Regulation on Authorization for the Establishment of Pension Fund Administrators

DE No. 61/1997
DECRETO No. 61/1997
REGULATION ON AUTHORIZATION FOR THE ESTABLISHMENT OF PENSION FUND ADMINISTRATORS Approval: 21/07/1997 Validity: 05/08/1997

DECRETO No. 61

THE PRESIDENT OF THE REPUBLIC OF EL SALVADOR,

CONSIDERING:

I. That by Decree No. 927, dated December 20, 1996, published in the Official Journal No. 243, Volume No. 333, dated the 23rd of that same month, the Pension Savings System for Workers in the private, public, and municipal sectors was created, which comprises the set of institutions that will administer the resources destined to pay the benefits that must be recognized to affiliates to cover the risks of Common Disability, Old Age, and Death.

II. That it is necessary to issue the Regulation on Authorization for the Establishment of Pension Fund Administrators, which must contain all the norms that, in accordance with the Law of the Pension Savings System, facilitate its development and compliance.

THEREFORE,

In exercise of its constitutional powers,

DECREE the following:

REGULATION ON AUTHORIZATION FOR THE ESTABLISHMENT OF PENSION FUND ADMINISTRATORS.

TITLE I
GENERALITIES

SINGLE CHAPTER
DEFINITIONS

Art. 1.- In the text of this Regulation, the following terms will be used:

AFP: Pension Fund Administrators
Agent: Pension Services Agent
Agency: Those public service locations that can perform all SAP processes according to the Law and its Regulations.

Central Bank: Central Reserve Bank of El Salvador.

Stock Exchange: Stock Exchange
Fund: Pension Fund
Law: Law of the Pension Savings System
Representation Offices: Those offices of the AFP that, without being agencies, established abroad, can perform affiliation tasks, provide information to the public, and all those established by the Superintendence through the corresponding Instruction. National Offices: Those offices of the AFP that, without being agencies, established within the national territory, can perform affiliation tasks, provide information to the public, except for collection. SAP: Pension Savings System Superintendence: Superintendence of Pensions Days: Calendar days, unless it is expressly stated that they are business days.

TITLE II
ON PENSION FUND ADMINISTRATORS

CHAPTER I
ON THE CONSTITUTION OF THE SOCIETY

Art. 2.- AFPs are financial pension institutions that are constituted as anonymous societies. They are governed by the Law of the Pension Savings System, the Organic Law of the Superintendence of Pensions, and its Regulations, as well as by the Instructions, Circulars, and General Resolutions issued by the Superintendence, and other applicable requirements in accordance with the Commercial Code and other commercial laws.

Art. 3.- AFPs will be constituted as anonymous societies of indefinite term, with fixed capital, divided into registered shares and with no fewer than ten shareholders. AFPs will establish their domicile within the Republic of El Salvador.

Art. 4.- The exclusive object of each AFP will be to administer a fund that will be called Pension Fund, under the modality of individual savings accounts for pensions, and to provide old age, common disability, and survivorship benefits.

Art. 5.- AFPs are obligated to collect the corresponding contributions, with the aim of crediting them to the respective individual savings accounts for pensions and investing them within the framework established by the Law, Regulations, and corresponding Instructions.

Art. 6.- AFPs must always include in their corporate name the phrase "Pension Fund Administrator" or prefix the acronym "AFP".

Art. 7.- For commercial purposes, the phrase "Pension Fund Administrator" or the acronym "AFP" must be included, which will be the exclusive use of the anonymous society that is duly constituted and authorized by the Superintendence.

Art. 8.- For the installation of their agencies and public service offices and the development of their activities, AFPs will be subject to what is provided in the Law and the Management Regulation.

Art. 9.- When AFPs, for activities related to the functioning of agencies, offices at the national level, and representation offices, lease or receive real estate properties owned by banks, financial institutions, insurance companies, stock exchanges, stock brokerage firms, risk rating agencies, established in the country and their subsidiaries or abroad, they may not share with them human resources, equipment in general, or movable property.

