Circular RUNOR 1-181. Asset Classification for Investments with Pension and Retirement Funds. Supplementary Rules

BANCO CENTRAL DE LA REPUBLICA ARGENTINA

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COMMUNICATION "A" 2436 20/05/96

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TO FINANCIAL ENTITIES:
Ref.: Circular
RUNOR 1 - 181.
Asset Classification for
Investments with Pension and
Retirement Funds. Supplementary
Rules

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

1. Replace point 2 of the provisions disseminated via Communication "A" 2269 (text according to Communication "A" 2363), with the following:

"2. Establish that for the purposes foreseen in points 1.1. and 1.2., the Central Bank shall delegate -with the exception of situations contemplated in point 6. and when the entity opts for that alternative regime- the function of classification to risk rating societies registered in the registry enabled by the National Securities Commission that have been admitted by the Central Bank. To this effect, such societies must present a request manifesting their interest in carrying out the classifications of the aforementioned instruments. Along with the request, they must ratify -under oath- before the Superintendence of Financial and Exchange Entities -Analysis and Monitoring Area- that the incompatibilities mentioned in articles 11 and 12 of Decree 656/92 do not exist. Periodically, said Superintendence will publish the updated list of rating companies admitted to perform this function. Notwithstanding this, even when the persons mentioned below abstain from intervening in the evaluation process as provided in subsection 1. of article 19 of Decree 656/92, the evaluating companies may not classify financial entities that have external advisory or auditing services through:

• any of the directors, managers, or members of the rating council of those evaluating societies,
• shareholders who hold at least 10% of the capital of the companies and/or decisive action or participation, regardless of the nature in which it is exercised, in the power of control and/or decision of those evaluating societies and/or
• companies dedicated to the aforementioned services in which the aforementioned persons have action or participation, regardless of the nature.
  The Central Bank reserves the right to exclude rating companies when, in its criterion, it considers it pertinent.
  In this regard, automatic cause for exclusion from the list of rating companies admitted by this Institution will be considered if they renounce that function for any reason, prior to the termination of the validity of a rating contract linked with these provisions.
  Financial entities that have contracted the services of evaluating companies that are excluded from the list admitted by the Central Bank will have a term of 15 calendar days to replace them, counted from the day they are notified of the aforementioned exclusion. The first evaluation formulated by the new chosen company must be presented within 60 calendar days from that date. In the case of classification of deposits in financial entities, the evaluating companies must take into account the minimum guidelines contained in Annex I to this communication."

2. Incorporate into Communication "A" 2269 the following point:

"Non-compliance by rating companies with the provisions contained in these norms will be subject to the application by the Central Bank of the following measures:
1. Warning.
2. Temporary exclusion from the list of rating companies admitted by the Central Bank.
3. Permanent exclusion from the list of rating companies admitted by the Central Bank.
Without prejudice to the above, rating societies and their members will be subject to the provisions and sanctions of article 41 of Law 21.526, as established in Law 24.627."

3. Replace points 3. and 10. of the provisions disseminated via Communication "A" 2269 (text according to Communication "A" 2363), with the following:

"3. State that rating societies will supply the corresponding classification reports for the assets cited in point 1. to the Superintendence of Financial and Exchange Entities -Analysis and Monitoring Area- with a copy to the Superintendence of Administrators of Pension and Retirement Funds, within 10 calendar days of the end of the review period, or upon the production of the report in the case of those mentioned in point 1.3. When it concerns the first classification report that enables the financial entity to capture the deposits referred to in point 1.1., the transmission will be carried out both by the financial entity and by the rating company and must count with the prior approval of the intermediary object of the evaluation. That consent must appear in the body of said report through the following legend: "We authorize (indicate name of the evaluating company) to present the preceding report to the Superintendence of Financial and Exchange Entities". This authorization will be signed by the competent responsible official on the matter and the General Manager (or equivalent authority) of the entity. Likewise, a note must accompany it, under oath, indicating that in the judgment of the financial entity and regarding what pertains to it, there are no incompatibilities or restrictions referred to in articles 11, 12, 17, 18 and 19 of Decree 656/92 and the fourth paragraph of point 2., regarding the intervening rating society. The aforementioned companies must include in their evaluation reports, at minimum, the following:

• date of the rating council meeting.
• member participants, indicating who participated or did not participate in it.
• specific classifications for deposits and short-term debts and the corresponding one for long-term obligations, according to the minimum guidelines contained in Annex I to this communication.
• synthesis of the result of the evaluation of the fundamental elements considered for the examination -as provided in chapters 1. to 3. of point III of Annex I to this communication-, in which the weighting factors of each of the elements determining the classification will be described, the criteria that justify the levels of weighting assigned to them and the classification level assigned to each element taking into account a scale of 1 to 10.
• signature of the responsible person or persons of the rating society.
  Once the first classification report on the assets referred to in points 1.1. to 1.3. is presented, the rating company that produced it must formulate the periodic updates that must be made during the year following the date to which that evaluation refers. This requirement must also be complied with in case another rating society is subsequently appointed. Along with the note to be sent to the Superintendence of Financial and Exchange Entities, another one signed by the president or legal representative of the rating society will accompany it, in which explicit record is left that said society and the persons performing the different functions indicated in Decree 656/92 comply with what is disposed in the second paragraph of point 2. and in articles 17, 18 and 19 of that device, particularly regarding the classification of deposits and debts of the financial entity regarding which they send the report. The Superintendence of Financial and Exchange Entities will analyze the reports produced regarding the assets indicated in point 1.1. to verify compliance with the minimum analysis guidelines contained in Annex I to this communication and will issue an opinion on it starting from fifteen days after its presentation. The granted classification will have validity for a period equivalent to the number of days of a review period (maximum 90 days), counted from the date on which said Superintendence issues its opinion on the matter, without this implying any modification in the dates on which subsequent classification reports must be issued. The validity period may be extended by the Superintendence as long as new reports are under analysis and no opinion has been issued on the particular upon its expiration. This circumstance will be communicated by note to the Superintendence of Administrators of Pension and Retirement Funds and to the entity. Financial entities may disseminate, totally or partially, the content and/or results of the classification reports."

"10. Establish that the entity must immediately cease capturing resources or that the affected securities must stop being maintained as investment of pension and retirement funds when any of the following situations arise:
i) non-presentation on time of the periodic review reports of the classification of the assets indicated in points 1.1. to 1.3., ii) verification of non-compliance with the minimum analysis guidelines, regarding the reports received by the Superintendence of Financial and Exchange Entities, iii) expiration of the validity of the classification."

4. Set at 90 calendar days the maximum age that the last audited quarterly balance sheet may have, for the purposes foreseen in the second paragraph of point I of Annex I to Communication "A" 2269 (text according to Communication "A" 2363).

We salute you very attentively.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio Miguel A. Kiguel
Manager of Standards for Deputy General Manager Financial Entities Area of Economics and Finance