Regulation on the Treatment of Investment Excesses of Pension Fund Resources

DE No. 33/1998
DECRETO No. 33/1998
REGULATION ON THE TREATMENT OF INVESTMENT EXCESSES OF PENSION FUND RESOURCES Approval: 13/03/1998 Validity: 09/04/1998

DECRETO No. 33

THE PRESIDENT OF THE REPUBLIC OF EL SALVADOR,

CONSIDERING:

I. That in accordance with Article 5, letter d), of the Organic Law of the Superintendence of Pensions, it corresponds to the Superintendence to oversee compliance with the limits and requirements established for investments made with resources from Pension Funds by Pension Fund Administrating Institutions, with the objective that such investments obtain adequate profitability under conditions of security, liquidity, and risk diversification.

II. That Article 95, second paragraph, of the Law on the Pension Savings System establishes that a regulation will govern the settlement of investment excesses incurred by the Pension Fund Administrator when investing the resources of the Fund they administer, exceeding investment limits or failing to meet established requirements.

THEREFORE,

in exercise of its constitutional powers,

DECREE the following:

REGULATION ON THE TREATMENT OF INVESTMENT EXCESSES OF PENSION FUND RESOURCES

CHAPTER I
OBJECT AND GENERALITIES

Object of the Regulation

Art. 1.- This Regulation aims to establish the procedures to be followed for the adequate treatment of investment excesses incurred by Pension Fund Administrating Institutions with resources from Pension Funds, and for excesses in the investments of the technical reserves of the pension institutions of the Public Pension System.

Art. 2.- Investment excesses shall be understood as cases where an investment made with Fund resources on a specific day fails to meet the maximum and minimum limits established by the Risk Commission, the requirements indicated by the Law, the Investment Regulation for the Pension Savings System, and other complementary norms issued.

The excesses referred to in the preceding paragraph shall be calculated based on the investment portfolio, valued at economic or market prices. [1]

Art. 3.- The timeframes referred to in this Regulation shall be counted in calendar days, starting from the day the excess occurred, unless it is explicitly stated that they are business days. [1]

Art. 4.- The following designations will be used in the text of this Regulation:

AFP: Pension Fund Administrating Institution,
Fund: Pension Fund.
Law: Law on the Pension Savings System.
Organic Law: Organic Law of the Superintendence of Pensions.
SAP: Pension Savings System.
SPP: Public Pension System.
Superintendence: Superintendence of Pensions.
Instrument: Financial Instrument.

Failure to Meet Deadlines

Art. 5.- If the timeframes or extensions established by the Superintendence for the settlement of investment excesses have elapsed and the AFP fails to comply, it shall be obligated to send to the Superintendence within three business days following the day the extensions expired, a list that includes at least the acquisition costs and acquisition dates of the instruments obtained in excess, or of those the AFP is willing to liquidate to eliminate the excess; which must be alienated within the period designated by the Superintendence. This is without prejudice to the imposition of sanctions established in Article 155 of the Law.

CHAPTER II
ON THE ACCOUNTING OF EXCESSES

Art. 6.- When, for any cause, an investment made with Fund resources exceeds the limits or fails to meet the requirements established as mentioned in Article 2 of this Regulation, the investment excess shall be accounted for in a special account in the affected Fund, without prejudice to the corresponding sanctions.

To this effect, the Investment Excess Account provided in the Chart of Accounts for Pension Funds issued by the Superintendence must be used.

Additionally, the accounting record of investment excesses must be performed with the level of detail that allows knowing the type of instrument by which the excess was generated, following the guidelines established in the aforementioned chart and its corresponding account manual.

CHAPTER III
ON THE CLASSIFICATION OF EXCESSES

Obligation to Inform

Art. 7.- The AFP that incurs investment excesses must inform the Superintendence in writing, for a maximum period of seven business days from the date when the valuation prices corresponding to the day the excess occurred are available, explaining and demonstrating with the necessary documentation the reasons that gave rise to said excess, regardless of its nature. [1]

Opinion and Confidentiality

Art. 8.- Upon receiving the report indicated in the previous article, the Superintendence will analyze the reasons presented by the AFP and resolve by determining whether the excess is attributable to the AFP, as well as the actions and procedure to be executed by it.