In the aforementioned cases, AFPs, prior to signing the corresponding contract, will inform the Superintendence in writing of the location of the property. Within a period that will not exceed three business days, the Superintendence will communicate to the AFP, if it deems it convenient, the date and time for the realization of a physical inspection of the corresponding premises, after which it will express its decision in writing. Once the aforementioned communication is received, the AFP will proceed to sign the respective contract.

Art. 10.- Those interested in constituting an AFP, and these once authorized, must refrain from performing acts that constitute or could constitute unfair competition, understood as those actions promoted with the aim of obtaining, for their own benefit, the capture of affiliates and/or a greater market share, offering current or future affiliates benefits that, being directly related to the activities performed by AFPs, could be done by these under advantageous conditions, taking advantage of the shareholders' position.

CHAPTER II
ON SOCIAL CAPITAL, EQUITY, AND THE SPECIAL GUARANTEE CONTRIBUTION.

Art. 11.- The minimum social capital to constitute an AFP is five million colones, which must be fully subscribed and paid in cash or certified check at the time the corporate deed is granted.

Art. 12.- The AFP is obligated to increase its social capital in the following circumstances:

a) When it completes twenty thousand affiliates, it will increase the social capital to the sum of seven million five hundred thousand colones. b) When it has forty thousand or more affiliates, it will increase the social capital to the sum of fifteen million colones.

Likewise, the social capital must be increased in the case of deficiency of minimum net equity, as referred to in article 15 of this Regulation.

Art. 13.- The Superintendence, with the prior opinion of the Central Bank, will readjust every two years the amounts indicated in articles 11 and 12 of this Regulation, according to the variation of the Consumer Price Index established officially. For this purpose, the Superintendence will issue the corresponding Instruction.

The Central Bank, to issue the opinion referred to in the preceding paragraph, will have fifteen days counted from the date of receipt of the readjustment proposal formulated by the Superintendence. Upon expiration of the term, without the aforementioned opinion having been received, the Superintendence will issue the respective Instruction.

Art. 14.- The payment of the amount resulting for the adjustment and the increases in social capital referred to in articles 11, 12, and 13 of this Regulation must be made by AFPs in cash and within a period of ninety days, counted from the publication by the Superintendence of the new minimum capital requirement or from the date when the circumstances indicated in literals a) and b) of article 28 or article 35 of the Law occur.

Art. 15.- The minimum net equity for an AFP to develop its activity cannot be less than three percent of the fund it administers. Without prejudice to the foregoing, the minimum net equity must be maintained at a sum at least equal to the minimum social capital required by article 28 of the Law.

Art. 16.- The minimum net equity of an AFP will consist of the sum of:
a) Paid social capital; b) Legal reserve; c) Other capital reserves, if any; d) Surplus accounts, if any; e) Retained earnings, if any; f) Fifty percent of the net profits from the provision of income tax for the fiscal year; and, g) Fifty percent of the revaluations authorized by the Superintendence.

To the amount established above, the capital participations in other societies and the value of losses, if any, will be deducted.

Art. 17.- In cases of deficiency of minimum net equity, the AFP must remedy this situation through increases in cash of social capital. The ninety-day period referred to in article 14 may be extended at the request of the interested party presented in time, for up to thirty more days, for justified cause and prior authorization of the Superintendence.

Failure to comply with the provisions of the preceding paragraph will result in the revocation of the authorization to operate, and the procedures proper to the dissolution and forced liquidation of the society, as referred to in articles 61 to 65 of the Law and the corresponding Regulation, must be initiated.

Art. 18.- The Superintendence, with the aim of complying with the provisions of the previous articles, may demand at any time from the AFP, the preparation of financial statements or any other situation report it deems necessary.

Art. 19.- The AFP is obligated to constitute and maintain, with its own resources, a Special Guarantee Contribution, which will have the object of backing the minimum return of the fund it administers.

In cases where the AFP requires debt to comply with the Special Guarantee Contribution, it must inform the Superintendence in advance about the conditions under which it will assume such obligation, and subsequently must comply with sending to the Superintendence, within a period of five days of signing, a copy of the respective contract.

CHAPTER III
ON SHAREHOLDERS

Art. 20.- To be the holder of one percent or more of the share capital of an AFP, prior authorization from the Superintendence is required. The shares belonging to natural persons in societies that are themselves shareholders of AFPs will be included in this percentage.

