JPRF-F-2024-0129 — Reform to the Technical Equity Regulatory Framework

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor
| Postal Code: 170507 | Quito - Ecuador |
Resolution No. JPRF-F-2024-0129
THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That Article 82 of the Constitution of the Republic of Ecuador recognizes the right to legal certainty, which is based on respect for the Supreme Norm and the existence of prior, clear, public laws and regulations applied by competent authorities; That Article 84 of the Fundamental Charter prescribes that any body with regulatory power shall have the obligation to adapt, formally and materially, laws and other legal norms to the rights provided for in the Constitution; That number 6 of Article 132 of the Supreme Norm grants public control and regulatory bodies the authority to issue general norms in matters within their competence, without being able to alter or innovate legal provisions; That the second clause of Article 141 of the Constitution determines that the “Executive Branch is integrated by the Presidency and Vice-Presidency of the Republic, the State Ministries, and the other bodies and institutions necessary to fulfill, within the scope of their competence, the attributes of stewardship, planning, execution, and evaluation of national public policies and plans created to execute them.”; That Article 226 of the Fundamental Charter establishes that State institutions, their bodies, 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; That Article 303 of the Fundamental Law provides that the “formulation of monetary, credit, exchange rate, and financial policies is the exclusive faculty of the Executive Branch (…)”; That Article 308 ibidem precepts that financial activities are a service of public order, and may be exercised, with prior authorization from the State, in accordance with the law; That Article 309 of the Supreme Norm stipulates that the national financial system is composed of the public, private, and popular and solidary sectors, which intermediates public resources, which shall have specific and differentiated control norms and entities, which will be responsible for preserving their security, stability, transparency, and solidity; That Article 425 of the Constitution prescribes the hierarchical order of application of norms, which is the following: “The Constitution; international treaties and conventions; organic laws; ordinary laws; regional norms and district ordinances; decrees and regulations; ordinances; agreements and resolutions; and other acts and decisions of the public powers.”; That, considering that the article subsequent to Art. 6 of Book I of the Organic Monetary and Financial Code establishes that bodies with regulatory capacity will seek to adopt international technical standards as a reference framework, this reform seeks to approximate the calculation of technical equity of financial entities to international standards, allowing them to reflect their technical equity in a comparable manner with other jurisdictions, seeking to maintain at all times the stability and sustainability
of the national financial system; That Article 13 of the Organic Monetary and Financial Code, Book I, reformed by the Organic Law Reforming the Organic Monetary and Financial Code for the Defense of Dollarization, published in the Official Register No. 443 of May 3, 2021, created the Financial Policy and Regulation Board, part of the Executive Branch and as a legal entity of public law, responsible for the formulation of policy and regulation of credit, finance, securities, insurance, and integrated health care services prepaid; That numbers 2 and 3 of Article 14 of the Code ibidem precept that it corresponds to the Financial Policy and Regulation Board: “2. Issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial system, securities, insurance, and integrated health care services prepaid 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 sector, securities,

Resolution No. JPRF-F-2024-0129

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor
| Postal Code: 170507 | Quito - Ecuador |
insurance, and integrated health care services prepaid, based on proposals presented by the respective superintendencies, within their respective scopes of competence and without prejudice to their independence”; That the antepenultimate clause of the aforementioned Article 14 mandates the Financial Policy and Regulation Board to issue norms in matters within its competence, without being able to alter legal provisions; That number 7 of Article 14.1 of the Code ut supra establishes that the Financial Policy and Regulation Board has the faculty to: “7. Issue the prudential regulatory framework to which financial entities, securities, insurance, and integrated health care services prepaid must adhere, framework that must be coherent, not give rise to regulatory arbitrage, and cover, at least, the following: (…) b. Establish the system of interest rates, as provided in article 130 of this Code, for active and passive operations of the national financial system and other interest rates required by law, promoting the development of prudent credit: Minimum capital levels, technical equity, and risk weightings of assets, their composition, method of calculation, and modifications; (…)”; That number 27 of the aforementioned Article 14.1. provides that the Board “exercise the other functions, duties and faculties assigned to it by this Code and the law.”; That the second clause of Article 190 of the aforementioned Organic Code states that “entities of the national financial sector, financial groups, and popular and solidary groups, based on consolidated and/or combined financial statements, are obliged to maintain at all times, a relationship between their technical equity and the sum weighted by risk of their assets and contingencies, not lower than nine percent (9%) (…)”; That Article 422 of the Code ibidem determines that entities that make up a financial group, individually and consolidated, shall be subject to all solvency, financial prudence, and control norms determined in the Organic Monetary and Financial Code, Book I and by the Superintendency of Banks; That Article 423 of the aforementioned Organic Code prescribes that, for the determination of solvency of financial groups, the capital invested in its subsidiaries and affiliates shall be deducted from the total technical equity of the group head. Additionally, it orders the Board to establish the provisions that must be applied for the consolidation and/or combination of financial statements of financial groups, due to the direct participation of the parent company or its significant influence in the entities comprising it, as well as to establish the other deductions of the total technical equity of the parent, arising from accounting items related to its subsidiaries or affiliates or from identified risks not covered by them; That the Twenty-Ninth General Provision of the Organic Monetary and Financial Code, Book I, added by the Organic Law Reforming the Organic Monetary and Financial Code
for the Defense of Dollarization, provides that in the current legislation where mention is made to the “Monetary and Financial Policy and Regulation Board”, it shall be replaced by “Financial Policy and Regulation Board”; That the Fifty-Fourth Transitional Provision of the Code ut supra precepts that “resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board and norms issued by control bodies, shall remain in force until the Monetary Policy and Regulation Board and the Financial Policy and Regulation Board decide what is appropriate, within the scope of their competencies.” That, by Resolution No. 047-2015-F of April 1, 2015, the Monetary and Financial Policy and Regulation Board substituted Chapter I “Relationship between Total Technical Equity and Assets and Contingencies Weighted by Risks for Institutions of the Public and Private Financial System”, Title V “On Technical Equity”, Book I “General Norms for the Application of Institutions of the Financial System” of the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board. That the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0104-M of November 27, 2024, submits to the President of the Board the Technical Report No. JPRF-

