JPRF-F-2023-066 — Extends the delinquency qualification period for productive credit debtors under US$ 100,000 to September 30, 2023

Resolution No. JPRF-F-2023-066
THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That Article 226 of the Constitution of the Republic of Ecuador provides: "State institutions, their agencies, dependencies, public servants, and persons acting by virtue of a state power shall exercise only the competencies and faculties attributed to them in the Constitution and the law. They shall have the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution."; That the first paragraph of Article 213 of the Supreme Norm stipulates that "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 comply with the legal framework and attend to the general interest."; That the first paragraph of Article 308 of the Supreme Norm stipulates that financial activities are a matter of public order and efficiently intermediated captured resources to strengthen national productive investment, and socially and environmentally responsible consumption; it also stipulates that: "The regulation and control of the private financial sector shall not transfer the responsibility for bank solvency nor imply any guarantee of the State. (...)" In concordance, Article 309 of the Constitution of the Republic stipulates that the norms of the national financial system shall be responsible for "preserving its security, stability, transparency, and solidity."; That Article 9 of the Organic Code of Money and Finance, Book I, establishes the duty of regulatory and control bodies to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution; That Article 13 of the aforementioned Code created the Financial Policy and Regulation Board as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That Article 14, paragraphs 1 and 2 of the Organic Code of Money and Finance, Book I, regarding the scope of action of the Financial Policy and Regulation Board mandates: "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 system (...) For the fulfillment of these 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." and in this sense, it also provides that the Financial Policy and Regulation Board may directly request information it deems necessary, without any restriction, from the
superintendencies contemplated in said Code, among them the Banking Superintendence; That Article 14.1, in its numbers 1 and 7 letter d. ibidem, states: "For the performance of its functions, the Financial Policy and Regulation Board must fulfill the following duties and exercise the following faculties: 1. Regulate the creation, constitution, organization, activities, operation, and liquidation of financial, securities, insurance, and prepaid comprehensive health care service entities; (...) 7. Issue the prudential regulatory framework to which financial, securities, insurance, and prepaid comprehensive health care service entities must be subject, framework which must be coherent, not give rise to regulatory arbitrage, and cover, at least, the following:(...) d. Risk management, internal control environment, corporate and cooperative governance, and market discipline; (...)";

Resolution No. JPRF-F-2023-066

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That, the aforementioned article in its last paragraphs, states that:
"The Superintendent of Banks, the Superintendent of Companies, Securities and Insurance; the Superintendent of Popular and Solidarity Economy; and, the General Manager of the Deposit Insurance Corporation, Liquidity Fund and Private Insurance Fund shall prepare and present to the Financial Policy and Regulation Board, periodically or when the Financial Policy and Regulation Board requires it, reports on the situation of the entities or areas under their charge, as well as specific analyses and reports or proposals for financial regulation. The Financial Policy and Regulation Board shall present a Financial Stability Report to the Assembly, and it shall be prepared in coordination with the Central Bank of Ecuador and the superintendencies. All norms and policies issued by the Financial Policy and Regulation Board in the exercise of its functions, duties, and faculties must be backed by technical reports duly founded and argued."

That, on January 30, 2023, the Financial Policy and Regulation Board issued Resolution No. JPRF-F-2023-061 which reformed the Codification of Monetary, Financial, Securities and Insurance Resolutions, incorporating a Transitional Provision in Chapter XVIII "Risk Asset Classification and Provisioning by entities of the public and private financial sectors under the control of the Banking Superintendence", Title II "National Financial System", of Book I "Monetary and Financial System" in the following terms:
"From January 30, 2023, until June 30, 2023, inclusive, debtors of credits in the Productive segment less than US$ 100,000 (One hundred thousand United States dollars), shall be classified by delinquency. Debtors of credits greater than US$ 100,000 (One hundred thousand United States dollars) shall be classified using the internal monitoring models provided for in numeral 1.1.4 "Methodologies and/or internal credit classification systems for productive credit" of this norm."

This Resolution also incorporated as Second General Provision the following:
"SECOND.- The Banking Superintendence shall submit to the Financial Policy and Regulation Board, by April 30, 2023, a detailed report on the review (or adjustment) of the parameters of the expert model for the classification of productive credit operations exceeding US$ 40,000 (Forty thousand United States dollars)."

