JPRF-F-2022-032 — Extraordinary and Temporary Financial Relief Mechanism Applicable to the National Financial System

THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That, Article 226 of the Constitution of the Republic orders that: “State institutions, their agencies, dependencies, public servants, and persons acting under state authority shall exercise only the competencies and powers attributed to them in the Constitution and the law. They shall have the duty to coordinate actions to fulfill their purposes and make effective the enjoyment and exercise of rights recognized in the Constitution.”; That, Article 277 of the Magna Carta prescribes that: “For the achievement of good living, the general duties of the State shall be: 1. Guarantee the rights of persons, collectives, and nature. (…) 5. Promote the development of economic activities through a legal order and political institutions that promote, foster, and defend them through compliance with the Constitution and the law. (…)”; That, pursuant to number 7 of Article 284 of the Supreme Norm, economic policy shall have as its objective, among others, to “maintain economic stability, understood as the maximum level of production and sustainable employment over time”; That, Article 302 ibidem, in its relevant part, mandates that “Monetary, credit, exchange, and financial policies shall have as objectives: (…) 2. Establish global liquidity levels that guarantee adequate financial safety margins. 3. Direct liquidity surpluses toward the investment required for the country’s development. (…)” and that, pursuant to Article 303, the formulation of credit and financial policies is an exclusive power of the Executive Function; That, Article 308 ibidem prescribes that financial activities are a public order service and shall have the fundamental purpose of preserving deposits and meeting financing requirements to achieve the country’s development objectives. Likewise, the final clause of this article mandates that: “The regulation and control of the private financial sector shall not transfer the responsibility for banking solvency nor shall they constitute any guarantee by the State. Administrators and managers of financial institutions and those who control their capital shall be responsible for their solvency. The arbitrary or generalized freezing or retention of funds or deposits in public or private financial institutions is prohibited.”; That, Article 309 ibidem establishes that: “The national financial system is composed of the public, private, and popular and solidarity sectors, which intermediated public funds. Each of these sectors shall have specific and differentiated control norms and entities, which shall be responsible for preserving their safety, stability, transparency, and solidity. These entities shall be autonomous. The executives of control entities shall be administratively, civilly, and criminally responsible for their decisions.”; That, Article 5 of the Organic Code of Monetary and Financial Affairs, Book I, prescribes that: “The formulation of policies and regulations in monetary, credit, exchange, financial, insurance, and securities
matters is the exclusive prerogative of the Executive Function and shall have the objectives determined in Articles 284 and 302 of the Constitution of the Republic and those established in the National Development Plan.”; That, through Article 13 of the same code, the Financial Policy and Regulation Board was created as part of the Executive Function, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; and its composition was determined;

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That, numbers 1, 2, and 3 of Article 14 of the same legal body stipulate that it corresponds to the Financial Policy and Regulation Board: “1. Formulate credit, financial, including insurance, prepaid comprehensive health care services, and securities policies; 2. Issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial, securities, insurance, and prepaid comprehensive health care services systems in accordance with what is provided in Article 309 of the Constitution of the Republic of Ecuador; 3. Issue micro-prudential regulations for the national financial, securities, insurance, and prepaid comprehensive health care services sectors, based on proposals presented by the respective superintendencies, within their respective scopes of competence and without prejudice to their independence.”; That, Article 14 ibidem provides that, for the fulfillment of its functions, “the Financial Policy and Regulation Board shall issue norms in matters within its competence, without altering legal provisions. The Financial Policy and Regulation Board may issue regulations by segments, economic activities, and other criteria.”; That, in accordance with the aforementioned provisions, Article 14.1 of the Organic Code of Monetary and Financial Affairs, Book I, mandates that, for the performance of its functions, the Financial Policy and Regulation Board must fulfill the following duties and exercise the following powers: “1. Regulate the creation, constitution, organization, activities, operation, and liquidation of financial, securities, insurance, and prepaid comprehensive health care services entities; (…) 7. Issue the prudential regulatory framework to which financial, securities, insurance, and prepaid comprehensive health care services entities must adhere, a framework that must be coherent, not give rise to regulatory arbitrage, and cover, at least, the following: a. Prudential liquidity indices required by financial system entities; (…) d. Risk management, internal control environment, corporate and cooperative governance, and market discipline; (…) 10. Promote financial inclusion processes and the full exercise of financial users’ rights; (…)”; That, the Fifty-Fourth Transitional Provision of Article 106 of the Organic Law Reforming the Organic Code of Monetary and Financial Affairs for the Defense of Dollarization, published in Official Register Supplement No. 433 of May 3, 2021, states that: “Resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy Board and norms issued by control agencies shall remain in effect until the Monetary Policy Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies.”; That, Article 1 of the Organic Law of Humanitarian Support to Combat the Health Crisis derived from Covid-19 determines that the purpose of the norm is to
establish humanitarian support measures, necessary to address the consequences derived from the health crisis caused by COVID-19, through measures aimed at mitigating their adverse effects within Ecuadorian territory; that allow fostering the economic and productive reactivation of Ecuador; That, on June 13, 2022, social movements led by the Confederation of Indigenous Nationalities of Ecuador (CONAIE), the National Confederation of Peasant, Indigenous, and Black Organizations (FENOCIN), and the Council of Indigenous and Evangelical Peoples and Organizations of Ecuador (FEINE), initiated a national strike that lasted 18 days; requesting the National Government to address 10 demands, among them the moratorium of debts in Public Banking, Private Banking, and Savings and Credit Cooperatives, and the forgiveness of debts of small and medium-sized agricultural producers; requests that respond to the fact that several families have not been able to

