Banking Board of Ecuador

RESOLUTION No. JB-2015-3362

THE BANKING BOARD

CONSIDERING:

THAT the second paragraph of the Third Transitional Provision of the Organic Monetary and Financial Code determines that the Banking Board will continue to act until it resolves all claims, appeals, and other administrative procedures it was handling as of the date of entry into force of this Code, within a period of one hundred and eighty days, extendable at the discretion of the Monetary and Financial Policy and Regulation Board;

THAT by letter No. INSP-DA2-2014-2304 dated July 9, 2014, Dr. Fernando Uzcátegui Altamirano, National Superintendent of the Private Insurance System, under the provisions of Article 37, letter a), numeral 2 of the General Insurance Law, imposed a fine of USD $2,103.12 on Seguros Unidos S.A., because the company failed to send the "Executive Summary of Stage 5" within the five-day term following the completion of that phase, i.e., counted from June 30, 2014;

THAT by document No. SU.N:o/GG-2014 entered into the Superintendency of Banks on July 17, 2014, Mr. Rafael Mateus Ponce, General Manager of Seguros Unidos S.A., filed an appeal before the Banking Board against letter No. INSP-DA2-2014-2304, dated July 9, 2014, under the provisions of Article 70 of the General Insurance Law;

THAT Mr. Rafael Mateus Ponce, General Manager of the insurer, based his appeal on the following:

2.2.1 That the Risk Unit of Seguros Unidos S.A., applying what is established in numeral 14.16 of Article 14, Section III, Chapter I, Title V, of Book II of the Compilation of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, which states:

"14.16 Convene the comprehensive risk management committee whenever deemed necessary, due to reasons attributable to the imminent breach of any pre-established limit, sudden changes in the economic environment that generate an increase in exposure to any of the risks, or for any matter that in the opinion of the comprehensive risk management unit needs to be addressed in a committee meeting";

2.2.2 That said Unit prepared the required Report in a timely manner in Section V.- Transitional Provisions, first, numeral 5, stage 5, of Chapter I, of Title V, of Book II of the Compilation of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, which establishes the following:

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"(…) 5. Stage 5.- The fifth stage will be carried out until June 30, 2014, and corresponds to feedback: One year after the completion of stage 3, the first comparison of the results of stage 3 with what actually occurred will be made. (…)";

2.2.3 That due to logistical difficulties that did not allow the presence of the President of the Comprehensive Risk Committee, said Committee could not be held until July 9, 2014, with the letter addressed to the Superintendency of Banks issued on July 10, 2014, which included the Report corresponding to Stage 5, the subject of the present analysis;

2.2.4 That although there was a delay of 3 days in the delivery of said Report, the spirit of the norm was applied, which seeks to generate awareness in controlled entities about the need to implement good risk management; and,

2.2.5 That he appeals letter No. INSP-DA2-2014-2304, dated July 9, 2014, so that the sanction imposed on the insurer is annulled;

THAT by resolution No. SBS-INSP-2014-189, dated September 2, 2014, the National Superintendent of the Private Insurance System, granted the appeal filed by the General Manager of Seguros Unidos S.A.;

THAT the fine of US$ 2,103.12 imposed on Seguros Unidos S.A. was for failing to comply with what is established in Section V Transitional Provisions, of Chapter I Comprehensive Risk Management and Control, of Title V Risk Management and Administration, of Book II General Norms for the Application of the General Insurance Law, of the Compilation of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, a regulation that indicates that the implementation of risk evaluation and management systems in the private insurance system must be gradual, for which five stages were established from the promulgation of resolution No. JB-2011-2066 of November 29, 2011. The fifth stage, which corresponds to feedback, one year after the completion of stage three, consisting of the first comparison of the results of stage three with what actually occurred, had to be fulfilled until June 30, 2014;

THAT after the completion of each stage, insurance and reinsurance companies had a term of five days to deliver to the Superintendency of Banks an executive summary with the description of the activities developed in each stage and the results obtained in each of them; thus stage one corresponds to the general structure of the system; stage two is the definitive design of the system; in stage three the measurement of risks, the administration methods and their cost; stage four corresponds to the

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risk assumption policies and the audit schemes and the fifth stage is the contrast of results with reality;

THAT in accordance with the above, it is important to note, where pertinent, what is established in Article 37 of the General Insurance Law, by virtue of which the fine can be applied to the controlled entity that violates statutory provisions or norms and instructions issued by the supervisory body, as occurred in the present case:

