Over the course of last year, the British government published a swathe of papers on renewing and strengthening corporate governance in the country’s firms. Among the measures proposed, the executive set the Financial Reporting Council (FRC) the task of revising the code of corporate governance for listed companies. Following this mandate, the FRC sent its proposals out for public consultation at the end of 2017. We analyze them below.

A code for the future

With its update of the corporate governance code, which applies to companies with a premium listing on the Stock Exchange, the FRC aims to give continuity over time to the Code so that it remains relevant for at least another 25 years. This has the two-fold objective of reinforcing market trust in British companies and of attracting investors, against the backdrop of Brexit.

The new code has been reorganized into the following five sections: i) Leadership and purpose; ii) Division of responsibilities; iii) Composition, succession and assessment; iv) Audit, risk & internal control, and v) Remuneration. We take a look below at the main issues covered in the revised Code:

Board of Directors and company culture

The proposals contain a new principle, relating to the importance of company culture. It highlights the key role played by the Board of Directors in promoting companies’ long-term success, and how the Board must oversee the purpose, strategy and values of their corporation, making sure that these are aligned with its culture.

The Board must ensure that the company has the resources it needs to achieve its goals, and also be responsible for setting up effective, prudent internal control, to make the management and monitoring of risk more robust.

Stakeholders

The Code stresses the importance of companies being committed to a wider range of stakeholders, not just shareholders. Thus, the board should encourage regular communication with majority shareholders, and the committee Chairs should report on matters within their responsibility to the board. The Code stipulates that special focus should be put on understanding employee perspectives, for which it recommends adopting one of the following three mechanisms:

• Designating a non-executive director to ensure that the workforce is considered when decisions are taken
• Appointing a director from the company workforce
• Creating a workforce advisory council

Employees should also have access to channels enabling them to raise concerns about the direction of the company or about other colleagues when they observe behavior inconsistent with the company’s values and responsibilities.

On this issue, the code specifies that companies must provide information in their annual report about how they have engaged with their employees and other stakeholders, and how their concerns and considerations have impacted on the Board’ decision making.  This is consistent with the board members’ duty of compliance with article 172 of the Companies Act 2006, as discussed in  previous issues  of Progreso.

Voting

Another of the new principles in the revised code is that where there have been a significant number of votes against a resolution in the Annual General Meeting, the company should explain what actions it intends to take to understand shareholders’ concerns and to decide the best way of tackling them. Companies will have to provide feedback about these decisions within 6 months of the vote, and also include a reference to these decisions in its next annual report.

Board of Directors

A cornerstone premise of the Code is the division of responsibilities between the organ of governance and the company’s executive management. The roles of the Chair of the Board and that of Executive President should not be shared by the same person, and the competences and responsibilities of boards and senior management must be clearly defined, approved and made publicly available.

The proposal highlights the leadership role of the Chair of the Board in demonstrating independent, objective judgement in decision making and fostering a climate of debate among board members.

The previous Code made clear that the Chair only had to be an independent board director at the moment of taking up the post. The new proposal recommends that this independence should last for the duration of the responsibility, so the Chair should not remain in place for more than 9 years.

Similarly, it proposes that half the board members, including the chair, should be independent non-executive directors. The new Code is more rigorous in its independence criteria, such that if the director fails to meet one or more criteria (for example, is or has been an employee of the company within the last five years, has ties with the company or with significant shareholders, or has served on the board for more than 9 years) that director will no longer be considered independent.

The revised Code also wants the exemptions currently applicable to smaller companies* to be removed, to require them to strengthen their governance standards. Among other changes, half the board members should be independent (the requirement is currently for two non-executive directors), all directors should be subject to annual re-election, and there should be an externally facilitated board evaluation every three years.

Diversity

Turning to the composition of the board, the proposals focus on encouraging diversity, in the widest sense, based on the conviction that a diverse organ of governance leads to better decision-making and enables companies to be competitive in a global market.

The proposal also recommends that companies employ external senior executive search agencies to appoint the Chair of the board and non-executive directors.

It also requires there to be a succession plan for board directors and senior management, based on objective criteria and merits, that promotes diversity of gender and ethnic backgrounds, cognitive and personal strengths. In this area, the revised Code highlights the role of the nomination committee, which should reflect in its annual report: i) its approach to succession planning and how it has supported a diverse pipeline for future appointments; and ii) an explanation of how diversity supports the company in meeting its strategic objectives.

Companies should also report on the gender balance in the board of directors and among senior management.

