The Ministry of Finance and Public Credit started the process to put in force the law enacted on September 21st, 2017. On February 2nd, a decree that sets the criteria for the exclusion of supervision of entities belonging to the Financial Conglomerates was published in the Official Gazette. Also, the ministry is working on two other decrees that refer to the rules applicable to the appropriate level of capital for Financial Conglomerates and to the limits of exposure and risk concentration of credit institutions.
The Decree 246/2018 published in the Official Gazette on February 2nd indicates that the Financial Superintendence of Colombia (Superintendencia Financiera de Colombia) may exclude from the scope of supervision those entities whose size, level of interconnection and risk exposure are not significant or have no impact on the Financial Conglomerate to which they belong. Also, the decree explains that the Superintendence may include an entity that has been previously excluded, at any time.
The draft decree, which introduces amendments on rules applicable to the appropriate level of capital for Financial Conglomerates to Decree 2555/2010, establishes that the technical patrimony of the Financial Conglomerate can never be inferior to the adequate patrimony of the Financial Conglomerate. It also indicates that the financial holding company is responsible for compliance with the appropriate level of capital for the Financial Conglomerate, at all times. The text also indicates the basis for determining the technical and adequate patrimony of the Financial Conglomerate.
Meanwhile, the draft decree on the limits of risk concentration and exposure of credit institutions sets criteria for determining the quality of the organizations linked to a Financial Conglomerate and the mechanisms for entities that comprise them to identify, administer and reveal conflicts of interest between them and their affiliates, as well as regulate risk management, exposure limits and concentration risks, in particular.
The text states that institutions will be considered to be linked to a conglomerate when:
- the entity is under control, subordination and / or is a business group;
- a Financial Conglomerate owns a significant share of capital;
- there is an administrative relationship between the institution and members of the Board of Directors or whoever acts as such, and other administrators;
- the spouse, permanent companion, relative within third degree of consanguinity, second of affinity and only civil.
Regarding exposure limits, the decree states that none of the credit establishments may carry out exposure operations that exceed 25% of the sum of the ordinary basic net of deductions and the additional basic equity with a counterpart. However, this limit will vary for the National Development Finance (Financiera de Desarrollo Nacional – FDN), the linked ones, and the 4G infrastructure projects.
It also expresses that the financial holding company will be responsible for compliance with the limits in order to mitigate the maximum loss that would result for the Financial Conglomerate from the default of a counterparty or connected group of counterparties, in exposure operations carried out by the entities that comprise it.
Furthermore, entities that make up the Financial Conglomerate will not be able to execute exposure operations that exceed 25% of the Financial Conglomerate’s technical patrimony with a counterparty. The decree explains that the entities that conform the Financial Conglomerate will not be able to maintain great exhibitions, which altogether exceed eight times the technical patrimony of the Financial Conglomerate.
Finally, the text also refers to the identification, administration and disclosure of conflicts of interest. In this lines, it defines the conflict of interest and the government policies that financial holdings must adopt.