Resolution No. JPRF-F-2023-081: Extension of Default Classification for Productive Credit Debtors Under US$ 100,000 Until January 31, 2024

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador Resolution No. JPRF-F-2023-081

THE FINANCIAL POLICY AND REGULATION BOARD

CONSIDERING:

That Article 82 of the Constitution of the Republic of Ecuador prescribes that the right to legal security is based on respect for the Constitution and the existence of prior, clear, public legal norms applied by competent authorities;

That Article 226 of the Fundamental Norm orders that: "State institutions, their agencies, dependencies, public servants, and persons acting under 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 rights recognized in the Constitution."

That Article 308 of the Magna Carta determines that financial activities are a service of public order and may be exercised in accordance with the law, with prior authorization from the State; these activities shall have the fundamental purpose of preserving deposits and meeting financing requirements to achieve the country's development objectives, and shall efficiently intermediated captured resources to strengthen national productive investment and socially and environmentally responsible consumption, for which the State shall promote access to financial services and the democratization of credit;

That Article 309 ibidem establishes that: "The national financial system is composed of the public, private, and popular and solidary sectors, which intermediated public resources. Each of these sectors shall have specific and differentiated regulatory and control entities, which shall be responsible for preserving their safety, stability, transparency, and solidity. These entities shall be autonomous. The directors of the control entities shall be administratively, civilly, and criminally responsible for their decisions."

That Article 13 of the Organic Code of Monetary and Finance, Book I, reformed by the Organic Reformatory Law to the Organic Code of Monetary and Finance for the Defense of Dollarization, published in the Official Register Supplement No. 443 of May 3, 2021, created the Financial Policy and Regulation Board, part of the Executive Function, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation;

That numbers 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 policy, 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;
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."

Resolution No. JPRF-F-2023-081

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador

That Article 14 ibidem further 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 Article 14.1 of the Organic Code of Monetary 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 to the aforementioned operations. These levels may be defined by segments, economic activities, and other criteria; (...)"

That Article 150 of the aforementioned Organic Code determines that entities of the national financial system shall be subject to the regulation issued by the Monetary and Financial Policy and Regulation Board;

That Article 204 ibidem, in relation to asset quality, contingencies, and constitution of provisions, establishes that:

"Entities of the national financial system, in order to reflect the true quality of assets and contingencies, shall classify them permanently and constitute the provisions established by this Code and the regulations issued by the Monetary and Financial Policy and Regulation Board to cover the risks of uncollectibility, the loss of asset value, and to support adequate macroeconomic performance."

That the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0078-M of September 29, 2023, submits to the President of the Board the following reports:

a) Legal Report No. JPRF-CJF-2023-044 of September 28, 2023, with the following conclusions:

The Financial Policy and Regulation Board, as responsible for the formulation of policy and issuance of regulation of the financial system, has legal competence to issue the prudential regulatory framework to which financial entities must adhere, which covers the levels of concentration of credit and financial operations and applicable provisions to the aforementioned operations, and additionally, establish applicable provisions to credit, financial, commercial, and other operations, in accordance with what is established in Article 14.1 of the Organic Code of Monetary and Finance, Book I, in numbers 7 letter c) and 26, in conjunction with Articles 204 and 206 ibidem.

The respective Reform Proposal to be made in Chapter XVIII "Classification of Risk Assets and Constitution of Provisions by Entities of the Public and Private Financial Sectors under the Control of the Superintendency 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, does not contravene the current legal order and is legally viable in light of the legal considerations exposed by this Coordination in the present report in the terms indicated in Technical Report No. JPRF-CTSF-2023-015 of September 28, 2023, issued by the Technical Coordination of Policy and Regulation of the Financial System of this Board.

Resolution No. JPRF-F-2023-081

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador

a) Technical Report No. JPRF-CTSF-2023-015 with the following conclusion:

It is considered appropriate to extend the application deadline of the US$ 100,000.00 threshold until December 31, 2024, in order to generate sufficient space for information to exist that allows the control body to evaluate the result of the application of classification methods for debtors of productive credits that do not exceed this amount, that is, by internal models of classification of productive credits or by default, taking into consideration that the Superintendency has the faculty to demand the application of the classification model of productive credits (internal model or adjusted expert model) when it detects deficiencies in the credit administration process of entities of the public and private financial sectors. With the results of the aforementioned analysis, the Board will be able to evaluate the pertinence of the definitive application of the US$ 100,000.00 threshold;

That the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on September 29, 2023, and carried out via video conference on the same date, reviewed Memorandum No. JPRF-ST-2023-0078-M of September 29, 2023, issued by the Technical Secretariat of the Board; as well as the aforementioned reports from the Technical Coordination of Policy and Regulation of the Financial System and the Legal Coordination of Policy and Financial Norms, in addition to the corresponding draft resolution;

That the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on September 29, 2023, and carried out via video conference on the same date, reviewed and approved the following Resolution; and,

In exercise of its functions,

RESOLVES:

ARTICLE FIRST.- Repeal the Second General Provision of Resolution No. JPRF-F-2023-061 of January 30, 2023.

ARTICLE SECOND.- In Chapter XVIII "Classification of Risk Assets and Constitution of Provisions by Entities of the Public and Private Financial Sectors under the Control of the Superintendency 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, substitute the text of the Transitional Provision with the following:

"TRANSITIONAL PROVISIONS

FIRST.- From January 30, 2023, until January 31, 2024, inclusive, debtors of credits in the Productive segment less than US$ 100,000 (One Hundred Thousand United States Dollars), shall be classified by default or with the internal monitoring models provided for in number 1.1.4 "Methodologies and/or internal credit classification systems for productive credit", of this norm."

Resolution No. JPRF-F-2023-081

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Governmental Financial Management Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador

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 September 29, 2023.

THE PRESIDENT,
Master 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, 2023.- I CERTIFY.

TECHNICAL SECRETARY
Master Nelly Arias Zavala