Circular CREFI 2-66: Separation of Executive and Management Functions

2010 - YEAR OF THE BICENTENNIAL OF THE MAY REVOLUTION COMMUNICATION “A” 5106 26/07/2010 TO FINANCIAL ENTITIES:
Ref.: Circular
CREFI 2 - 66
Separation of executive and management functions.

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We address you to inform you that this Institution has adopted the following resolution:

“1. Incorporate into Chapter I of Circular CREFI - 2 (Communication “A” 2241) the following Section:

“Section 7. Separation of executive and management functions.
The separation of executive and management functions shall be carried out based on the group in which the financial entity is classified according to the classification provided for in point 7.1. and in accordance with what is established in point 7.2.

7.1. Classification of entities.

7.1.1. Group A: composed of those entities in which the amount of their deposits is greater than or equal to 1% of the total deposits of the financial system. For the calculation, the average of the last three available months, according to the current information regime, prior to the date on which the measurement is made, shall be considered.

This indicator shall be considered individually, except for controlling financial entities subject to consolidated supervision, in which case it shall be calculated on a monthly consolidated basis.

7.1.2. Group B: composed of those entities whose deposits do not exceed the amount established for Group A (point 7.1.1.) and which, likewise, do not belong to Group C (point 7.1.3.). For entities included within this group, the Superintendence of Financial and Exchange Entities will provide the Committee for Evaluation of Suitability and Experience with information related to the aspects detailed below, which will be evaluated by said Committee when considering each candidate proposed by the financial entity.

7.1.2.1. Characteristics of the financial entity:

-2- a) Importance of the entity’s activities, measured according to the indicator provided for in point 7.1.1. b) Quality of the administration and internal controls of the financial entity according to the valuation granted during the last inspection carried out that has a CAMELBIG rating, through the components that make it up.

7.1.2.2. Background of the person and the position, based on the information submitted in the Personal Background Form. Even in cases where the designated authority had held executive or management positions in the entity itself, in other entities in the system, or in companies that form an economic group with the financial entity making the submission, the Central Bank of the Republic Argentina may request additional information.

The evaluation process may result - from the Committee for Evaluation of Suitability and Experience - in the need to conduct an interview with the proposed candidate, in order to complement the information presented.

7.1.3. Group C: Entities in which the following apply are considered within this group:

7.1.3.1. the amount of their deposits does not exceed 0.25% of the total deposits of the financial system, and/or

7.1.3.2. not being classified in Group “A”, the ratio between their deposits and their calculable equity is less than 100%.

For the calculation, the average of the last three available months, according to the current information regime, prior to the date on which the measurement is made, shall be considered.

7.2. Separation of executive and management functions.

7.2.1. Group A Entities: for entities included in this group, there must be separation between executive and management functions in all cases.

7.2.2. Group B Entities: during each individual evaluation, the Committee for Evaluation of Suitability and Experience will decide whether the overlap of executive and management functions is admitted, based on the particular evaluation of:

7.2.2.1. Quality of the administration and internal controls of the financial entity according to the valuation granted during the last inspection carried out that has a CAMELBIG rating, through the components that make it up.

7.2.2.2. Background of the person and the position, based on the information submitted in the Personal Background Form, in accordance with what is established in point 7.1.2.2.

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7.2.3. Group C Entities: separation of executive and management functions will not be required for these entities, leaving it to the option of the financial entity to adopt the criterion to be followed, according to the business and operational activities it develops.

The classification of the entity in the groups indicated in point 7.1. and the consequent application of the criteria specified in point 7.2. will be carried out each time the entity presents a request for authorization of a director (or equivalent function) of the financial entity.

In cases where the renewal of the mandate of a director who performs executive functions or who aspires to exercise them in their new mandate is desired, a new authorization will be required whenever the entity, having been in Groups C or A at the time of appointment, has migrated to Group B at the time the renewal of the mandate is requested. This criterion will also apply when, having been and remained within Group B, the conditions of the entity described in points 7.1.2.1. and 7.1.2.2. have shown substantial changes. In these cases and prior to the request for authorization, the financial entity must carry out and present to the Superintendence of Financial and Exchange Entities a self-assessment containing all the necessary elements to justify that it is in a situation that allows the proposed directors to assume executive functions or maintain them.

Additionally, for those entities in which directors perform executive functions, if after one year in the performance of said functions, the Superintendence of Financial and Exchange Entities detects substantially unfavorable changes in the entity’s internal controls, this may lead to the termination of that executive function, without implying that the person involved must necessarily conclude their term as director.

In the case of new financial entities requesting authorization to operate, the individual evaluation of candidates will be carried out in the terms of point 7.1.2. when the analyses provided for in Circular CREFI - 2, Chapter I, Section 1 are carried out.

For the evaluation, among other elements, the administrative and functional organization and the economic and financial budget of the future entity presented with the authorization request will be taken into consideration.

At the time of holding the respective assembly in which the persons proposed to serve as directors are appointed, it must be recorded in the minutes that, with the proposed persons, the regulations of the Central Bank of the Republic Argentina regarding the evaluation of authorities are not violated.

For the purposes of these regulations, executive functions shall be understood as those referring to the implementation of the policies set by the Board of Directors or equivalent authority of the financial entity, such as the function of General Manager, Executive Director, and Managers, and which imply a functional subordination relationship with respect to the President (or equivalent authority) of the entity. Likewise, management functions shall be understood as those proper to the Board of Directors or equivalent authority of the financial entity.

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2. Establish that the provisions referred to in the preceding point 1. will apply to the approvals and renewals of directors (or equivalent authority) that are granted from the date of this communication and, with respect to approvals granted prior to that date, from the date on which the next meeting of shareholders or partners is held, without exceeding in any case May 31, 2011.”

We salute you very respectfully.
CENTRAL BANK OF THE REPUBLIC OF ARGENTINA
Darío C. Stefanelli Alfredo A. Besio
Manager of Issuance of Standards
General Manager of Standards a/c