Resolution No. JPRF-F-2022-038 — Reforming the Target Level and Contribution Percentage to the Deposit Insurance Fund of the Private Financial System

THE FINANCIAL POLICY AND REGULATION BOARD

CONSIDERING:

That Article 226 of the Constitution of the Republic of Ecuador provides: "State institutions, their agencies, dependencies, public servants, and persons acting by virtue of state authority shall exercise only the competencies and powers attributed to them in the Constitution and the law. They shall have the duty to coordinate actions to fulfill their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution.";

That Number 7 of Article 284 of the Magna Carta prescribes that economic policy shall have as its objective "To maintain economic stability, understood as the maximum level of production and employment sustained over time," in accordance with Article 302, Number 4, which establishes as objectives of monetary, credit, exchange, and financial policies "To promote levels and relationships between passive and active interest rates that stimulate national savings and the financing of productive activities, with the purpose of maintaining price stability and monetary equilibria in the balance of payments, in accordance with the economic stability objective defined in the Constitution.";

That Article 9 of the Organic Code of Monetary and Financial Law, Book I, establishes the duty to coordinate actions to fulfill their purposes and make effective the enjoyment and exercise of the rights recognized in the Constitution, for which effect they shall exchange data or reports related to entities subject to their regulation and control, between the regulatory bodies and the Deposit Insurance Corporation, Liquidity Fund, and Private Insurance Fund;

That Article 13 of the Organic Code of Monetary and Financial Law, Book I, creates the Financial Policy and Regulation Board as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation;

That Article 14, Number 2 of the aforementioned Organic Code, regarding the scope of action of the Financial Policy and Regulation Board, mandates: "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 attention to what is provided in Article 309 of the Constitution of the Republic of Ecuador. (...)";

That the Organic Code of Monetary and Financial Law, Book I, Article 14.1, Number 13, establishes as functions of the Financial Policy and Regulation Board "To issue secondary regulation related to the Deposit Insurance, Liquidity Fund, and Private Insurance Funds";

That Article 320 of the Organic Code of Monetary and Financial Law, Book I, indicates that entities in the private, popular, and solidary financial sectors are obligated to participate with contributions and payments to the Deposit Insurance, in concordance with Article 325 of the same normative body;

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That Article 326 of the Organic Code of Monetary and Financial Law, Book I, confers upon the Financial Policy and Regulation Board the competence to determine contributions to the Deposit Insurance and the periodicity of its payment by entities in the private, popular, and solidary financial sectors;

That the Fiftieth Fourth Transitory Provision of Article 106 of the Organic Law Reforming the Organic Code of Monetary and Financial Law for the Defense of Dollarization, published in the Official Register Supplement No. 433 of May 3, 2021, states: "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 resolve what corresponds, within the scope of their competencies.";

That the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0070-M of September 26, 2022, submits to the President of the Board the following reports:

i) Legal Report No. JPRF-CJ-2022-0039 of September 26, 2022, concludes that the Deposit Insurance Corporation, Liquidity Fund, and Private Insurance Fund has the authority to propose regulation to the JPRF within the framework of its competencies according to the clause subsequent to Number 27 of Article 14.1, in concordance with Article 9 of the Organic Code of Monetary and Financial Law, Book I. Furthermore, it states that the Financial Policy and Regulation Board, as responsible for the formulation of credit and financial policy and regulation, has legal competence to issue secondary regulation related to the Deposit Insurance regarding the contributions that make up the respective trust, in accordance with what is provided in Articles 14 and 14.1 Number 13 of the Organic Code of Monetary and Financial Law, Book I.

ii) Technical Report No. JPRF-CT-2022-0033 of September 26, 2022, through which it proposes to reform the target level of the Deposit Insurance Fund of the Private Financial System; and the dynamics and percentages of the corresponding contribution, according to the methodology applied by COSEDE, in order to face the effects of the international war-political and economic conjuncture, maintaining an efficient risk-based management of the Fund;

That the Financial Policy and Regulation Board, in an extraordinary session convened by technological means on September 27, 2022, and carried out through video conference on September 29, 2022, reviewed Memorandum No. JPRF-SETEC-2022-0070-M of September 26, 2022, issued by the Technical Secretariat of the Board, as well as the aforementioned reports issued by the Legal Coordination and Technical Coordination, respectively, in addition to the corresponding draft resolution; and,

In exercise of its functions,

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RESOLVES:

ARTICLE ONE.- Substitute the text of Article 13 of Subsection IV "Sources of Resources of the Deposit Insurance System and Payment of Contributions", of Section I "General Norms for the Operation of the Deposit Insurance of the Private Financial Sector and the Popular and Solidary Financial Sector", of Chapter XXVIII "On Deposit Insurance", Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

