Resolution No. JPRM-2021-006-A — Regulations of the Audit Committee of the Central Bank of Ecuador

RESOLUTION NO. JPRM-2021-006-A THE MONETARY AND FINANCIAL POLICY BOARD CONSIDERING: That, Article 226 of the Constitution of the Republic of Ecuador prescribes that public officials and persons acting by virtue of a state power shall exercise only the competencies and powers attributed to them in the Constitution and the Law; That, Article 227 ibidem states that Public Administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, coordination, planning, among others; That, Article 47.1 of the Organic Code of Monetary and Financial creates the Monetary and Financial Policy Board, as part of the Executive Function, responsible for the formulation of monetary policy, the highest governing body of the Central Bank of Ecuador, and determines its composition; That, numeral 15 of Article 47.6 of the Organic Code of Monetary and Financial, among other functions of the Monetary and Financial Policy Board, determines: “15. Establish and regulate the functioning of the committees that may be necessary for the functioning of the Bank”; That, Article 57.2 of the Organic Code of Monetary and Financial establishes that the Monetary and Financial Policy Board shall designate and determine the powers and functions of the Audit Committee that will assist it in the oversight of financial reports, internal audit, external audit, and internal control systems; for which it will approve the corresponding regulations; That, by memorandum No. BCE-JPRM-2021-0020 of December 8, 2021, the President of the Monetary and Financial Policy Board requested the General Manager of the Central Bank of Ecuador to submit the proposal to regulate the powers and functions of the Audit Committee, in accordance with Article 57.2 of the Organic Code of Monetary and Financial; and, That, the Monetary and Financial Policy Board, in an extraordinary session by technological means, on December 17, 2021, reviewed the proposal submitted via memorandum No. BCE-BCE-2021-0223-M of December 15, 2021, by the General Manager of the Central Bank of Ecuador to the President of the Monetary and Financial Policy Board; as well as, Legal Opinion No. BCE-CGJ-077-2021 of December 14, 2021. In exercise of its functions and in accordance with Article 47.7 of the Organic Code of Monetary and Financial, the Monetary and Financial Policy Board resolves to issue the:

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REGULATIONS OF THE AUDIT COMMITTEE OF THE CENTRAL BANK OF ECUADOR CHAPTER I OBJECT AND SCOPE Article 1.- Object: To establish the regulations governing the composition, powers, responsibilities, and functions of the Audit Committee of the Central Bank of Ecuador. Article 2.- Scope: The provisions established in these Regulations are applicable to the Audit Committee of the Central Bank of Ecuador. CHAPTER II ON THE AUDIT COMMITTEE Article 3. - Audit Committee: It is the advisory and consultation body of the Monetary and Financial Policy Board, which will assist it in the oversight of financial reports, internal audit, external audit, governance management, risk management, and internal control systems of the Central Bank of Ecuador. For the exercise of its functions, the Committee will have unrestricted access to the information, records, data, and reports of the Central Bank of Ecuador that it considers necessary. Public officials and employees of the Central Bank of Ecuador must deliver the information requested by the Audit Committee. Article 4.- Composition of the Audit Committee: The Audit Committee of the Central Bank of Ecuador shall be composed of three members with voice and vote, designated by the Monetary and Financial Policy Board, at least two (2) of whom shall have relevant experience in accounting or auditing, whose requirements shall be established in this regulation. By invitation of the Audit Committee, other officials of the Monetary and Financial Policy Board or employees of the Central Bank of Ecuador may attend Committee sessions, with voice but without vote. Members of the Audit Committee may engage in activities other than those of their position, provided these are not incompatible with their designation or do not constitute a conflict of interest. Members of the Audit Committee cannot be officials or employees of the Central Bank of Ecuador, nor be providing services of any kind to the Bank. In the event that one or more members of the Audit Committee have a conflict of interest prior to their designation, they must inform the Monetary and Financial Policy Board of the fact, who will resolve what is appropriate. In the event that the conflict of interest arises after their designation, the other members of the Audit Committee shall inform the Monetary and Financial Policy Board of the fact, who will resolve what is appropriate.

