JPRF-F-2023-067 — Reforming regulations on the cancellation of current accounts and closure of savings accounts in the public and private financial sector

THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That, Article 11 of the Constitution of the Republic of Ecuador prescribes the principles by which the exercise of rights shall be governed, among which, in numbers 4, 5, and 6, it states that no legal norm may restrict the content of rights or constitutional guarantees; that in matters of constitutional rights and guarantees, public servants, whether administrative or judicial, must apply the norm and interpretation that most favor their effective enforcement; and that all principles and rights are inalienable, irrenounceable, indivisible, interdependent, and of equal hierarchy;

That, number 16 of Article 66 of the Fundamental Norm stipulates that the right to freedom of contracting is recognized and guaranteed to persons;

That, Article 82 of the Magna Carta determines that the right to legal security is based on respect for the Constitution and the existence of prior, clear, public legal norms applied by competent authorities;

That, Article 226 of the aforementioned Constitution establishes that 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; having the duty to coordinate actions to fulfill their purposes and make effective the enjoyment and exercise of rights recognized in the Constitution;

That, Article 227 ibid states that public administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, coordination, participation, planning, transparency, and evaluation;

That, Article 308 of the same Constitution prescribes that financial activities are a service of public order, and may be exercised with prior authorization from the State, in accordance with the law; having the fundamental purpose of preserving deposits and meeting financing requirements to achieve the country's development objectives, for which they shall intermediated captured resources efficiently to strengthen national productive investment, and socially and environmentally responsible consumption. It further determines that the regulation and control of the private financial sector will not transfer the responsibility for banking solvency nor imply any guarantee from the State; stating that administrators and managers of financial institutions, and those who control their capital, will be responsible for their solvency;

That, Article 309 of the aforementioned Fundamental Charter establishes that the national financial system is composed of the public, private, and popular and solidary sectors, which intermediated public resources; stipulating that each of these sectors will have specific and differentiated control norms and entities, which will be responsible for preserving their security, stability, transparency, and solidity;

That, the Organic Monetary and Financial Code, Book I, in its Article 3, determines the objectives of said Code; among which, in number 5, is the mitigation of systemic risks and reduction of economic fluctuations;

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That, Article 4 of the aforementioned book of the Organic Code, in its numbers 5 and 6, when referring to the principles that inspire the provisions of the Organic Monetary and Financial Code, indicates, among others, the strengthening of confidence and the protection of citizens' rights;

That, Article 13 of the Organic Monetary and Financial Code, Book I, creates the Financial Policy and Regulation Board, 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 services policy; corresponding to this Board, in accordance with Article 14 ibid, the scope to formulate credit and financial policies, and to issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial system, among others. For the fulfillment thereof, the Financial Policy and Regulation Board will issue norms in matters within its competence, without being able to alter legal provisions; being able to issue regulations by segments, economic activities, and other criteria;

That, Article 14.1 of the cited Organic Code establishes that the Financial Policy and Regulation Board must comply and exercise, among others, the duties and faculties of: regulating the creation, constitution, organization, activities, operation, and liquidation of financial entities (number 1); issuing the prudential regulatory framework to which financial entities must adhere, which must be coherent and not give rise to regulatory arbitrage (number 7); and, establishing, within the framework of its competencies, any measure that helps prevent and seek to eradicate fraudulent and prohibited practices, including money laundering and the financing of crimes such as terrorism, considering current and applicable international standards (number 15, literal a.). Article 14.1 ibid further states that 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 duly founded and argued technical reports;

That, the unnumbered article added after Article 6 ibid, regarding international best practices, mandates that bodies with regulatory, normative, or control capacity will seek to adopt international technical standards related to their area of competence as a reference framework for the issuance of regulations and the exercise of their functions, strictly adhering to the normative hierarchy established in the Constitution of the Republic of Ecuador;

That, Article 9 of the aforementioned Code states that regulatory and control bodies will have the duty to coordinate actions to fulfill their purposes and make effective the enjoyment and exercise of rights recognized in the Constitution, for which purpose they will exchange data or reports related to entities subject to their regulation and control;

That, Article 25.1 of the Organic Monetary and Financial Code, Book I, determines that, among the functions of the Technical Secretariat of the Financial Policy and Regulation Board, are those of analyzing the impacts of the application of regulation proposals, and generating or collecting information for the formulation of policies that it is competent to issue;

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That, Article 150 of the aforementioned Organic Code mandates that entities of the national financial system will be subject to the regulation issued by the Monetary and Financial Policy and Regulation Board;

That, in accordance with General Provision Twenty-Ninth of the Organic Monetary and Financial Code, Book I, "(i)n current legislation where mention is made of the 'Monetary and Financial Policy and Regulation Board', replace it with 'Financial Policy and Regulation Board'.";