Art. 21.- The following natural and legal persons cannot be shareholders of an AFP:
a) Those who are in a state of bankruptcy or insolvency; b) Those who have been convicted of crimes against property or the Public Treasury; c) Directors, officials, or administrators of an institution that is part of the financial system who have incurred equity deficiencies of twenty percent or more of the minimum required by the respective law; who have required State contributions for their stabilization; or who have been intervened by the respective authority. In any case, the responsibility they had for such a situation to occur must be demonstrated; d) Debtors of the financial system for credits to which a stabilization reserve of fifty percent or more of the balance has been constituted, while such situation persists; e) Those who have participated directly or indirectly in a serious violation of the laws and regulations governing the financial system; f) Those who have received credits that have been reserved at one hundred percent in accordance with the respective Instructions, while the irregularity of the credit persists; g) Banks, financial institutions, insurance companies, stock exchanges, stock brokerage firms, and risk rating agencies, established in El Salvador, and their subsidiaries; h) Banks, financial institutions, insurance companies, stock exchanges, stock brokerage firms, and risk rating agencies, established abroad; and, i) State institutions of any nature.

Art. 22.- In the case of a legal person, the circumstances referred to in literals a) through e) of the previous article must be considered, as appropriate, for the impediment to participate as a shareholder of an AFP, regarding partners or shareholders who are holders of twenty-five percent or more of the shares of the society.

Commercial acts performed in contravention of what is established in the previous article of this Regulation will be declared null by the Superintendence upon becoming aware of them, and the shares will be sold at public auction according to common procedures; the proceeds from said auction will be returned to the contravening buyers.

CHAPTER IV
BOARD OF DIRECTORS

Art. 23.- The administration of an AFP will be entrusted to a Board of Directors composed of no fewer than five Principal Directors with an equal number of Alternate Directors.

Art. 24.- To be a Principal or Alternate Director of an AFP, it is required:
a) To be over twenty-five years of age; b) To be of recognized honorability; c) To demonstrate financial or administrative competence; and, d) To present at least two banking and credit references, demonstrating financial solvency;

Art. 25.- The following are ineligible to be part of the Board of Directors of an AFP:
a) Directors, officials, and other employees of another AFP, banks, financial institutions, stock brokerage firms, stock exchanges, and insurance companies; b) Directors, officials, and employees of the Superintendencies of Securities, the Financial System, and Pensions; c) Insolvent or bankrupt individuals, while they have not been rehabilitated, and those who have been judicially qualified as responsible for culpable or fraudulent bankruptcy, in any case; d) Debtors of the financial system for credits to which a stabilization reserve of fifty percent or more of the balance has been constituted while such situation persists. This ineligibility extends to their respective spouses or relatives in the first degree of consanguinity; e) Likewise, the ineligibility will apply equally to directors who hold twenty-five percent or more of the shares of societies that are in the aforementioned situation; f) Those who have been directors, officials, or administrators of an institution that is part of the financial system who have incurred equity deficiencies of twenty percent or more of the minimum required by law; who have required State contributions for their stabilization; or who have been intervened by the respective authority. In any case, the responsibility they had for such a situation to occur must be demonstrated; g) Those who have been convicted by a final judgment for crimes against property or the Public Treasury; h) Those who have directly participated in a serious violation of the laws and regulations governing the financial system; i) Those who have been judicially condemned to pay debts while they do not prove having cancelled them; j) Public officials and elected officials; and, k) Those who are legally incapacitated.

Art. 26.- The AFP must communicate to the Superintendence, on the next business day that any of the causes referred to in the previous article occurs or arises, with the aim that the Superintendence declares the ineligibility. In the case that the AFP fails to communicate this within the aforementioned period, it will be subject to sanction. The management of the director or official will cease from the Resolution issued by the Superintendence.

Art. 27.- The members of the Board of Directors will be elected by the General Shareholders' Meeting of the AFP, for a period not exceeding 5 years, and may be re-elected. The position of Director is personal and cannot be performed through a representative.