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Members of the Audit Committee shall not intervene in the administrative or operational decisions of the Central Bank of Ecuador. Article 5.- Duration in the exercise of their functions: Members of the Audit Committee shall perform their functions for a period of four (4) years, which may be renewed only once. Article 6.- Requirements to be a member of the Audit Committee: To be a member of the Audit Committee, prior to the appointment to the position, one must meet the following requirements:

1. Professional degree at the third level in economics, finance, law, administration, accounting, or auditing;
2. Relevant experience in accounting or auditing of at least ten (10) years of professional practice;
3. Experience in the application of international financial reporting standards and international auditing standards;
4. Not be involved in a conflict of interest, in accordance with what is determined in the Organic Code of Monetary and Financial;
5. Not be under civil interdiction, nor be the debtor subject to bankruptcy proceedings, nor be in a state of declared judicial insolvency;
6. Not have received a final conviction for criminal offenses;
7. Not be a party to, nor adhere to, administrative or judicial proceedings against the Central Bank of Ecuador;
8. Not be in default on the payment of credits and obligations established in favor of entities or organisms of the public sector;
9. Not be a contractor of the Central Bank of Ecuador;
10. Not have been declared a failed bidder or non-compliant contractor with public sector entities, as a natural person or on behalf of legal entities;
11. Not be included in national and international lists of sanctioned persons for crimes related to money laundering, drug trafficking, or terrorism financing. The compliance with the requirements determined in this article will be verified by the legal area of the Central Bank of Ecuador, who will issue the corresponding qualification report, for which it is duly authorized to request the information it considers pertinent. Prior to their taking office, the designated members of the Audit Committee must present a sworn declaration made before a public notary, in which they declare compliance with them. Article 7.- Termination of the functions of the Committee Members: The functions of the members of the Audit Committee of the Central Bank shall end, before the period for which they were designated, when they incur in the following causes:

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1. Failure to meet one or more enabling requirements to be a member of the Committee;
2. Not attending, without justification, two (2) consecutive sessions; or three (3) sessions within the same fiscal year, of the Audit Committee sessions of the Central Bank of Ecuador;
3. Failure to comply with the Code of Ethics issued by the Monetary and Financial Policy Board and the Central Bank of Ecuador;
4. Incurring in a conflict of interest in the exercise of their functions;
5. By manifest negligence in the fulfillment of their assigned functions and powers, determined by the Monetary and Financial Policy Board;
6. At the request of two members of the Monetary and Financial Policy Board, whose decision must be adopted unanimously;
7. By permanent incapacity for the exercise of their functions declared by a judicial authority or the competent state organism;
8. By having a final conviction for crimes punishable with deprivation of liberty; and,
9. By voluntary resignation. Once the Monetary and Financial Policy Board identifies that any of the members of the Audit Committee of the Central Bank of Ecuador has incurred in one of the preceding causes, within a term of five (5) days, it will issue the corresponding resolution terminating the designation. In the event of termination of functions or permanent absence of any of the members, the person who replaces them will exercise the functions for the remaining time to complete the period of the member whose functions ended. In the event of termination of functions due to resignation, they must remain in the position for a period of one (1) month or until they are legally replaced, whichever occurs first. Article 8.- On per diems and representation expenses: The per diems and representation expenses of the Committee members will be covered by the Central Bank of Ecuador, within the modality and amounts permitted by Law. Committee members will not have an employment relationship with the Central Bank of Ecuador. Article 9.- Functions of the Audit Committee: The Audit Committee will perform the following functions: With regard to the oversight of financial statements: a) Supervise the independent external audit of the financial statements of the Central Bank of Ecuador, which includes, among others, supervising the compliance and remediation of audit findings in areas such as internal control, legal compliance, regulatory, and others; b) Monitor the integrity and consistency of the accounting records supporting the financial statements of the Central Bank of Ecuador, as well as their compliance with applicable national and international legal and accounting standards for the Institution;

