Resolution No. JPRF-S-2022-058: Transitional Provision Suspending Investment Limits on National Financial System Securities

Resolution No. JPRF-S-2022-058
THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That, Article 226 of the Constitution of the Republic of Ecuador prescribes that state institutions, their agencies, dependencies, public servants, and persons acting by virtue of a state power shall exercise only the competencies and faculties attributed to them in the Constitution and the law;

That, Article 13 of the Organic Monetary and Financial Code, Book I, reformed by the Organic Reformatory Law to the Organic Monetary and Financial Code 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 formulating credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation;

That, Article 14 of the Organic Monetary and Financial Code, Book I, which refers to the scope of the Financial Policy and Regulation Board, determines that this collegiate body is responsible for formulating credit, financial, including insurance policy, prepaid comprehensive health care services, and securities policies; issuing regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial, securities, insurance, and prepaid comprehensive health care services systems; and, additionally, issuing micro-prudential regulations for the national financial, securities, insurance, and prepaid comprehensive health care services sectors;

That, numbers 1, 7, 17, and 25 of Article 14.1 of the aforementioned Organic Monetary and Financial Code establish that the Financial Policy and Regulation Board is responsible for fulfilling the duty and exercising the faculty to regulate the creation, constitution, organization, activities, operation, and liquidation of insurance entities; issuing the prudential regulatory framework to which insurance entities must adhere, a framework that must be coherent and not give rise to regulatory arbitrage; issuing norms that regulate insurance, reinsurance, and the securities market; as well as, applying the provisions of the Organic Monetary and Financial Code;

That, General Provision Twenty-Ninth of the Organic Monetary and Financial Code, Book I, added by the Organic Reformatory Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides:

"In the current legislation where mention is made of the 'Monetary and Financial Policy and Regulation Board', replace it with 'Financial Policy and Regulation Board'.";

That, Transitional Provision Fifty-Fourth of the aforementioned Organic Monetary and Financial Code, added by the Organic Reformatory Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides:

"Transitional Regime of Resolutions of the Codification of the Monetary and Financial Policy and Regulation Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board and the norms issued by control bodies will maintain their validity until the Monetary and Financial Policy and Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies.";

That, Articles 22 and 23 of the Organic Monetary and Financial Code, Book III (General Insurance Law) prescribe the regulatory regime to which insurance and reinsurance companies are subject regarding general solvency requirements, which must consider, among others, mandatory investments;

That, the Financial Policy and Regulation Board issued Resolution No. JPRF-S-2022-050 of December 22, 2022, in which it allowed insurance companies and reinsurance companies to deduct from risk in force reserves and group life and additional coverage reserves, 60% of the value of premiums receivable for maturity and documented premiums receivable for maturity in the amount related to the financing of insurance premiums, in the proportion retained for the calculation of mandatory investments, and expanded the maximum percentages of mandatory investment in both fixed and variable income investments;

That, the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0097-M of December 29, 2022, submits to the President of the Board the following Technical-Legal Report No. JPRF-CTCJ-2022-014 of December 29, 2022, which concludes the following:

i) Technical: Based on the technical considerations noted, it is pertinent to request the Superintendency of Companies, Securities and Insurance, in accordance with the penultimate and antepenultimate clauses of Article 14.1 of the Organic Monetary and Financial Code, to send to this Board the technical report regarding the situation and effects of the investment limitation when the composition of investment fund portfolios in securities issued, backed, or guaranteed by the national financial system exceeds twenty-five percent (25%), in insurance companies, reinsurance companies, and fund administrators and trustees; and, if applicable, present the pertinent regulatory proposal.

Meanwhile, through the Technical Secretariat, propose to the collegiate body a transitional provision for the application of the second clause of number 2, of Article 3 of Chapter VII "Norm on the Segments and Maximum Percentages of Mandatory Investment", Title III "On the Surveillance, Control and Information of the Private Insurance System", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions.

ii) Legal: The Financial Policy and Regulation Board, as responsible for the formulation of insurance policy and regulation, has legal competence to regulate the creation, constitution, organization, activities, operation, and liquidation of insurance entities; issuing the prudential regulatory framework to which insurance entities must adhere, a framework that must be coherent, not give rise to regulatory arbitrage; issuing norms that regulate insurance and reinsurance; and, applying the provisions of the Organic Monetary and Financial Code; in accordance with what is provided in numbers 1, 7, 17, and 25 of Article 14.1 of the Organic Monetary and Financial Code, Book I.

That, the Financial Policy and Regulation Board, in an extraordinary session convened by technological means on December 29, 2022, and held via video conference on December 30, 2022, reviewed the Memorandum No. JPRF-SETEC-2022-0097-M of December 29, 2022, issued by the Technical Secretariat of the Board; as well as the aforementioned Technical-Legal Report from the Technical Coordination and the Legal Coordination, in addition to the draft Resolution corresponding;

That, the Financial Policy and Regulation Board, in an extraordinary session convened by technological means on December 29, 2022, and held via video conference on December 30, 2022, reviewed and approved the following Resolution; and,

Resolution No. JPRF-S-2022-058

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In exercise of its functions,
RESOLVES:
SINGLE ARTICLE.- Incorporate a Transitional Provision immediately following the Ninth Transitional Provision of Chapter VII "Norm on the Segments and Maximum Percentages of Mandatory Investment", Title III "On the Surveillance, Control and Information of the Private Insurance System", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, in the following wording:

"TENTH.- The effects of the second clause of number 2 of Article 3 of Chapter VII "Norm on the Segments and Maximum Percentages of Mandatory Investment", Title III "On the Surveillance, Control and Information of the Private Insurance System", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, which states: "The portfolios of these funds may not contain more than twenty-five percent (25%) of their composition in securities issued, backed, or guaranteed by the national financial system.", are suspended until June 30, 2023."

UNIQUE GENERAL PROVISION.- That the Superintendency of Companies, Securities and Insurance send to this Board the technical report regarding the situation and effects of the investment limitation when the composition of investment fund portfolios in securities issued, backed, or guaranteed by the national financial system exceeds twenty-five percent (25%), in insurance companies, reinsurance companies, as well as the impact on portfolios managed by fund administrators and trustees; and, if applicable, present the pertinent regulatory proposal, within a period not exceeding two months counted from the issuance of this Resolution.

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.

COMMUNICATE.- Given in the Metropolitan District of Quito, on December 30, 2022.
THE PRESIDENT,
Mgs. María Paulina Vela Zambrano

The aforementioned Resolution was processed and signed by Magister María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on December 30, 2022.- I CERTIFY.
TECHNICAL SECRETARY
Dr. Nelly Arias Zavala