____________________________ pay their debts after the COVID-19 pandemic; That, on June 30, 2022, the Peace Agreement was signed between CONAIE, FENOCIN, FEINE, and the National Government, with the Ecuadorian Episcopal Conference acting as mediator. For the follow-up of these points, the parties agreed to install dialogue tables, among them Table No. 2, which corresponded to Public and Private Banking; That, the Technical Secretariat of the Financial Policy and Regulation Board, through memorandum No. JPRF-SETEC-2022-0055-M of July 20, 2022, submits to the President of the Board the following reports:
(i) Technical Report No. JPRF-CT-2022-0028 of July 20, 2022, states that financial activities have the fundamental purpose, as established by the Constitution of the Republic, of preserving deposits and meeting financing requirements to achieve the country’s development objectives, and further specifies that the regulation and control of the private financial sector shall not transfer the responsibility for banking solvency nor constitute any state guarantee, and that administrators of financial entities, those who control their capital, shall be responsible for their solvency. In this line, in the dialogue tables with government representatives, control agencies, organizations grouping financial entities, JPRF, CONAIE, FENOCIN, FEINE, there is agreement on the need to establish an extraordinary financial relief mechanism to address the effects derived from the health crisis caused by COVID-19, and to establish concrete actions to foster the economic and productive reactivation of the country, which includes access to better credit conditions for sectors that could qualify for the proposed refinancing and restructuring processes. (ii) Legal Report No. JPRF-CJ-2022-0033 of July 20, 2022, in which it was determined that the Financial Policy and Regulation Board, as responsible for the formulation of credit and financial policy and regulation, has legal competence to establish financial relief mechanisms applicable to the national financial system, as contained in the First Section of the Technical Table Act signed on July 18, 2022, in accordance with what is provided in Article 14.1 numbers 1, 7, and 10 of the Organic Code of Monetary and Financial Affairs, Book I. In this regard, it recommended that the Board's collegiate body review and resolve regarding the proposed reforms to the provisions to be incorporated into Chapter XVIII “Risk Asset Classification and Provisioning by Entities of the Public and Private Sectors under the Control of the Superintendence of Banks” and following Chapter LX “Norm for the application of Decree No. 33 of May 24, 2021, published in Official Register Seventh Supplement No. 459 of May 26, 2021”, of Title II “National Financial System”, of Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions.; That, the Financial Policy and Regulation Board, in an extraordinary session convened by technological means on July 20, 2022, and carried out via video conference on July 21, 2022, reviewed and approved the following resolution; and, In exercise of its functions,

