (IASB).

f. That IAS 1 (Presentation of Financial Statements) and IFRS 7 (Financial Instruments: Disclosures) establish provisions on the information to be disclosed in financial statements.

g. That International Standard on Auditing (hereinafter, "ISA") 700 (Auditor's Report on Financial Statements) describes the guidelines corresponding to the preparation of the auditor's opinion and its content.

h. That ISA 706, in the emphasis of matter paragraphs and other matter paragraphs in the audit report issued by an independent auditor, describes the guidelines for additional information that the report must contain regarding matters presented or disclosed in the financial statements, of such importance that they are fundamental for users to understand.

i. That the transitional measures to mitigate the impact of fair value on investment portfolios could affect the financial situation of securities intermediaries and investment funds that availed themselves of these, since it is necessary to disclose sufficient information in the annual financial statements that allows investors and the public to evaluate and understand the provisions contemplated in these transitional measures and their impact on the operations and results of the entities and autonomous patrimony applicable.

j. That the Securities Market Superintendence, with the objective of fostering transparency in the securities market, emphasizes the importance of providing investors and the public with all relevant information related to the adoption and impact of the transitional measures to mitigate the impact of fair value on the investment portfolio of securities intermediaries and investment funds that availed themselves of these.

k. That investors and other stakeholders need timely audited financial information with transparent and specific disclosures, including information on the impact of the transitional measures to mitigate the impact of fair value on the investment portfolio in relation to operational performance, financial position, liquidity, and future prospects, for decision-making.

l. That, through its Fourth Resolution, R-CNMV-2023-29-MV, dated December 5, 2023, the National Securities Market Council decided to extend the validity of the transitional and exceptional measures adopted to mitigate the impact of fair value on the investment portfolios of securities intermediaries and investment funds and, at the same time, reiterates the obligation to disclose, through notes in the audited financial statements, all relevant aspects regarding adherence to the measures, in the manner established by the Superintendence.

Therefore:

The Superintendent of the Securities Market, in the exercise of the powers granted by Article 17, numeral 14), of Law No. 249-17, resolves:

I. To inform securities intermediaries and investment funds that are currently availed or have availed themselves at any time of the transitional measures established by the National Securities Market Council to mitigate the impact of fair value on the investment portfolios of securities intermediaries and investment funds (hereinafter, the "transitional measures") and who carried out the reclassification of fixed-income securities, that they must disclose through notes in their annual financial statements corresponding to the year 2023 all relevant aspects regarding their adoption including, at a minimum, the following:

a) Disclose that the applicable accounting framework to prepare the annual financial statements and their notes will be the provisions established in the transitional measures, which must be described in note 2 of said statements.

b) Inform that the provisions established in the transitional measures do not imply a change in IFRS as the reference accounting framework to carry out the accounting of securities intermediaries and investment funds; consequently, these provisions do not represent a retrospective effect. Therefore, the transitional measures must be applied prospectively without modifying the figures and disclosures reported in previous years.

c) For the case of securities intermediaries and investment funds that remained availed of the transitional measures during the years 2022 and 2023, they must present audited financial statements and notes in comparative form, considering that the same accounting framework of the previous period is maintained. Likewise, they must disclose in the notes of the audited financial statements the date from which they are no longer subject to the measures, as applicable.

d) For the case of securities intermediaries and investment funds availed of the transitional measures at some point during the year 2023, but who are no longer subject to them as of the date, they must disclose the difference in the applicable accounting framework for the year 2023 and that the figures of these annual financial statements will not be comparable with the figures presented in the annual financial statements corresponding to the year 2022.

e) Disclose that IFRS will apply to the securities intermediaries and investment funds referred to in this Circular in a supplementary manner; therefore, it must indicate in a qualitative manner the relevant differences that exist between the provisions established in IFRS and the transitional measures.

f) Disclose information on the effects of the adoption of the transitional measures while these measures or their effects remain in force or during the period in which they were applied. The disclosure will be carried out depending on the specific facts and circumstances affecting securities intermediaries and investment funds. In this sense, it must inform, among other things, the following:

i. The effect of the reclassification of fixed-income securities registered in portfolios measured at Fair Value with Changes in Profit or Loss, Other Comprehensive Income (OCI), and at Amortized Cost as of December 31, 2023, taking into account what is indicated in the transitional measures.

ii. The operations carried out on securities from the portfolio measured at Amortized Cost, quantifying the amount and quantity, taking into account what is indicated in the transitional measures.

iii. The other effects that the adoption of the measures has generated in the regulatory indicators of securities intermediaries and the diversification limits established in the internal regulations of investment funds.

iv. For investment funds, a comparison of balances with and without the effects of the adoption of the transitional measures must be presented, namely:

1. The line item for investments in fixed-income securities;
2. Net gain and loss on sales of fixed-income securities;
3. Gain and loss from fair value measurement; and,
4. The result of the period (Increase or decrease in net assets attributable to the contributors of the investment fund).

v. For investment funds, the impact of the adoption of the transitional measures on the yield rate must be presented.

g) Disclose the information required in accordance with what is established in IAS 10 (Events After the Reporting Period) and ISA 560 (Subsequent Events).

II. To reiterate that securities intermediaries and investment funds that did not avail themselves of the transitional measures at any time during the year 2023 must present financial information complying with the provisions in force to carry out accounting and the preparation of annual financial statements.

III. To require that the opinion or opinion on the annual financial statements corresponding to the year 2023 include the external auditor's opinion on the integrity and reasonableness of the effects of the adoption of the transitional measures by securities intermediaries and investment funds and their disclosure in said statements.

IV. To reiterate that external auditors must guarantee the quality and timeliness of audits, exercising due professional care when evaluating the qualitative and quantitative impacts disclosed in the annual financial statements and their notes regarding the impact of the adoption of the transitional measures.

V. To reiterate to external auditors that the opinion or opinion on the annual financial statements corresponding to the year 2023 must disclose the current and future impact that the adoption of the transitional measures presents in relation to the capacity that the securities intermediary and investment funds have to operate under the going concern hypothesis, in accordance with IAS 1 (Presentation of Financial Statements) and ISA 570 (Going Concern).

VI. To reiterate to external auditors that they must notify the Securities Market Superintendence of any situation identified during the audit processes that could positively or negatively affect the legal, economic, or financial position of the market participant or the price of its securities in the market.

VII. To inform that the provisions of this Circular enter into force from its publication.

VIII. To instruct the Regulation and Innovation Directorate to publish the content of this Circular on the institution's website.

In Santo Domingo, National District, capital of the Dominican Republic, on the fourteenth (14) day of the month of December of two thousand twenty-three (2023).

(Signed)

Sto Bournigal Read
Superintendent

(Signed)

Dirección de Regulación e Innovación
Regulation and Innovation Directorate