Resolution JPRF-F-2022-013 Amending Resolution JPRF-F-2021-008 Regarding Operations Unpaid at 61 Days

Resolution No. JPRF-F-2022-013
THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That, Article 226 of the Constitution of the Republic orders that: "The institutions of the State, its agencies, dependencies, public servants, and persons acting under a state authority 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, through Article 13 of the Organic Code of Money and Finance, Book I, the Financial Policy and Regulation Board was created as part of the Executive Function, as a legal person of public law, with administrative, financial, and operational autonomy, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; and its composition was determined;

That, items 1, 2, and 3 of Article 14 of the same legal body, provide that it corresponds to the Financial Policy and Regulation Board: "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, securities, insurance, and prepaid comprehensive health care services systems, in accordance with what is provided in Article 309 of the Constitution of the Republic of Ecuador."; and, "3. Issue micro-prudential regulations for the national financial, securities, insurance, and prepaid comprehensive health care services sectors, based on proposals presented by the respective superintendencies, within their respective scopes of competence and without prejudice to their independence."

That, Article 14 ibidem provides that, for the fulfillment of its 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."

That, in accordance with the aforementioned provisions, Article 14.1 of the Organic Code of Money and Finance, Book I, mandates that, for the performance of its functions, the Financial Policy and Regulation Board must comply with the following duties and exercise the following faculties: "(...) 7. Issue the prudential regulatory framework to which financial, securities, insurance, and prepaid comprehensive health care services entities must adhere, a framework that must be coherent, not give rise to regulatory arbitrage, and cover, at least, the following: (...) c) Levels of concentration of credit and financial operations; and, applicable provisions for the aforementioned operations. These levels may be defined by segments, economic activities, and other criteria;" and, for this purpose, the second paragraph orders that the Superintendent of Banks may propose regulation projects for consideration by the Financial Policy and Regulation Board with the backing of the respective technical reports;

That, Article 204 ibidem determines that entities of the national financial system, in order to reflect the true quality of assets and contingencies, shall permanently qualify them and constitute the provisions established by the Organic Code of Money and Finance, in its Book I,

Resolution No. JPRF-F-2022-013
_______________________ and the regulations issued by the Financial Policy and Regulation Board to cover the risks of uncollectibility, the loss of asset value, and to support adequate macroeconomic performance;

That, Chapter XIX "Qualification of Risk Assets and Constitution of Provisions by entities of the public and private financial sectors under the control of the Superintendent of Banks", Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, was renumbered by Article 2 of Resolution of the Monetary and Financial Policy Board No. 647-2021-F, published in Official Register No. 415 of March 22, 2021; by virtue of which, currently said Chapter has become "XVIII";

That, in Article 5 of Section II "Elements of the qualification of risk assets and their classification", Chapter XVIII "Qualification of Risk Assets and Constitution of Provisions by entities of the public and private financial sectors under the control of the Superintendent of Banks", Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the general elements that must be taken into account to qualify risk assets in the different categories of credit segments and their respective ranges of provision requirements are established;

That, the first paragraph of Article 99 of the Statute of the Legal Administrative Regime of the Executive Function, prescribes that: "Normative acts may be repealed or reformed by the competent authority to do so when deemed appropriate (...)";

That, through Resolution No. JPRF-F-2021-008 of December 30, 2021, the Financial Policy and Regulation Board resolved to make reforms in Chapter XVIII "Qualification of Risk Assets and Constitution of Provisions by entities of the public and private financial sectors under the control of the Superintendent of Banks", of Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions;

That, due to a clerical error (lapsus calami), in Resolution No. JPRF-F-2021-008 referred to above, a reform to the Nineteenth Transitory Provision (added by Resolution No. 663-2021-F of May 14, 2021) of said Chapter XVIII was approved, under the following wording: "NINETEENTH.- Entities of the public and private financial sectors, in financial statements up to June 30, 2022, will register the transfer to overdue accounts, of the operations of the different credit segments."; when it should have been: "NINETEENTH.- Entities of the public and private financial sectors, in financial statements up to June 30, 2022, will register the transfer to overdue accounts, of the operations of the different credit segments, that have not been paid on the maturity date, at 61 days past due.";

That, furthermore, in Resolution No. JPRF-F-2021-008 referred to above, a reform to the Seventeenth Transitory Provision of the same Chapter XVIII was approved, with the following wording: "Entities of the private and public financial sectors must constitute generic provisions. Such provisions will represent from 0.02% up to 5% of the total gross portfolio as of June 30, 2022 and will form part of the secondary technical equity, and may be reclassified to specific provisions, prior authorization of the control body. These provisions will be considered for the effects of what is provided in item 11 of Article 10 of the Organic Law of the Internal Tax Regime. This transitory provision will be valid until June 30, 2022."; when it should have been: "SEVENTEENTH.- Entities of the private and public financial sectors, must constitute generic provisions. Such provisions will represent from 0.02% up to 5% of the total gross portfolio as of December 2020, the same will form part of the secondary technical equity and may be reclassified to specific provisions, prior authorization of the control body. These provisions will be considered for the effects of what is provided in item 11 of Article 10 of the Organic Law of the Internal Tax Regime. This transitory provision will be valid until June 30, 2022."; correction that is duly supported by the technical backing report attached to this resolution;

That, the Technical Secretary of the Financial Policy and Regulation Board through memorandum No. JPRF-SETEC-2022-0002-M of January 05, 2022, sends to the President of the JPRF, the technical and legal analyses that support the pertinence of this resolution, contained in reports No. JPRF-CT-2022-007 and No. JPRF-CJ-2022-0003 of January 04 and 05, 2022, respectively;

That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means convened on January 05, 2022 and carried out through video conference on January 06, 2022, knew and approved the text of the following resolution; and,

In exercise of its functions,
RESOLVES:
ARTICLE FIRST.- In Chapter XVIII "Qualification of Risk Assets and Constitution of Provisions by entities of the public and private financial sectors under the control of the Superintendent of Banks", of Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, make the following reforms:

1.1. Substitute the Nineteenth Transitory Provision (added by Resolution No. 663-2021-F of May 14, 2021), by the following:
"NINETEENTH.- Entities of the public and private financial sectors, in financial statements up to June 30, 2022, will register the transfer to overdue accounts, of the operations of the different credit segments, that have not been paid on the maturity date, at 61 days past due."

Resolution No. JPRF-F-2022-013

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1.2. Substitute the Seventeenth Transitory Provision, by the following:
"SEVENTEENTH.- Entities of the private and public financial sectors, must constitute generic provisions. Such provisions will represent from 0.02% up to 5% of the total gross portfolio as of December 2020, the same will form part of the secondary technical equity and may be reclassified to specific provisions, prior authorization of the control body. These provisions will be considered for the effects of what is provided in item 11 of Article 10 of the Organic Law of the Internal Tax Regime. This transitory provision will be valid until June 30, 2022."

FINAL PROVISION.- This resolution shall enter into force from the present date, without prejudice to its publication in the Official Register. Publish this resolution on the 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 January 06, 2022.
THE PRESIDENT,
Mgs. María Paulina Vela Zambrano

The preceding resolution 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 January 06, 2022.-

I CERTIFY.
TECHNICAL SECRETARY
Dra. Nelly Arias Zavala