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c) Ensure the existence of adequate internal control systems that guarantee that financial information is reliable and timely; d) Review the financial statements of the Central Bank of Ecuador, prior to their submission to the approval body; e) Analyze relevant aspects related to accounting, including complex or unusual transactions; f) Analyze and report to the Monetary and Financial Policy Board on relevant accounting changes that affect the financial situation of the Central Bank of Ecuador; and, g) Present its opinion and recommendation to the Monetary and Financial Policy Board on the results of specific reviews requested by the Committee to the Banking Audit. With regard to the function of the Director of Banking Audit (Internal Audit): a) Propose to the Monetary and Financial Policy Board 3 candidates for the position of Director of Banking Audit, for their consideration and designation, who must be persons with professional experience of no less than ten (10) years in the field of auditing, and must meet the same requirements to be a member of the Audit Committee; b) Propose to the Monetary and Financial Policy Board the powers, responsibilities, and functions of the Director of Banking Audit, which must be part of the statute by processes of the Central Bank of Ecuador and carry out an annual review of the same, making recommendations for changes if necessary; c) In case of non-compliance with functions by the Director of Banking Audit, submit to the Monetary and Financial Policy Board the corresponding report; d) Ensure the independence and effectiveness of the Banking Audit Directorate; e) Request at any time from the Banking Audit Directorate specific reviews on situations that, in the opinion of the Audit Committee, are necessary or that are requested by the Monetary and Financial Policy Board or the Manager of the Central Bank of Ecuador; f) Review, make suggestions, and approve the Annual Plan of the Banking Audit Directorate, within thirty days after the closing of the fiscal year; and, monitor its compliance guaranteeing that it addresses the main risk areas, legal provisions, and those made by the Monetary and Financial Policy Board; g) Know, analyze, and pronounce, if appropriate, on the observations and recommendations of the Comptroller General of the State, Banking Audit Directorate, external audit, regarding internal control weaknesses; h) Monitor the compliance with the recommendations of the Banking Audit Directorate, external audit, and Comptroller General of the State, to ensure that appropriate measures have been taken regarding significant findings; i) Review the strategic plan, annual operational plan, objectives, performance measures, and results of the Banking Audit management; j) Make recommendations on internal audit projects;

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k) Know the reports of the Director of Banking Audit, gathering information to evaluate the work performed by the function during the execution period; and, if necessary, request the clarifications that are necessary; and, l) Evaluate the implementation of a system of continuous training and knowledge updating of the members of the Banking Audit Directorate, regarding advances in best practices and regulatory compliance. With regard to External Audit: a) Know and opine regarding the terms of reference for the selection of external auditors prepared by the Central Bank of Ecuador; b) Propose to the Monetary and Financial Policy Board the list of independent external auditors, with recognized international experience, previously qualified by the Superintendency of Banks; c) Verify that contracted external auditors comply with the established terms of reference, placing special emphasis on the scope and approach offered by the external audit, for which effect the Internal Banking Auditor, in their capacity as contract administrator, will inform the Committee, periodically or whenever there is any news during the execution of the contract, guaranteeing the execution of the audit and the results delivered; d) Review the scope and audit approach proposed by external auditors, including coordination with the internal audit activity; e) Have meetings with external auditors during the work planning phase, the presentation of audited financial statements, and the discussion of the results of recommendations made; f) Have scheduled meetings with external auditors, to discuss any sensitive matter; g) Annually review the performance of external auditors and formulate recommendations for contracting, continuity, or termination of the contract in accordance with applicable regulations; h) Verify that external audit is carried out in accordance with National and International Auditing Standards; i) Know the reports of the Internal Auditor on the compliance with the recommendations of the external audit; j) Attend the reading of the reports of external auditors and the Comptroller General of the State; k) Request external auditors specific reviews on situations that, in the opinion of the Committee, are necessary; or, that the Monetary and Financial Policy Board requires; l) Issue criteria regarding disagreements that may arise between the General Management and external auditors that are brought to its knowledge; and, m) Request the necessary explanations to determine the reasonableness of accounting adjustments proposed by external auditors; and, bring its criteria to the knowledge of the Monetary and Financial Policy Board.