"Art. 13.- Contributions to the Deposit Insurance.- Entities in the private, popular, and solidary financial sectors are obligated to participate with the following contributions to the Deposit Insurance:

Ordinary contributions:
a. Fixed premium; and, b. PAR (risk-adjusted premium)"

ARTICLE TWO.- Substitute the text of Article 15 of Paragraph I "Contributions for Deposit Insurance Premiums of the Private Financial Sector", of Subsection IV "Sources of Resources of the Deposit Insurance System and Payment of Contributions", of Section I "General Norms for the Operation of the Deposit Insurance of the Private Financial Sector and the Popular and Solidary Financial Sector", of Chapter XXVIII "On Deposit Insurance", of Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

"Art. 15.- Fixed Premium.- For the payment of the contribution, entities of the private financial sector will apply a fixed premium equivalent to 0.6% annually.

Once the target level of the fund is reached and maintained above 13% coverage, a fixed premium of 0.06% annually will be charged, instead of the one cited in the previous clause.

These premium percentages will be reviewed annually by the Financial Policy and Regulation Board, based on the report sent by COSEDE by October of each year starting from 2023, or if necessary, they may be reviewed at any time, for extraordinary causes."

ARTICLE THREE.- Eliminate the text of Article 21 of Paragraph III "Extraordinary Contributions", of Subsection IV "Sources of Resources of the Deposit Insurance System and Payment of Contributions", of Section I "General Norms for the Operation of the Deposit Insurance of the Private Financial Sector and the Popular and Solidary Financial Sector", of Chapter XXVIII "On Deposit Insurance", Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions.

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ARTICLE FOUR.- Substitute the text of Article 22.2 of Paragraph IV "Target Fund", of Subsection IV "Sources of Resources of the Deposit Insurance System and Payment of Contributions", of Section I "General Norms for the Operation of the Deposit Insurance of the Private Financial Sector and the Popular and Solidary Financial Sector", of Chapter XXVIII "On Deposit Insurance", of Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

"Art. 22.2.- Target Fund of the Deposit Insurance of the Private Financial Sector.- The target level of the Deposit Insurance of the Private Financial Sector is fixed at 17.23% of covered deposits (fund equity/covered deposits), and will be reviewed annually by the Financial Policy and Regulation Board based on the report sent for this effect by COSEDE.

In the event that the relationship between the equity of the Deposit Insurance of the Private Financial Sector and the covered deposits of said sector results in less than or equal to 13%, the collection of the fixed premium of 0.6% annually will be automatically reactivated until the target level is reached.

At all times, the contribution of the risk-adjusted premium (PAR) will be maintained."

ARTICLE FIVE.- Substitute the text of Article 22.3 of Paragraph IV "Target Fund", of Subsection IV "Sources of Resources of the Deposit Insurance System and Payment of Contributions", of Section I "General Norms for the Operation of the Deposit Insurance of the Private Financial Sector and the Popular and Solidary Financial Sector", of Chapter XXVIII "On Deposit Insurance", of Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

"Art. 22.3.- Contributions of new private financial entities.- In the event that an entity in the private financial sector begins operations in the country, this entity will be obligated to pay the fixed premium and the risk-adjusted premium (PAR) established by the Financial Policy and Regulation Board based on the report presented by COSEDE, which must contemplate the term and mechanism through which the new entity will cover the proportions of the historical contributions made by the rest of contributing entities based on the calculation base determined in this norm."

GENERAL PROVISIONS

FIRST.- Renumber the articles of Paragraph III "Extraordinary Contributions" and subsequent ones of Subsection IV "Sources of Resources of the Deposit Insurance System and Payment of Contributions", of Section I "General Norms for the Operation of the Deposit Insurance of the Private Financial Sector and the Popular and Solidary Financial Sector", of Chapter XXVIII "On Deposit Insurance", Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions.

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SECOND.- Incorporate the following immediately after the Second General Provision of Section I "General Norms for the Operation of the Deposit Insurance of the Private Financial Sector and the Popular and Solidary Financial Sector", of Chapter XXVIII "On Deposit Insurance", Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions:

"THIRD.- The Deposit Insurance Corporation, Liquidity Fund, and Private Insurance Fund will communicate to entities in the private financial sector the content of this resolution."

FINAL PROVISION.- This resolution will enter into force from the present date, without prejudice to its publication in the Official Register, and will be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance.

COMMUNICATE.- Given in the Metropolitan District of Quito, on September 29, 2022.

THE PRESIDENT,
Mgs. María Paulina Vela Zambrano

The aforementioned 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 September 29, 2022.- I CERTIFY.

TECHNICAL SECRETARY
Dra. Nelly Arias Zavala