Circular 15/2012 — Operations Conducted by Multiple Banking Institutions with Persons Having Relevant Links

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CIRCULAR 15/2012 addressed to multiple banking institutions, regarding the Rules on operations conducted by multiple banking institutions with persons having relevant links.

At the margin, a logo stating: Bank of Mexico.

CIRCULAR 15/2012

TO THE MULTIPLE BANKING INSTITUTIONS:

SUBJECT: RULES ON OPERATIONS CONDUCTED BY MULTIPLE BANKING INSTITUTIONS WITH PERSONS HAVING RELEVANT LINKS

The Bank of Mexico, in order to promote the sound development of the financial system, considers it convenient to implement measures that contribute to preserving the solvency, liquidity, and stability of the Mexican financial system.

Therefore, based on Articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 24, 26, and 36 of the Bank of Mexico Law; 48 and 96 Bis of the Credit Institutions Law; 22 of the Law for Transparency and Ordering of Financial Services; 4th, first paragraph, 8th, fourth and seventh paragraphs, 10, first paragraph, 14 Bis, in relation to 17, fraction I, as well as 25 Bis 1, fraction IV, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Legal Directorate and the Regulation and Supervision Directorate, respectively, as well as Article 2 of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, fractions III and XI, has resolved to issue the following:

RULES ON OPERATIONS CONDUCTED BY MULTIPLE BANKING INSTITUTIONS WITH PERSONS HAVING RELEVANT LINKS

FIRST.- DEFINITIONS

For brevity, in singular or plural, in these Rules, the following shall be understood as:

Banking Business Days: The days on which multiple banking institutions are not obligated to close their doors or suspend operations, in terms of the general provisions issued for such effect by the National Banking and Securities Commission.

Operations: The active and passive operations that have been conducted by i) Persons with Relevant Links or ii) by multiple banking institutions.

Persons with Relevant Links: a) The natural persons indicated below:

i) those who directly or indirectly possess two percent or more of the capital of the institution, the holding company, or the financial entities and companies forming part of the financial group to which, if applicable, the institution belongs;

ii) members of the board of directors of the institution, the holding company, or the financial entities and companies forming part of the financial group to which, if applicable, the institution belongs;

iii) spouses and persons related by kinship to the persons indicated in the preceding numerals. Kinship shall be understood as existing by blood and affinity in the direct line in the first degree, and by blood and affinity in the collateral line in the second degree or civil;

iv) natural persons other than officials and employees whose signature can bind the institution, and

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the institution, and

v) directors and officials of legal entities in which the institution or the holding company of the financial group to which the institution belongs, directly or indirectly, possess ten percent or more of the capital.

b) Legal entities that are part of the business group or consortium to which the multiple banking institutions belong, or those with which they maintain business links.

Likewise, Persons with Relevant Links shall be those trusts in which the multiple banking institutions or the legal entities referred to in the preceding paragraph are settlors or trustees.

Business group and consortium shall be understood as established in fractions I and V of Article 22 Bis, and business links as provided in fraction III of Article 45-P, both of the Credit Institutions Law.

SECOND.- OPERATIONS SUBJECT TO AUTHORIZATION

Multiple banking institutions that, acting as assignors, assignees, or in any other capacity, intend to conduct, with Persons with Relevant Links, a contract for the assignment of rights or debts, arising from the conduct of Operations, as well as any other legal act that results in the transmission of said rights or debts, whose amount exceeds the limit equivalent to 25 percent of the institution's basic capital, must request authorization from the Bank of Mexico, at least twenty Banking Business Days before the execution of the assignment contract or respective act.

In the event that a multiple banking institution, during the calendar year, conducts legal acts referred to in the preceding paragraph, with one or several Persons with Relevant Links, and collectively, said contracts or acts exceed the limit referred to in the preceding paragraph, the institution must request authorization from the Bank of Mexico, twenty Banking Business Days before the date on which they intend to carry out the legal act that will result in exceeding the referred limit.

For the purposes of this Rule, the last calculation of the institution's basic capital published by the National Banking and Securities Commission on its website with domain name www.cnbv.gob.mx shall be considered.