Art. 28.- No member of the Board of Directors of an AFP may hold any executive position within the same AFP, with the exception of its President, who may hold the position of General Manager.

CHAPTER V
ON ADMINISTRATORS

Art. 29.- For the purposes of the Law and its regulations, Administrators will be understood as Directors and Managers, in accordance with what is established by the Commercial Code, to whom the requirements and causes of ineligibility contemplated in articles twenty-four and twenty-five of this regulation will be applicable.

Art. 30.- The appointment of Administrator or Manager in an AFP cannot fall on any legal person. Likewise, powers regarding the designation of administrators or managers cannot be attributed to entities external to the AFP or to a social body other than the Board of Directors.

TITLE III
ON THE AUTHORIZATION OF CONSTITUTION

CHAPTER I
ON THE APPLICATION AND SUPPORTING DOCUMENTATION

Art. 31.- Those interested in constituting an AFP must present to the Superintendence, duly folioed, in three copies, the following:

a) Application to the Superintendent, which must contain:
i) Name, age, profession or occupation, domicile, and nationality of the applicants if they are natural persons, and denomination or corporate name as appropriate, nature, nationality, and domicile if they are legal persons; the same data of their Legal Representative or Attorney-in-fact; in all cases with the respective banking and credit references. Corporate name of the AFP, as well as the commercial name it will use. Domicile and designation of the location of its main headquarters, additionally adding obligatorily the detail of the location of at least one agency at the national level destined to public service. Common domicile for the purpose of directing correspondence related to the application. ii) The amount of social capital with which it is proposed to start operations, indicating the amount of subscribed and paid capital as well as the form and term of payment of the part of the social capital subscribed, superior to the minimum capital required, if applicable. iii) Name, age, profession or occupation, domicile, nationality of the future shareholders, and the amount of their respective subscriptions. b) Curriculum Vitae of the persons participating as initial Principal and Alternate Directors, indicating their banking and credit references. c) Sworn Declaration before a Notary Public of the Republic regarding their property and income, in the case that the shareholders are natural persons. If the shareholders are legal persons, they must present audited financial statements for the last two years. If the legal person has more than one year and less than two years of constitution, it will present the audited financial statement of the first year and the projected financial statement of the second year. In the case that they have less than one year of constitution, they must present the projected financial statements. In the case of being foreign, if they are a natural person, they must present the Sworn Declaration duly authenticated; and if they are a legal person, they will present audited financial statements for the last two years. d) Sworn Declaration before a Notary Public of the Republic in which it is expressed that natural persons and legal representatives of legal persons are not included in the circumstances and special prohibitions referred to in articles 31 and 32 of the Law, as well as having fulfilled their tax obligations within the terms established by the laws on the matter.

DE No. 61/1997
DECRETO No. 61/1997
REGULATION ON AUTHORIZATION FOR THE ESTABLISHMENT OF PENSION FUND ADMINISTRATORS Approval: 07/21/1997 Validity: 08/05/1997

If carried out abroad, the Sworn Declaration with the authentic copies of the Law must be presented.
This Declaration must also be presented by the future principal and alternate directors as well as the managers, for the purposes stated in Article 55 of the Law. e) Draft corporate deed of incorporation incorporating the AFP's Bylaws. f) Financial feasibility study of the institution. g) Implementation Plan of the Project.

Art. 32.- In the event that what is stated in the Sworn Declarations referred to in the previous article does not correspond to the truth, the Superintendence will reject the submitted application or revoke the authorization to operate, without prejudice to civil or criminal actions that may arise.

Art. 33.- The financial feasibility study must be defended before the Superintendence by the interested parties and must contain, at a minimum, the following information.
A) An integral study of the SAP scope in which the following must necessarily be included:
a) An integral study and analysis of the AFP market, covering the following aspects:
i. The participation of the SAP within the pension system as a whole.
ii. Economic-financial projections estimated for the SAP.
iii. Potential offer of pension services.
iv. Implications that arise in the capital markets as a result of the operability of the SAP.
v. Estimated relationship between affiliates and the economically active population.
b) Specification and analysis of the target market demonstrating viability in the capture of pension resources, which must contemplate:
i. The main characteristics of the target market, indicating the expected participation in the pension market.
ii. Structure and levels of average remuneration of potential affiliates in the target market.
iii. Structure and levels of ages of potential affiliates.
iv. Assumed levels of morbidity.
v. Level of contribution density.
vi. Marketing program proposed to be carried out, indicating the promotional and advertising channels that support it and in which, at a minimum, the deadlines, budgets, and sales arguments specific to the initial positioning of the AFP are specified.

