Actualidad Colombia

Regulation of financial conglomerates

Bill 119/2016

With the aim of making the regulation and supervision of financial conglomerates and the resolution mechanisms for financial institutions more robust, and of protecting the financial system’s stability in general, the government has submitted for the Senate’s consideration Bill 119/2016, which would set out the system for supervising and regulating financial conglomerates, and make new definitions that impinge upon financial entities’ resolution mechanisms.

The Bill defines a financial conglomerate as a set of institutions with a shared parent company, that includes two or more domestic and/or foreign entities involved in an activity regulated by Colombia’s supervisory body, the Superintendencia Financiera de Colombia (SFC), provided that at least one of them carries out said activity in Colombia. In addition, it also includes a definition of a financial holding as a legal person or investment vehicle that has control over the institutions making up a financial conglomerate.

Likewise, the Bill stipulates that even financial holdings based abroad will be subject to inspection and oversight from the SFC, unless they can prove to this body that in their original jurisdiction they are subject to a regulatory and supervisory regime similar to that in Colombia.

The bill makes provisions for the SFC to regulate and supervise financial conglomerates so that it can determine, among other matters:   

  1. That the conglomerates are sufficiently well capitalised.
  2. Their corporate governance standards.
  3. That there is an appropriate framework in place for financial risk management and internal control.
  4. The exemption of legal persons or investment vehicles from the supervision, depending on the scope of the process.
  5. The criteria to determine the type of links with the conglomerate and with the holding.
  6. The criteria for identifying, administering, monitoring and revealing conflicts of interest.
  7. The requirement that a conglomerate make structural changes (only when the existing structure does not make it possible to reveal sufficient information or to conduct a comprehensive and consolidated supervisory process and/or to identify the real beneficiary and the institutions involved).
  8. The acceptance of demands for information and on-site visits to institutions forming part of the conglomerate.
  9. The revocation of a supervised entity’s operating license when the information provided by the foreign parent company is insufficient for carrying out the supervision.

This Bill seeks to regulate the purchase of assets and assumption of liabilities of a credit institution that is being compulsorily wound up. The Financial Institution Guarantee Fund  (FOGAFIN) would be given powers to transfer these assets and liabilities to other credit establishment(s) or to a bridging bank, the creation of which would be authorised by the SFC, and would not be subject to minimum capital requirements, mandatory reserve regimes, mandatory investments or other reserve requirements.

Finally, the Bill gives FOGAFIN the mandate to oblige member institutions to provide information in order for it to comply with its functions.

This draft law would represent something new in the Colombian legal system, which to date has no regulations expressly covering financial conglomerates.