That, through Office No. SB-DS-2023-0284-O of April 26, 2023, the Superintendent of Banks brings to the knowledge of the Financial Policy and Regulation Board the following:
"Likewise, it is important to mention that the Banking Superintendence is participating in the Financial Sector Assessment Program (FSAP), which, as you know, consists of a comprehensive and in-depth evaluation of the country's financial sector and will be carried out jointly by the International Monetary Fund (IMF) and the World Bank (WB), its main objective being to measure the stability and solidity of the financial sector and evaluate its potential contribution to growth and development.

Resolution No. JPRF-F-2023-066

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Thus, the second visit of the FSAP to Ecuador began on April 19 and will conclude on May 2, 2023, with the evaluation of the capital market and green finance, payment system, public and corporate debt markets, support for financial inclusion; gaps, obstacles, and opportunities in financial inclusion; legal/regulatory framework related to financial inclusion, among other topics in which government entities are participating such as: Ministry of Economy and Finance; Monetary Policy and Regulation Board; Financial Policy and Regulation Board; Central Bank of Ecuador; Superintendence of Companies, Securities and Insurance; Banking Superintendence; and Superintendence of Popular and Solidarity Economy. For the Banking Superintendence, it is essential to have feedback from citizens and "stakeholders" of the financial sector, so mechanisms of citizen participation are being used, through a consultation button, in order to optimize its formulation and application."

And for the reasons stated, it requests that the time period be modified to allow compliance with the requirement of the aforementioned Second General Provision;

That, the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0035-M of April 28, 2023, submits to the President of the Board Report No. JPRF-CTCJ-2023-008 of April 28, 2023, which concludes:
5.1 The Banking Superintendence and the Financial Policy and Regulation Board have the duty to coordinate actions for the fulfillment of their functions, including the submission of information by the Control Body and the Regulator in accordance with Article 9 of the Organic Code of Money and Finance, Book I.
5.2 The Financial Policy and Regulation Board, as responsible for the formulation of credit and financial policy and regulation, has competence to directly request information it deems necessary, without any restriction, from the Banking Superintendence, to facilitate the exercise of its attributes as a financial regulator, which includes the possibility of modifying the time period granted for the fulfillment of the obligation of the control body and the entities regarding the application of the transitional classification mechanism, in accordance with what is provided in Articles 14 and 14.1 of the Organic Code of Money and Finance, Book I;

That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on April 28, 2023, on this date, learned of Memorandum No. JPRF-ST-2023-0035-M of April 28, 2023, issued by the Technical Secretariat of the Board, as well as the Technical-Legal Report No. JPRF-CTCJ-2023-008 of April 28, 2023, issued by the Technical Coordinator of the Public and Private Financial Sector and the Legal Coordinator of Policy and Financial Regulation of the aforementioned Board and the corresponding draft resolution;

That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on April 28, 2023, on this date, learned of and approved the following resolution; and, In exercise of its functions,

Resolution No. JPRF-F-2023-066

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RESOLVES:
ARTICLE FIRST.- Substitute the phrase "June 30, 2023" with "September 30, 2023" in the Transitional Provision of Chapter XVIII "Risk Asset Classification and Provisioning by entities of the public and private financial sectors under the control of the Banking Superintendence", Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities and Insurance Resolutions incorporated by Resolution No. JPRF-F-2023-061 issued on January 30, 2023.

ARTICLE SECOND.- Substitute the phrase "April 30, 2023" with "July 5, 2023" in the Second General Provision of Resolution No. JPRF-F-2023-061 issued on January 30, 2023.

GENERAL PROVISION
FIRST.- The Banking Superintendence shall communicate to its controlled entities the content of this Resolution.

FINAL PROVISION.- This resolution shall enter into force from the present date, without prejudice to its publication in the Official Register, and shall be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance.

NOTIFY.- Given in the Metropolitan District of Quito, on April 28, 2023.
THE PRESIDENT,
Mgs. María Paulina Vela Zambrano
The resolution above 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 April 28, 2023.- I CERTIFY.
TECHNICAL SECRETARY
Dr. Nelly Arias Zavala