That, Transitory Provision Fifty-Fourth of the cited Organic Code prescribes: "Transitory Regime of Resolutions of the Codification of the Monetary and Financial Policy and Regulation Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board and the norms issued by control bodies will remain in force until the Monetary Policy and Regulation Board and the Financial Policy and Regulation Board decide what corresponds, within the scope of their competencies.";

That, Article 477 of the aforementioned Organic Code stipulates that the Financial Policy and Regulation Board and control bodies, within the scope of their functions, will issue the necessary norms to implement the provisions of Title II ("National Financial System");

That, Article 244 ibid determines that entities of the national financial system have the obligation to establish internal control systems for the prevention of crimes, including money laundering and the financing of crimes such as terrorism, in all financial operations;

That, the Organic Law on Prevention, Detection, and Eradication of the Crime of Money Laundering and Financing of Crimes, in its Article 4, indicates the duties that institutions of the financial system have regarding economic activities susceptible to being used for money laundering and the financing of other crimes; recognizing, furthermore, in Article 5, the status of financial system institutions as obligated subjects to report to the Financial and Economic Analysis Unit (UAFE) through the delivery of reports provided for in said Law;

That, Article 9 ibid prescribes that the Monetary and Financial Policy and Regulation Board (Financial Policy and Regulation Board, in application of what is provided in General Provision Twenty-Ninth of the Organic Monetary and Financial Code, Book I) will exercise leadership in matters of money laundering and crime financing prevention; for which, in use of the faculties established by law, it will issue public policies, regulation, and supervision in the areas of its competence, for the prevention of money laundering and crime financing;

That, Article 10 of the aforementioned law establishes that the Financial Policy and Regulation Board will also have the attributes of: designing and approving policies, norms, and plans for the prevention and control of money laundering and crime financing [literal a)]; and, issuing and applying preventive measures against money laundering in the sectors of economic and financial activity within its competence [literal b)];

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That, the Policy for Integral Risk Management and Administration of Entities of the Public and Private Financial Sectors, contained in Chapter VII of Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, is applicable to entities of the public and private financial sectors, whose control falls under the Superintendency of Banks, and establishes that these entities must establish efficient and effective schemes for the administration and control of all risks to which they are exposed in the development of their business, according to their social object, without prejudice to the fulfillment of obligations on the matter established by other special and/or particular norms; stating that integral risk management is part of the institutional strategy and the decision-making process;

That, General Provision Second of Chapter VII "Policy for Integral Risk Management and Administration of Entities of the Public and Private Financial Sectors", Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, contemplates that: "Through control norms, the Superintendency of Banks will issue provisions that regulate the policies contained in this resolution, and will issue applicable provisions for the administration and management of credit, market, liquidity, operational, money laundering, and crime financing risks, and other risks inherent to the operations developed by entities of the public and private financial sectors.";

That, in the Codification of Norms of the Superintendency of Banks, in Chapter VI of Title IX "On Risk Management and Administration" of Book I "Control Norms for Entities of the Public and Private Financial Sectors", is the "Control Norm for the Administration of Money Laundering and Crime Financing Risk, such as Terrorism (ARLAFDT)";

That, Article 1 of the "Control Norm for the Administration of Money Laundering and Crime Financing Risk, such as Terrorism (ARLAFDT)", states that its provisions are applicable to entities of the public and private financial sectors, and determines that controlled entities will observe the mandates contained in the Organic Monetary and Financial Code; the Organic Law on Prevention, Detection, and Eradication of the Crime of Money Laundering and Financing of Crimes and its general regulation; the "Policy for integral risk management and administration of entities of the public and private financial sectors", issued by the Financial Policy and Regulation Board; as well as international treaties duly ratified by the Ecuadorian State;

That, the same Article 1 ibid determines that controlled entities have the obligation to adapt their internal regulations to international best practices, respecting the legal framework referred to in the previous consideration, and, where it is more demanding, they will strive for the administration of this risk to have a higher level and in accordance with better standards;

That, Article 2 of the aforementioned control norm, in number 2.2., defines "Administration of Money Laundering and Crime Financing Risk, such as Terrorism (ARLAFDT)" as a management model to administer money laundering and crime financing risks such as terrorism, composed of stages

____________________________ and elements, which through policies, processes, procedures, and methodologies adopted by the controlled entity seeks to prevent that in the execution of its operations and transactions it may be used as an instrument to launder assets and/or finance crimes such as terrorism, as well as intends to detect cases potentially related to money laundering or crime financing, such as terrorism, in its various modalities and must attend to the nature, social object, and other particular characteristics of each of them;

That, Article 4 ibid states that controlled entities must design and implement the administration of money laundering and crime financing risks such as terrorism -ARLAFDT- according to the minimum criteria and parameters required in said norm; and, considering the nature, social object, and other particular characteristics of the controlled entity, it must prevent that its transactions may be used as an instrument to launder assets and/or finance crimes such as terrorism; and, detect cases potentially related to money laundering or crime financing, such as terrorism, in its various modalities;