The revised Code proposes that the board and its members be assessed every year individually, considering the balance of skills, experience, independence and knowledge, its diversity and how effectively members work together to achieve corporate objectives. Furthermore, every three years this evaluation should be conducted by an independent expert.

Control functions

The Code states that the board should set up the following committees to support it in its functions:

• Audit committee, made up of at least three members, all non-executive, of whom at least one should have financial experience. The chair of the board may not be a member.

• Nomination committee, to lead the process for appointing board directors and ensure the orderly succession of these and of senior management. It should be made up of at least three directors and a majority must be independent. The chair of the board should not chair the committee when it is dealing with the appointment of his/her successor.

• Remuneration committee, in charge of overseeing the remuneration and incentive payments in the company. The annual report must explain whether the remuneration of executives is aligned with the company’s overall remuneration policy. Before appointment as chair of the remuneration committee, the appointee should have served on a remuneration committee for at least 12 months, unless there is a clear and valid rationale why this is not appropriate or possible, depending on the individual circumstances.

The Code recommends that the Board be responsible for monitoring at least once a year the company’s risk management and internal control systems at least once a year. It will analyze the key risks faced by the company and explain in the annual management report how risks have been managed or mitigated.

Remuneration

Addressing the feedback to the government from the public consultation on the Green Paper, the Code recommends extending from 3 to 5 years the minimum holding period for shares in the company paid as part of remuneration packages.

With the aim of reinforcing their independence, remuneration for all non-executive directors should not include share options or other performance-related elements.

Next steps

The FRC is expected to publish the definitive version of the Code in the summer of 2018, to come into force on 1 January 2019.

We should bear in mind, however, that the Code operates under the “comply or explain” principle, so companies will be obliged to explain how they have followed its recommendations or otherwise clearly lay out in detail their reasons for non-compliance, although this non-observance will not result in any financial penalty.

Regional Director for Latin America and the Caribbean of the International Labor Organization

José Manuel Salazar-Xirinachs has been ILO Regional Director for Latin America and the Caribbean, headquartered in Lima, Peru, since 1 June 2015. He has a PhD in Economics from the University of Cambridge, UK, and a degree in Economics from the University of Costa Rica.

From 2005 to 2013 he was the Executive Director of the ILO’s Employment Sector, headquartered in Geneva, Switzerland. He was Director of the Trade Unit at the Organization of American States (OAS) in Washington DC (1998-2005), the technical support unit for negotiations to establish the Free Trade Area of the Americas (FTAA); Costa Rica’s Minister of Foreign Trade (1997-98); and Executive Director of the Federation of Private Entities of Central America and Panama (FEDEPRICAP) (1990-97). He set up the Business Council for Hemispheric Integration in 1995 and managed it until 1997.

He has published widely on economic growth and productive development policies, trade and competitiveness, economic integration, employment and human talent. His books include: Towards Free Trade in the Americas (Brookings Institution, 2001); Trade and Employment: From Myths to Facts (2011); Transforming economies: Making industrial policy work for growth, jobs and development (2014), co-authored with I. Nubler and R. Kozul-Wright.

He sat on the Advisory Panel for the 2010 Human Development Report and the Board of the International Centre for Trade & Sustainable Development (ICTSD) (2012-2015). Since 2015 he has been a member of the World Economic Forum’s Advisory Panel on the Future of Production.

1. Would you share with us your agenda priorities when you were appointed Regional Director?

When I took over as ILO Regional Director for Latin America and the Caribbean in June 2015, it was important for me to define a limited number of priority issues, so that I could better focus and align the organization’s various mandates to the needs of the region. We defined three major priorities: (1) Productive Development Policies (PDPs) for inclusive growth with more and better jobs; (2) Bringing more jobs into the formal economy, and (3) Respect for and observance of International Labor Standards (ILSs).

In the case of Priority (1), we stressed that the PDPs should be the policy area with the most powerful instruments for influencing structural transformation, productivity and the characteristics that growth should take (sustained, inclusive and sustainable, in line with Goal 8 of the Sustainable Development Goals). This was an innovative way to achieve more traction in job markets and create decent jobs. There are many factors involved: an average productivity rate that is under half that of leading countries and a gap that is widening; productive development that is still highly dependent on the export of just a few primary products and under-diversified; heavy preponderance of “freelancer-ism” and of micro-enterprises, instead of medium and large companies, with new technological revolutions and productive paradigms. All these issues indicate that the route towards quality employment in the region entails paying much more attention than we do today to productive development, productivity and human talent.