Such resolution will be issued and notified within five business days following the day the AFP's report was received.

In order to reduce the possibility of manipulation of market prices of the instruments in which the AFP has incurred an excess, it must maintain due confidentiality regarding this matter.

When the case warrants it, the sanction applicable will be imposed in the same resolution.

Origin of Non-Sanctioned Excesses.

Art. 9.- Investment excesses that give rise to sanctioning the AFP will not be considered those originating from any of the following causes:

a) By a variation in the risk classification of the instrument; b) By the variation of an investment limit or risk classification, in accordance with the agreements of the Risk Commission; c) By variations in the price of financial instruments, as a result of market fluctuations, in accordance with Article 178 of the Law; d) By a reduction in the administered Fund, either due to a decrease in the number of affiliates, reduction in the Amortization Fund, and others; e) By fluctuations in the exchange rate of the currency used in the daily valuation of the portfolio, when dealing with instruments issued in foreign currency; f) When the issuer or guarantor of the instrument is a public company subject to a privatization process; and g) By any other that, as a result of the analysis, is considered not attributable to the AFP.

Subscription of New Issuances

Art. 10.- In the case of a share issuance that grants the Pension Fund the preferential right to subscribe to them, in accordance with Article 157 of the Commercial Code, the excess applicable to these instruments must be corrected within a period of ninety days. A similar treatment will apply to the subscription of units of Investment Funds originating from the status of unit holder by the Pension Fund.

Convertible Bonds into Shares

Art. 11.-If, as a result of the exercise of a conversion option for bonds exchangeable for shares, individual investment limits in the issuer or instrument are exceeded, the resulting excesses will be considered not attributable to the AFP if the option was initiated by the Issuer.

CHAPTER IV
ON THE TIMEFRAMES AND PROCEDURES FOR
ALIENATION OF EXCESSES

Differential When Liquidating Excesses

Art. 12.- When the investment excess is attributable to the AFP, in addition to covering the sanctions established in Article 178 of the Law, the AFP, to recover the investment made, must cover with its own resources the differential generated between the sale price obtained when liquidating the excesses and the valuation price determined according to the Investment Regulation for the Pension Savings System.

Additional Investments

Art. 13.- When, for any cause attributable or not to the AFP, limits have been exceeded or requirements for investments have not been met, the AFP cannot make additional investments in the same instrument or issuer while such an anomaly persists.

Selection of Instruments to Alienate

Art. 14.- Within the timeframe and extensions mentioned in Article 95, second paragraph, of the Law, for the alienation of instruments that have produced the excess, the AFP may freely select the instruments to be alienated to eliminate said excess, in such a way that it is enabled to obtain the maximum recovery of the investment.

CHAPTER V
ON SANCTIONS

Sanctions, Recidivism, and Reiteration

Art. 15.- When an AFP incurs investment excesses for the first time, due to recidivism, or due to reiteration, the Superintendence will apply the applicable sanctions in accordance with Articles 155 and 178 of the Law, without prejudice to civil and criminal sanctions that may apply.

CHAPTER VI
FINAL PROVISIONS

Art. 16.- The Superintendence will issue the necessary instructions to facilitate the application of this Regulation.

Art. 17.- Any aspect not contemplated in this Regulation will be resolved by the Superintendence, in accordance with applicable laws.

Art. 18.- This Decree will enter into force eight days after its publication in the Official Journal.

GIVEN IN THE PRESIDENTIAL HOUSE: San Salvador, on the thirteenth day of the month of March of one thousand nine hundred ninety-eight.

ARMANDO CALDERÓN SOL,
President of the Republic.

JOSÉ LUIS TRIGUEROS,
Vice Minister of Finance.
In charge of the Office.

JOSE EDUARDO TOMASINO,
Minister of Labor and Social Security

MODIFICATIONS:
1) Replaced by Decree No.123, Published in the Official Journal No.238, Volume 341 of December 21, 1998.
Published in Official Journal No.63
Volume 339, of April 1, 1998.
This compilation is an exact copy of what is established in the Official Journal