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RESOLVES:
ARTICLE 1.- Incorporate, following Section VI “Of Participated or Consortium Credits”, in Chapter XVIII “Risk Asset Classification and Provisioning by Entities of the Public and Private Sectors under the Control of the Superintendence of Banks”, of Title II “National Financial System”, of Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following Section:
“SECTION VII.- EXTRAORDINARY AND TEMPORARY FINANCIAL RELIEF MECHANISM APPLICABLE TO THE PUBLIC AND PRIVATE FINANCIAL SECTORS
Article 27.- Financial entities of the public and private financial sectors shall consider, on a case-by-case basis, refinancing or restructuring credit operations of the microcredit, productive SMEs, and educational segments granted to natural persons and organizations, that without legal personality have been credit subjects, and whose obligations have been due from January 1, 2020, to June 30, 2022, prior agreement with the debtor and upon their request. The implementation of said mechanism shall not incur expenses or surcharges. Compound interest is prohibited.
The refinanced or restructured operation shall consider granting grace periods, not charging collection expenses, legal costs, fees, commissions, and additionally may grant additional resources, observing the legal framework and the legal nature of the creditor financial entity. As it does not constitute a new credit operation, it shall not be affected by taxes, contributions, and other levies.
The increase in the debtor’s indebtedness or financial leverage with refinanced or restructured operations may occur as long as the willingness to honor the credit is maintained.
The mechanism shall be applicable to the debtor who has decreased their payment capacity, but not their willingness to honor the received credit.
For the refinancing or restructuring of credits, the consolidation of all debts that the credit subject maintains with the entity at the time of implementing the operation may be carried out, except for exceptional cases determined by the debtor or the creditor financial entity.
Credits refinanced or restructured under this mechanism shall obtain an “A1” risk classification at the time of their implementation and, while payments are kept up to date.
Provisions that have been made by the financial entity at the time of implementing this mechanism shall not be reversed. Starting from the payment of the third (3) consecutive installment, without the debtor having recorded delinquency, the corresponding classification and provisioning table shall be applied in the provision calculation.
Article 28.- Entities of the public and private financial sectors shall report all operations on the application of this mechanism to the Superintendence of Banks on a monthly basis and in the manner it determines.

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Article 29.- The term for the application of the mechanism established in this section is from July 21, 2022, the date of issuance of this resolution, and shall remain in effect until December 31, 2022.”
ARTICLE 2.- Incorporate, following Chapter LX “Norm for the application of Decree No. 33 of May 24, 2021, published in Official Register Seventh Supplement No. 459 of May 26, 2021”, in Title II “National Financial System”, of Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following Chapter:
“Chapter LXI.- EXTRAORDINARY AND TEMPORARY FINANCIAL RELIEF MECHANISM APPLICABLE TO THE FINANCIAL SECTOR OF THE POPULAR AND SOLIDARITY ECONOMY
Article 1.- Financial entities of the popular and solidarity economy sector shall consider, on a case-by-case basis, refinancing or restructuring credit operations of the microcredit, productive SMEs, and educational segments granted to natural persons and organizations, that without legal personality have been credit subjects, and whose obligations have been due from January 1, 2020, to June 30, 2022, prior agreement with the debtor and upon their request. The implementation of said mechanism shall not incur expenses or surcharges. Compound interest is prohibited.
The refinanced or restructured operation shall consider granting grace periods, not charging collection expenses, legal costs, fees, commissions, and additionally may grant additional resources, observing the legal framework and the legal nature of the creditor financial entity. As it does not constitute a new credit operation, it shall not be affected by taxes, contributions, and other levies.
The increase in the debtor’s indebtedness or financial leverage with refinanced or restructured operations may occur as long as the willingness to honor the credit is maintained.
The mechanism shall be applicable to the debtor who has decreased their payment capacity, but not their willingness to honor the received credit.
For the refinancing or restructuring of credits, the consolidation of all debts that the credit subject maintains with the entity at the time of implementing the operation may be carried out, except for exceptional cases determined by the debtor or the creditor financial entity.
Credits refinanced or restructured under this mechanism shall obtain an “A1” risk classification at the time of their implementation and, while payments are kept up to date.
Provisions that have been made by the financial entity at the time of implementing this mechanism shall not be reversed. Starting from the payment of the third (3) consecutive installment, without the debtor having recorded delinquency, the corresponding classification and provisioning table shall be applied in the provision calculation.
Article 2.- Entities of the popular and solidarity economy financial sector shall report all operations on the application of this mechanism to the Superintendence of the Popular and Solidarity Economy on a monthly basis and in the manner it determines.

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Article 3.- The term for the application of the mechanism established in this chapter is from July 21, 2022, the date of issuance of this resolution, and shall remain in effect until December 31, 2022.”
FINAL PROVISION.- This Resolution shall enter into force as of the present date, without prejudice to its publication in the Official Register. Publish this Resolution on the website of the Financial Policy and Regulation Board, within a maximum term of two days from its issuance.
COMMUNICATE.- Given in the Metropolitan District of Quito, on July 21, 2022.
THE PRESIDENT,
Mgs. María Paulina Vela Zambrano
The aforementioned resolution was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on July 21, 2022.- I CERTIFY.
TECHNICAL SECRETARY
Dr. Nelly Arias Zavala