Priority 2 is an imperative in a region in which, despite a 4-point fall during the high-growth “golden decade” between 2003 and 2013, 47% of all employment is still in the informal economy. This is, of course, highly correlated with Priority 1, but it has specific characteristics that warrant treating it separately, with its own action plan.

Priority 3 brings a number of related issues and challenges together; the gaps where labor law fails to respect the ILS in certain countries; the breaches in upholding of basic rights, particularly in the area of freedom of association and trade union freedoms, as well as collective bargaining rights; unacceptable levels of child and forced labor (despite considerable progress); the existence of certain types of discrimination, particularly, but not exclusively, related to gender. This priority also covers the discrimination suffered by indigenous people and the application of Convention 169, as well as the need to strengthen the labor administration and inspection services.

2. In your opinion, what are the inalienable principles that should guide governments and international organizations to work towards productive transformation that would lead to economic growth that creates employment in Latin America?

In the 80s and 90s there was a highly ideological, and rather sterile, debate about the role of the state and the market, whenever industrial policies or Productive Development Policies (PDPs) were discussed. I think this did a lot of damage because it led to paralysis, whereas other countries, in Asia especially, achieved successful innovations in institutions and found ways of collaborating to improve competitiveness and productivity. Fortunately, this has changed in the region. It is now moving towards a more pragmatic conversation that, as Dani Rodrik says, has “normalized” PDPs, and focuses on the practical application of PDPs that work and speed up the process of learning and economic transformation.  This is more important than ever in the era of the 4th Industrial Revolution. Incidentally, I edited a book about this, originally in English, which has just come out in Spanish.  

The need to develop intelligent forms of public-private partnership that involve all the important players is widely acknowledged nowadays and is based on three basic reasons, or principles: i) no-one has access to all the information, whether in the public or the private sector. Information must be aggregated through dialogue and committees that engage companies of all sizes in clusters: the public sector, workers, laboratories, training centers and other relevant parties; ii) productive development is an area which inherently suffers from strategic uncertainty: nobody knows what needs to be done. It has to be built up collectively. This requires collaborative “discovery processes”, in which the players identify the problems and work together on their solutions cooperatively. This is known as “experimentalist governance”; and iii) long-term policies, state policies, need to be put in place that are not dependent on a particular government.

The problem in Latin America is, as Sergio Bitar so correctly noted, that “macro-economic thinking has predominated excessively, delegating onto the market the definition of the direction to take, and preaching a minimal state. But this is not the state of affairs either in the United States, or in Germany, or in South Korea, or even in China. And not in the European Union either. Strategic decisions are adopted by society and are driven forward from the State, to put itself in an advantageous position. And this has never been truer than it is today, with the speed of technological change.”

It is certainly the case that the new wave of technological change is speeding up the momentum of job creation and destruction, together with the demand for new skills. This challenges the systems of formal and vocational education not only to keep abreast of but also to anticipate these changes. So, aligning educational policies and professional training with productive development and employment policies is a principle that today should be more important than ever.

Another point on which we should be clear is that PDPs should not be viewed, as they were in the past, as simply a push to industrialize. New technologies have generated a new production system and have eliminated the traditional distinctions between agricultural, industrial and service activities. I am not talking about returning to protectionism, it is not a question of going back to tariffs. What PDPs should be, however, is a coordinated concentration of efforts, with public policy taking the lead, involving all the nation’s different players: its public agencies, private companies, workers’ representatives, universities and research centers, accompanied by international partnerships.

Finally, the principle of implementing long-term policies is essential. There is a huge lack of forward thinking, of dialogue and of long-term planning in the countries throughout the region. It is characterized by short-term planning policies, and by the absence of forums and exercises for strategic dialogue and thought. For example, in 2011 the Asian Development Bank published the report Asia 2050: Realizing the Asian Century, with the purpose of taking action to keep the momentum going for the next 40 years. The worst-case scenario it posits is nothing less than that Asia embarks on the path that Latin America has taken in the last 30 years and falls into the middle-income trap. And this scenario was presented in the book as a wake-up call for all leaders of Asian countries. Latin America is presented there as a sluggish region, with low levels of investment, modest productivity gains, little appetite for carrying out long-term programs, excessive inequality and lack of pragmatism in debates about the division of roles between the state and the market, debates in which ideology predominates over all else. We have to acknowledge, even if it pains us, that this is a pretty accurate description. So it ought to be our wake-up call, telling us not to carry on as usual. We need to get stuck into productive development policies and productivity in earnest.