"Art. 37.- (...) When in a controlled entity, its directors, administrators or officials violate the laws or regulations governing their operation, or in cases where they violate statutory provisions or norms and instructions issued by the Superintendency of Banks and Insurance, and especially when they fail to comply with the provisions of this Law; ... the Superintendency of Banks and Insurance, depending on the gravity of the infringement, will impose one of the following sanctions:

a) To the controlled entity:

1. Reprimand.
2. Fine.
3. Suspension of authorization certificates or withdrawal of credentials, as appropriate; and,

b) To the directors and administrators of the entity of the private insurance system:

1. Reprimand.
2. Fine.
3. Removal.

In any case and without prejudice to what is established in this article, the Superintendent of Banks and Insurance will adopt measures aimed at restoring compliance with the violated norm. The fines imposed on directors and administrators will be paid with their own resources. (...)";

THAT it is important to mention what is provided in Article 213 of the Constitution of the Republic of Ecuador, the second paragraph of Article 1 of the General Law of Institutions of the Financial System, in force at that time, and Article 1 of the General Insurance Law, which state the following:

Constitution of the Republic of Ecuador:

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"Art. 213.- The superintendencies are technical bodies for surveillance, auditing, intervention and control of economic, social and environmental activities, and of the services provided by public and private entities, with the purpose that these activities and services are subject to the legal framework and attend to the general interest.

The superintendencies will act ex officio or upon citizen request. The specific powers of the superintendencies and the areas that require the control, auditing and surveillance of each of them will be determined in accordance with the law.

The superintendencies will be directed and represented by the superintendents. The law will determine the requirements that those who aspire to direct these entities must meet.

(...)

General Law of Institutions of the Financial System:

"ARTICLE 1.- (...) Public financial institutions, insurance and reinsurance companies are governed by their own laws regarding their creation, activities, operation and organization. They will be subject to this Law in relation to the application of solvency and financial prudence norms and to the control and surveillance carried out by the Superintendency within the legal framework that regulates these institutions in everything applicable according to their legal nature. The Superintendency will apply the norms contained in this Law on forced liquidation, when there are grounds that warrant it.

(...)

General Insurance Law:

"Art. 1.- This Law regulates the constitution, organization, activities, operation and extinction of legal persons and the operations and activities of natural persons that make up the private insurance system; which will be subject to the laws of the Republic and to the surveillance and control of the Superintendency of Banks and Insurance.";

THAT from the literal text of the constitutional and legal provisions transcribed, it is established that the Superintendency of Banks is the technical body for surveillance and control of entities subject to its control, including those that make up the private insurance system, which must respect the legal framework and comply with the regulations issued for their proper operation and control;

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THAT from the administrative act appealed and from the technical report of the National Superintendency of the Private Insurance System, it is observed that Seguros Unidos S.A. did not comply with the sending of the "Executive Summary of Stage 5" within the five-day term following the completion of that phase, which is why it has incurred in the non-compliance of a clear provision issued by the Superintendency of Banks, so that the supervisory body, in the exercise of its constitutional attributes and in application of Article 37 of the General Insurance Law, imposed the sanction that has been appealed;

THAT the National Legal Superintendency, through memorandum INJ-DNJ-SAL-2015-0063 dated January 26, 2015, recommended to the Banking Board to reject the claim contained in the appeal filed;

IN exercise of its legal powers,

RESOLVES:

SINGLE ARTICLE.- REJECT the claim contained in the appeal filed by Mr. Rafael Mateus Ponce, General Manager of Seguros Unidos S.A.; and, consequently, CONFIRM letter No. INSP-DA2-2014-2304 of July 9, 2014, through which the National Superintendency of the Private Insurance System imposed on the insurance company a fine of USD $2,103.12 for having failed to comply with what is established in resolution No. JB-2011-2066, of November 29, 2011.

NOTIFY.- Given at the Superintendency of Banks, in Quito, Metropolitan District, on April 15, two thousand fifteen.

Signature Econ. Rodrigo Landeta Parra GENERAL SUPERINTENDENT, S. PRESIDENT OF THE BANKING BOARD, E

I CERTIFY.- Quito, Metropolitan District, on April 15, two thousand fifteen.

Signature Lcdo. Pablo Cobo Luna SECRETARY OF THE BANKING BOARD