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With regard to Governance Management and Risk Management: a) Review and advise on the governance, risk management, and internal control processes of the Central Bank of Ecuador; b) Annually review the risk profile of the Central Bank of Ecuador and make relevant recommendations; c) Supervise exposure to significant risks and control problems, including fraud risks, governance problems, and other matters necessary or requested by the Monetary and Financial Policy Board; d) Review the organization's control framework, including information technology security and control; e) Review the management of the National Compliance Directorate of the Central Bank of Ecuador and make the corresponding recommendations; f) Supervise the application of regulations related to the prevention, detection, and eradication of money laundering and financing of crime; and, g) Review the observations and conclusions of internal and external auditors and the findings of any competent public institution, related to compliance and regulation topics. With regard to internal control systems: a) Report on the adequate functioning of internal control systems, understood as operational, administrative, process, and financial controls established to give transparency to the management of the administration; b) Request information regarding compliance with institutional policies and legal and regulatory provisions by the Central Bank of Ecuador; c) Supervise that the activities of the bodies comprising the internal control system seek the efficiency, effectiveness, and economy of control, avoiding overlaps or repetitions of actions; d) Verify the establishment of an appropriate internal control culture within the Central Bank of Ecuador; and, e) Review the effectiveness of the internal control system to monitor compliance with laws, regulations, and norms that regulate the functioning of the Central Bank of Ecuador. With regard to the Monetary and Financial Policy Board: a) Inform the Board at least twice a year on the development and fulfillment of its functions, indicating how the committee has fulfilled its responsibilities; b) Present to the Board the corresponding report, when circumstances of significant importance are detected; and, c) Bring to the knowledge and consideration of the Monetary and Financial Policy Board the relevant observations and improvement proposals within the framework of its powers.

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CHAPTER III ON THE PRESIDENT OF THE AUDIT COMMITTEE Article 10.- President.- Among the members, in the first session, the President of the Committee will be elected. Likewise, the Substitute President will be elected. Article 11.- Functions of the President: The functions of the President of the Audit Committee will be the following: a) Order the Secretary, with at least twenty-four (24) hours in advance, the call to Audit Committee sessions; b) Preside and direct the Audit Committee sessions; c) Install, suspend, close, and terminate the sessions; d) Ensure faithful compliance with these Regulations and the current legal framework; e) Sign the documents that may be necessary for the exercise of the functions of the Audit Committee; f) Sign, jointly with the Secretary, the minutes of the Audit Committee sessions; and, g) Exercise the other functions assigned to him by the Monetary and Financial Policy Board. Article 12.- Absence of the President: In case of temporary absence of the President of the Committee, he will be replaced by the Substitute President. CHAPTER IV ON THE SECRETARY OF THE AUDIT COMMITTEE Article 13.- Secretary of the Audit Committee. – The Administrative Secretary of the Monetary and Financial Policy Board will also act as Secretary of the Committee. Article 14.- Functions of the Secretary of the Audit Committee. - The functions of the Secretary of the Committee will be the following: a) Call to Audit Committee sessions, by order of its President; b) Prepare the minutes of the sessions in which the points discussed, considerations made, resolutions taken, and signatures of all attendees will be recorded; c) Draft and send to Committee members the minutes of each session; d) Draft and send to Committee members the minutes of each session; e) Maintain and safeguard, under his responsibility, the file and archive of the session minutes and register of session calls made; f) Issue certified copies of the minutes or documents under custody; g) Verify the quorum of the sessions; and, h) Inform Committee members of any eventualities related to its functioning.

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CHAPTER V ON THE CALL, SESSIONS, AND MINUTES Article 15.- On the Call.- The Secretary, by order of the President, will call ordinary sessions, one every three months, with at least forty-eight (48) hours in advance; and, extraordinary sessions when necessary to address specific topics, always accompanying the corresponding supporting documents; if necessary, due to size, the download link of a digital storage repository will be attached, keeping the necessary security measures. Calls must be made physically or by electronic means. For the purposes of sending calls and sessions, all days of the year will be considered business days. In the case of extraordinary sessions, when it is necessary and urgent, the call may be made without observing the term established in this article, and the necessary documents for the treatment of the topics may be delivered to the committee members before the start of the session. The call must expressly state whether the session is ordinary or extraordinary, whether it is in person, by technological means, or mixed. The call will include the agenda and the connection link if necessary. In the case of sessions held through technological means, the call must necessarily contain the date and maximum time for the casting of the vote by the committee. The President may order these sessions to be called...