Resolution No. JPRF-F-2024-0129

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor
| Postal Code: 170507 | Quito - Ecuador |
CTSF-2024-013 and the Legal Report No. JPRF-CJF-2024-056, both dated November 27, 2024, and the corresponding draft resolution.
That the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on November 28, 2024 and carried out via videoconference on November 29, 2024, reviewed Memorandum No. JPRF-ST-2024-0104-M of November 27, 2024, issued by the Technical Secretary of the Board; as well as the Technical Report No. JPRF-CTSF-2024-013 and the Legal Report No. JPRF-CJF-2024-056, both dated November 27, 2024, issued by the Technical Coordination of Financial System Policy and Regulation and by the Legal Coordination of Financial Policy and Norms, and the corresponding draft resolution; That the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on November 28, 2024 and carried out via videoconference on November 29, 2024, reviewed and approved the following Resolution; and, In exercise of its functions, RESOLVES:
ARTICLE FIRST.- Substitute number 6 of Article 3 of Section II “Asset and Contingency Weighting Factors”, Chapter VIII “Relationship between Technical Equity and Assets and Contingencies Weighted by Risk for Entities of the Public and Private Financial System”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following text:
“6. One point zero (1.0) for placements in loans or credit titles and other physical and financial assets and investments, considering the following accounts:
1202 Repo operations with financial entities (13) 13 Investments (6) 14 Credit Portfolio (7) 15 Debtors by acceptances 16 – 1619-1611 Accounts receivable less Accounts receivable for housing portfolio sold to securitization trust less Advance for acquisition of shares.”
ARTICLE SECOND.- Incorporate after number 6 of Article 3 of Section II “Asset and Contingency Weighting Factors”, Chapter VIII “Relationship between Technical Equity and Assets and Contingencies Weighted by Risk for Entities of the Public and Private Financial System”, Title II
“National Financial System”, Book I “Monetary and Financial System” of the Codification of Resolutions Monetary, Financial, Securities, and Insurance Resolutions, number 7 containing the following weighting:
“7. Two point fifty (2.50) for the following groups:
The balance of investments in local and foreign shares that are within the consolidation process.
The capital assigned to agencies or branches abroad.
The balances recorded in account 1611 “Advance for acquisition of shares”, when they correspond to investments in shares, advances in capitalization or establishment of subsidiary or affiliate companies. The balance of investments in affiliates that exceed the established thresholds.”
ARTICLE THIRD.- Delete the second paragraph of Note to Technical Equity number 8 of Article 3
of Section II “Asset and Contingency Weighting Factors”, Chapter VIII “Relationship between Technical Equity and Assets and Contingencies Weighted by Risk for Entities of the Public and Private Financial System

Resolution No. JPRF-F-2024-0129

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Red Block, 8th floor
| Postal Code: 170507 | Quito - Ecuador |
and Private”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, which states as follows:
“Capital invested shall not be weighted, that is, the value of its participation in paid-in capital plus reserves, except those arising from asset valuations, in a subsidiary or affiliate entity. In this case, said value shall be deducted from total technical equity.”
ARTICLE FOURTH.- Substitute the text of the section “Deductions from Total Technical Equity” of
Article 7 of Section III “Formation of Total Technical Equity”, Chapter VIII “Relationship between Technical
Equity and Assets and Contingencies Weighted by Risk for Entities of the Public and Private Financial System”, Title II “National Financial System”, Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following text:
“DEDUCTIONS FROM PRIMARY TECHNICAL EQUITY
The book value of investments in shares in local or foreign affiliates that are entities of the financial sector shall be deducted from the primary technical equity of the parent, provided that they individually exceed 10% of primary technical equity or 17.65% in a group of primary technical equity, considering the total investment in affiliates. The value that is not deducted from primary technical equity shall be included in assets weighted by risk at 250%.” SINGLE GENERAL PROVISION.- In case of doubt regarding the content or scope of the provisions of this Resolution, it shall be for the control body to resolve them within the scope of its competencies. 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 November 29, 2024. THE PRESIDENT, Mgs. María Paulina Vela Zambrano The preceding Resolution was processed and signed by Master María Paulina Vela Zambrano, President of the Board of Financial Policy and Regulation, in the Metropolitan District of Quito, on November 29, 2024.- I CERTIFY. TECHNICAL SECRETARY, Mgs. Luis Alfredo Olivares Murillo