That, the Control Norm for the Administration of Money Laundering and Crime Financing Risk, such as Terrorism (ARLAFDT) provides in its Article 9 that policies constitute the structural basis on which processes and procedures to prevent money laundering and crime financing such as terrorism will be based and will be the starting point for the design and implementation of ARLAFDT; being one of the minimum requirements that policies adopted by controlled entities must comply with, the application of due diligence processes through the instrumentation of procedures, mechanisms, and methodologies detailed in the norm, in the context of diligence to all internal and external clients and users of the controlled entity, regardless of the product or channel used;

That, the aforementioned control norm, in number 10.5.6, determines as one of the functions of the Compliance Officer, the administration of the stages and elements of ARLAFDT with the purpose of preventing money laundering and crime financing risks such as terrorism and detecting unusual and unjustified operations and transactions, determining the risk and proposing actions for its mitigation, which will be reported monthly to the Compliance Committee and the Risk Administration Committee or when required;

That, number 10.2.12 ibid fixes as one of the obligations and functions of the Compliance Committee, the receipt, analysis, and pronouncement on each of the points contained in the specific, monthly, and annual reports of the Compliance Officer, issuing recommendations and corrective measures as appropriate;

That, one of the due diligence mechanisms considered in the Control Norm for the Administration of Money Laundering and Crime Financing Risk, such as Terrorism (ARLAFDT) is that of "Know Your Customer"; regarding which, in its number 12.1.1.1.13, it establishes that controlled entities, through the Compliance Officer and Compliance Committee, may take the decision of non-connection or non-continuation of commercial relations with clients, respectively, considering the high risk they represent and observing current legal and normative provisions, complying with policies and processes approved by the Board of Directors prior to the report of the Compliance Officer;

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That, through Letter No. PE-112-2022 of June 6, 2022, the Acting Executive President of the Association of Banks of Ecuador (ASOBANCA) presents to the Financial Policy and Regulation Board the Legal Report s/n regarding the topic "Closure and Cancellation of Accounts", through which the need to reform the regulation concerning the cancellation of current accounts and closure of savings accounts is raised, contained in Subsection XII "On the Cancellation of Current Accounts", Section I "General Norms of the Check", Chapter XLI "On Checks", as well as in Article 16 of Chapter XLVI "General Norm for the Opening and Management of Savings Accounts in Entities of the Public and Private Financial Sectors", respectively; which are contained in Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions.;

That, with Letter No. PE-059-2023 of March 1, 2023, ASOBANCA requests the Board to receive it in a new meeting, with the purpose of "supplying information and relevant practical elements that facilitate proposing alternatives to the reform of the norm"; while, through Letter No. JPRF-JPRF-2023-0088-O of March 8, 2023, the Financial Policy and Regulation Board responded to the aforementioned Letter No. PE-059-2023 of ASOBANCA;

That, through Letter No. PE-107-2023 of April 26, 2023, the Executive President of the Association of Banks of Ecuador presents to the Financial Policy and Regulation Board his technical and legal arguments regarding the reform of the regulation relative to the closure of savings accounts and the cancellation of current accounts, which have been submitted to the analysis of the technical and legal teams of the Board;

That, the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0040-M of May 16, 2023, sends to the President of the Board the following reports:
i) Technical Report No. JPRF-CTSF-2023-004 of May 15, 2023, issued by the Technical Coordination of Financial System Policy and Regulation of the Board, which states that:
"(...) in order to allow public and private financial entities to close savings and current accounts immediately by decision of the Compliance Committee, it is suggested to effect a reform including the following text: 'The financial entity may cancel immediately by decision of the Compliance Committee of each entity, prior to the report of the Compliance Officer and corresponding analysis that justifies the closure of the account observing the current legal and normative provisions inherent to the prevention, detection, and eradication of the crime of money laundering and the financing of crimes;' in the norms described below:

• "General Norm for the Opening and Management of Savings Accounts in Entities of the Public and Private Financial Sectors" codified in Book I "Monetary and Financial System", Title II "National Financial System", Chapter XLV of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, and;

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• "General Norms of the Check" codified in Section I "General Norms of the Check", Subsection XII "On the Cancellation of Current Accounts", Title II: "National Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions.
  ii) Legal Report No. JPRF-CJF-2023-014 of May 15, 2023, issued by the Legal Coordination of Financial Policy and Norms of the Board, which concludes that:

1. The Financial Policy and Regulation Board, as responsible for the formulation of financial policy and regulation, has legal competence and faculty to: (i) Regulate the organization, activities, and operation of financial entities; (ii) Issue the prudential regulatory framework to which financial entities must adhere;