B) Organizational scheme under which it intends to operate and in which the following is considered:
i. Initial organizational chart and projected for 5 years of the AFP.
ii. Definition and description of the units and their functions, specifying the objectives and activities to be developed in each of them.
iii. Profile and requirements required of the administrators and officials who will make up the AFP, in their different units.
iv. Number of pension service agents estimated for the start of their activities, as well as their planned expansion program in relation to the fulfillment of capture goals for their target market.
v. Profile and requirements required of pension service agents.
vi. Number of workers, including administrators, officials, and employees, with which it estimates to start its operations as well as those projected for 5 years.

C) Support for the viability of the AFP formation project, specifying for this effect the following:
a) Working assumption for a five-year analysis period in which the base levels of the most important aspects of the project are explained and detailed, considering, at a minimum, the following:
i. Average levels of affiliates' remuneration.
ii. Levels or ranges of commissions that the AFP intends to charge as remuneration for the services it provides to its affiliates.
iii. Expected profitability of the Fund it administers, for the next five years, at a minimum, with its respective justification.
iv. Levels of expected transfers.
v. Levels of benefits to be granted, according to the actuarial calculations and evaluations in the case.
vi. Estimated morbidity levels.
vii. Level of contribution density.

With respect to what is requested in item ii. of this section, the cost structure supporting the level of commissions to be charged must be attached. b) Projection of the fundamental variables of the study, for the next five years, considering, at least, the following:
i. Number of affiliates.
ii. Pension Fund.
iii. Income and expenses of the AFP, derived from the direct administration of the Fund.
c) Projection for the next five years of cash flows, balance sheets, and income statements, presented monthly for the first two years and annually for the following three, with express indication of the pre-operational and startup expenses incurred by the AFP. d) Sensitivity analysis of the project taking into consideration significant alterations in the conditions of the working parameters and assumptions, especially in the cases of:
i. Affiliation levels.
ii. Average remuneration of affiliated workers.
iii. Expected profitability of the Fund.
iv. Level of contribution density.
v. Disability and survivorship insurance premium.

The calculations and projections specific to this section must be presented in national currency at current value.

Art. 34.- The Implementation Plan of the Project must contain the following:
a) Information related to the general operation and functioning program, which in turn must be referred to:
i. Operation Plan. It will contain information related to the human, material, and financial resources to be used in the project.
ii. Control system in which the information processes that allow adequate functioning of the AFP are determined and identified.
iii. Control mechanism for the persons participating in the investment operations of the Fund they administer.
iv. Collection and crediting control systems; as well as evaluation and quality control systems for the affiliation processes.
b) Schedule in which the activities to be carried out by the AFP until the start of its operations are described in detail.

CHAPTER II
PROCEDURE FOR AUTHORIZATION OF ESTABLISHMENT

Art. 35.- Upon receipt of the submitted application with the pertinent documentation, the Superintendence, within a period of twenty business days counted from said presentation, will carry out the corresponding evaluation and request additional information it deems pertinent, will communicate in writing to the interested parties only once the observations it deems necessary to make regarding the presented documentation, and will set a day and hour for the defense of the feasibility study.

Art. 36.- In cases where the Superintendence requires the interested parties, additional or clarifying information regarding the application or the requirements required for the establishment of an AFP, the previous period will be interrupted until the interested parties comply with what is required by the Superintendence.

Art. 37.- If falsity in the presented documentation or information is proven, the Superintendence will proceed to reject the respective application or cancel the authorization granted, if applicable. This circumstance will be considered as a precedent.

Art. 38.- Once the twenty business day period has expired or the observations have been satisfied, the Superintendence will order, within the period established by the Law, the publication once at the expense of the interested parties, in two newspapers of national circulation, of a notice indicating the corporate name of the AFP, the list of future shareholders, and the list of initial directors, manifesting their intention to establish an AFP.