In short, I would say that the need to aggregate information, to conduct “experimentalist governance” in facing up to strategic uncertainty, to implement long-term policies and to align education and professional training policies with policies of productive development, are key principles in pushing forward economic and productive transformation towards a more sustained, inclusive and sustainable growth process with more and better jobs.

3. Which of the policies implemented in Latin America do you think have achieved best results in the journey towards economic and social inclusion?

There are many examples of interventions and programs that have contributed to economic or productive inclusion through employment and social inclusion, by improving and expanding social protection systems. There are lots of programs targeted at young people, women, informal workers or enterprises to get them into the formal economy, to eradicate child labor so that girls and boys are educated, for the expansion of the social security net, etc. I would say that the most significant results in terms of big numbers are in poverty reduction. Let us recall that between 2000 and 2015, over 83 million Latin Americans escaped poverty, and the average rate of poverty fell from 45% in 2002 to 29% now.

Poverty reduction is complex because not all this impressive progress can be attributed to social programs; a good part of it is a result of the high rates of growth and jobs created during this period’s “golden decade”. But it was the combination of high sustained growth, backed up by innovative conditional transfer programs (CTP) and transfer programs with shared responsibility, that produced these results. In 1997 there were only three CTPs in the region, but by 2010 eighteen countries had this kind of program, including Bolsa Familia in Brazil, Oportunidades in Mexico, Avancemos in Costa Rica, Chile Solidario, Bono de Desarrollo Humano in Ecuador, among others.

Recent research and assessment, for example work done by ECLAC  https://repositorio.cepal.org/handle/11362/27855, confirms the effectiveness of these programs and analyzes the circumstances and characteristics that have contributed most to favorable outcomes. The right financing is a necessary condition. It’s no coincidence that the most successful programs have taken place in times of high growth and in countries with the fiscal space to fund them. The effectiveness of these programs also depends on the presence of robust universal health and education systems, as well as on a dynamic economy that generates decent jobs over a sustained period of time.  

I think it is important to mention too the progress made in education. Despite the quality and relevance deficiencies, measured by the well-known PISA tests, the reality is that educational systems have expanded to provide virtually universal basic education, while there has been significant growth in secondary and tertiary matriculations. This is very important, because the evidence of the impact of education on employability and the quality of employment is very clear: education improves the likelihood of getting a job. Individuals with tertiary education are more likely to be hired than those with secondary education, and these are more likely than those with only primary education. Unfortunately, countries in the region suffer huge shortcomings in quality and relevance, which is very worrying. As we have argued in a recent report, it would be difficult to imagine a greater injustice to the new generations than making them spend 10, 11 or 12 years in academic education, only to discover at the end that they do not have the instruments they need to get a good job and earn a decent living with that job. (http://www.oitcinterfor.org/publicaciones/futuro_fp)

Finally, I would like to point to the important progress achieved in eradicating child labor, which has fallen substantially in the last 15 years. Over 9.5 million boys, girls and adolescents have been saved from child labor since 2000. This is due to specific policies directly related to the causes underlying this phenomenon and has been a joint effort between governments, employers’ organizations, workers’ organizations, civil society and the support of the international cooperation sector.

4. One of the ILO’s priorities in the region is to overcome the challenges of the informal sector. In your opinion, what should public-sector institutions do to tackle this problem?

The first thing we have to do is to acknowledge that informality is a heterogeneous phenomenon. We have informal employment and informal economic units and companies. Certain occupations are characterized by having high levels of informality, such as domestic work, and others have very low informality. Informality has a much greater impact on self-employed workers and on micro and small enterprises than on medium and large companies. And it affects workers with lower educational levels, women, young people and the poorest. No single policy is going to work for this diverse set of situations. Each target group must have its own customized policy package or intervention model. That is why programs to lower informality that only hone in on tax instruments, for example, are not enough.

The second thing that has to be done is to adopt integrated approaches with several points of entry. Policy packages must leverage several instruments: (1) legislative and regulatory amendments in tax, labor and social security, when registering companies or other bodies, which could bring down the costs of operating in the formal economy and in some cases creating special regimes for certain groups of workers.  (2) Generating incentives to go into the formal economy, such as the “monotax”, to consolidate and reduce the tax burden for micro and small enterprises; or measures that make it easier, as well as cheaper, to sign up in the social security system, and work towards a universal social safety net. (3) Strengthening the capacity for regulatory compliance, by encouraging a compliance culture with the help of public awareness campaigns, and boosting the enforcement capacity of labor administration and inspection.

