On September 16, the Central Bank of Chile (BCCh) launched a public consultation on a proposal to update its regulations for the recognition and regulation of framework agreements for bilateral derivatives contracting. This proposal is part of the drive to align the BCCh’s regulation with the latest amendments to its legal framework, corresponding to Bill 20.720. This measure replaces the current insolvency regime with a law on the reorganization and liquidation of companies and individuals, and the General Banking Bill (LGB). The proposal will remain in public consultation until October 30.

The idea is to prevent certain default scenarios, especially those involving systemic entities which could cause instability among their counterparts. The proposal establishes that, in the event of the financial instability of banks and institutional investors, certain clauses to accelerate contracts and the corresponding compensation of obligations will be suspended for two banking working days, which may also be extended by the parties.

Likewise, the payment of the net balance resulting from this clearing process is suspended until the situation leading to this requirement is normalized, or until the entity in question is forced into liquidation or bankruptcy.

Finally, the BCCh published an explanatory note of the text launched for public consultation in order to provide further information.