Art. 39.- Within a period of 15 days from the day following the publication of the notice referred to in the previous article, any person may formulate in writing the objections to the quality of the shareholders and directors, attaching the relevant indications and evidence.

Art. 40.- The Superintendence will communicate in writing to the interested parties the objections received, granting them a period of three business days to make the corresponding defense. Meanwhile, until said objections are resolved, the periods are interrupted.

Art. 41.- In the event that one or more of the objections prove to be well-founded, the Superintendence will declare the suspension of the procedure while the interested parties comply with presenting a new list of shareholders or initial directors, after which it will continue as stated in Article 38 of this regulation. If the interested parties do not remedy the aforementioned in paragraph 1, within a period not exceeding ten days, the Superintendence will declare the file abandoned. After which, the interested parties must start the procedure again.

Art. 42.- Once the fifteen-day period has expired and if there are no objections, or if they have been resolved to the satisfaction of the Superintendence and the interested parties have met all requirements, it will grant the authorization to establish the AFP, issuing the corresponding Resolution. The Resolution must expressly indicate the period for the granting of the corporate deed of incorporation.

Art. 43.- The testimony of the public deed of incorporation of the company must be presented to the Superintendence, so that it qualifies whether the terms stipulated in it are in conformity with the previously authorized project and if the social capital has been effectively paid in accordance with the Law. The testimony of the public deed of incorporation of an AFP cannot be presented for registration in the Commerce Registry without the signed reason from the Superintendence, in which the favorable qualification of said deed is recorded.

CHAPTER III
PROCEDURE FOR AUTHORIZATION OF START OF OPERATIONS

Art. 44.- Before the AFPs start their operations with the public, the Superintendence must verify that the following requirements have been met:
a) Prove with a certified certificate issued by the corresponding banking institution that the paid social capital has been deposited in a checking account opened by the AFP, which in no case can be lower than the minimum capital referred to in Article 28 of the Law. b) Present the Testimony of the Public Deed of Incorporation of the AFP duly registered in the Commerce Registry. c) Have the verification and approval by the Superintendence of its information system, for the investment of Fund resources and its limit control, for the registration and management of individual savings accounts for pensions for each affiliate and an accounting control and information system. d) Carry out an inspection visit to the AFP premises, in order to verify that the conditions of public attention are adequate. e) Present to the Superintendence the design of its investment policy according to legal limits. f) Comply with the technical conditions required by the Superintendence, so that it can access its computer systems in real time.

Art. 45.- From its registration in the Commerce Registry, the AFP may only use its paid social capital for the following purposes:
a) The coverage of the expenses that the processing of said process demands. b) The acquisition or construction of real estate for exclusive use of the AFP. c) The acquisition of movable property required for the functioning of the AFP. d) The contracting of services necessary to start the operations of the AFP. Within a period of ninety days after being authorized to operate, the AFP must have registered in a national stock exchange the shares that represent its capital.

Art. 46.- Having met the requirements referred to in Article 44 of this Regulation, the Superintendence will issue a Resolution authorizing the start of operations of the AFP and extend to the interested parties a Certification of said Resolution with the data established in Article 34 of the Law and corresponding entries will be made in the Registry.

Art. 47.- The certification extended by the Superintendence will be made known through publications in two newspapers of national circulation, at the cost of the AFP.

FINAL PROVISIONS

Art. 48.- The Pension Superintendence will resolve any aspect not contemplated in this Regulation.

Art. 49.- This Decree will enter into force eight days after its publication in the Official Journal.

GIVEN IN THE PRESIDENTIAL HOUSE: San Salvador, twenty-one days of the month of July of nineteen hundred and ninety-seven.

ARMANDO CALDERON SOL,
President of the Republic.
MANUEL ENRIQUE HINDS CABRERA,
Minister of Finance.
JOSE EDUARDO TOMASINO,
Minister of Labor and Social Security.
Published in Official Journal No. 139
Volume No. 336 dated July 28, 1997.
This compilation is an exact copy of what is established in the Official Journal.