In the event that the amount of the assignment contract or corresponding legal act is denominated in United States dollars, its value in national currency shall be determined by applying the exchange rate published by the Bank of Mexico in the Official Gazette of the Federation on the Banking Business Day immediately preceding the day on which the authorization request is presented.

Likewise, in the event that the amount is denominated in a currency other than United States dollars, institutions must convert the respective currency to said dollars. To carry out this conversion, they must consider the quotation that applies for the corresponding currency against said dollar in international markets on the Banking Business Day immediately preceding the day on which the authorization request is presented.

The authorization request must be submitted to the Directorate of Authorizations, Queries, and Legal Control of the Bank of Mexico, through the Electronic Attention Module (MAE), in terms of the applicable provisions.

In extraordinary cases, the referred request may be submitted within a period shorter than that provided in the first paragraph of this Rule, for which institutions must express in said request the arguments justifying the extraordinary situation to present the request within a shorter period. In this

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case, the Bank of Mexico will evaluate the arguments indicated by the multiple banking institution and determine their validity.

THIRD.- REQUIREMENTS TO REQUEST AUTHORIZATION

The request referred to in the previous Rule must comply with the following requirements:

a) Describe regarding each of the Operations conducted, its nominal amount, term, interest rate, commissions, outstanding balance, and, if applicable, guarantees;

b) Specify the characteristics of the assignment contract or other legal act that results in the transmission of rights or debts;

c) Be signed by its general director, or by an official of the multiple banking institution occupying the position of immediate hierarchy below that of the said general director;

d) Attach one of the following documents: i) a simple copy of the document stating approval by the board of directors or the committee established by said social body, in terms of what is provided in the first paragraph of Article 45-S of the Credit Institutions Law, or ii) a certification by the secretary or assistant secretary of the said board of directors or committee, of the document stating the cited approval;

e) Include the declaration, under oath, that the respective contract or legal act will be carried out in accordance with the prevailing market conditions at the time of its execution;

f) Attach the transfer pricing study referred to in Rule Fourth, and

g) Provide the other information that, if applicable, the Bank of Mexico requests from them.

FOURTH.- TRANSFER PRICING STUDY

Multiple banking institutions, to request the authorization referred to in these Rules, must accompany their request with a transfer pricing study, which may be that prepared in accordance with what is provided in the second paragraph of Article 45-S of the Credit Institutions Law.

Said study must contain a precise explanation of the methodology followed for its preparation and must adhere to the criteria established in the Guidelines on Transfer Pricing for Multinational Enterprises and Tax Administrations, approved by the Organisation for Economic Co-operation and Development.

The expert or independent company preparing the study referred to in the first paragraph must have a recognized track record of at least ten years of experience and have in its client portfolio first-rank financial entities, distinct from the one requesting the corresponding study and those of the financial group to which it belongs. The study must be accompanied by the curriculum vitae of the independent expert or its equivalent in the case of consulting companies.

In the case referred to in the second paragraph of Rule Second, the study must consider all assignment contracts or legal acts that have been conducted during the year in question.

FIFTH.- INFORMATION TO THE BANK OF MEXICO

Multiple banking institutions must inform the Bank of Mexico, at least five Banking Business Days prior to the execution of the contracts or legal acts referred to in Rule Second, which they intend to conduct with Persons with Relevant Links, whose amount does not exceed the limit provided in said Rule. For this purpose, institutions must attach the transfer pricing study referred to in the previous Rule.

The information referred to in this Rule, as well as any other that the Bank of Mexico requests from them, must be presented in the form and terms determined by the Financial System Information Directorate of the Bank of Mexico.

TRANSITORY PROVISIONS

FIRST.- This Circular shall enter into force on October 11, 2012.

SECOND.- With respect to the rest of 2012, the limit established in the first paragraph of Rule Second shall be 6.25 percent of the institution's basic capital.

Mexico, D.F., October 8, 2012.- BANK OF MEXICO: The Director of Regulation and Supervision, Luis Urrutia Corral.- Signature.- The General Legal Director, Héctor Reynaldo Tinoco Jaramillo.- Signature.

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For any queries regarding the content of this Circular, please contact the Directorate of Authorizations, Queries, and Legal Control, at the phones 5237-2308, 5237-2317, or 5237-2000 Ext. 3200.