All that is helpful, but much of the informality is structural, linked to low and volatile economic growth. In other words, to reduce informality there must be a favorable eco-system for investment and Productive Development Policies that provide the spark for new growth engines and promote the development of medium and large enterprises. It is the combination of these interventions and factors, tailored to the different target groups, that in aggregate can move the needle of informality in the right direction and by a significant degree.

In Latin America and the Caribbean, the ILO encourages the transition from the informal to the formal economy through its “FORLAC” Program to Promote Formalization, set up in 2013, which now follows the Recommendation 204 guidelines on the Transition from the Informal to the Formal Economy, adopted by the International Labour Conference in 2015. This was the first international regulatory instrument to be approved by consensus by the tripartite representatives of the 186 member countries of the ILO, and promotes an integrated policy approach along the lines I have just mentioned.

5. To what degree do you think that microfinance contributes to promoting socio-economic inclusion and job creation?

I believe it is important to acknowledge that nowadays, when we talk about microfinance, we are not talking about microloans, but a package of services that includes savings, insurance and payment services.

Financial inclusion in general, which includes but is not limited to microlending, has made great strides. Estimates for Latin America and the Caribbean between 2011 and 2014 indicate that the percentage of people with access to financial services (at a bank, a microfinance institution, a financial cooperative, a debit card or mobile money) increased by 10 percentage points, up to 52% (Global Findex database for 2014). Of these, an estimated 18.5 million clients in the region have a microloan (FOMIN- Financial Inclusion and Financial Systems in Latin America and the Caribbean: Data and Trends 2016).

The digital revolution has brought costs down, made possible much wider penetration of financial services and has helped to extend financial inclusion. Despite this improvement, 48% of the population still does not have access to financial services.

The social, economic and employment outcomes of microfinance are varied and complex to assess. Evidence suggests that the impact depends to a large extent on how programs are implemented and how the add-on or support services are combined with them. An important lesson is that, for better effects, pro-active social and productive development policies (support for micro and small enterprises, work training) need to be run together, spearheaded by governments, highly localized and targeted at raising social and productive inclusion.

A plethora of microfinance research indicates that the major problem facing the very poor, who are carrying out some kind of commercial, productive or service activity, is that their income stream is very irregular, very low, and used mainly to survive from day to day. That is why they need the full spread of financial services, both to improve their businesses and to protect themselves from the different types of risk threatening them.

Being limited to supplying resources to meet a short-term consumer need or informal “survival” trading activity through micro-loans offers little hope to poor sectors that they will escape the poverty trap. However, it is when microfinance offers other, supplementary services that we see the best outcomes. These additional services include the empowerment of women, who have shown themselves to be better administrators and multipliers of the assets they are given; financial and technological training so as to make better use of the services that have been tailored to suit the conditions of poor segments; teaching of skills and business savvy; and collateral services such as insurance and saving. And in the case of rural areas, agricultural advisory and extension services.

As regards the impact of microfinance on job creation, there is little clear information. The ILO put in place a project called “Microfinance for Decent Work” to look at the impact of various specific programs developed by microfinance institutions in dimensions such as reducing child labor, formalizing employment, reducing vulnerable employment and entrepreneurial performance. It found positive, but modest, outcomes, in all of these dimensions (ILO Microfinance for Decent Work action research report: summary in English).

It is also important to remember that investors in microfinance institutions are increasingly adopting social performance indicators in their due diligence and monitoring processes to ensure that their investments produce positive impacts.

In order to guarantee positive outcomes, the way in which microfinance is monitored is vital. The Social Performance Task Force Group, of which the ILO is an active member, has developed standards for managing social performance. They provide guidelines for microfinance institutions to improve their social results. And the BBVA Microfinance Foundation does outstanding work in developing indicators to monitor its clients’ performance and not just the institution’s operational metrics. Very few financial institutions work with this type of indicator, despite the growth in financing volumes.

6. Latin America and the Caribbean have a notable number of micro and small enterprises which frequently do not manage to be sustainable because they are in the informal economy and because of their low productivity. What policies do you believe countries should support so that small and micro-enterprises can overcome these weaknesses?

Most of the micro and small companies in Latin America do not grow or become formalized. The latest data available indicate that in the region there are around 11 million economic units that have at least one employee as well as the employer, the vast majority of which are MSEs (around 10 million), leaving only a million medium and large enterprises. The latter generate just 19% of the region’s employment.

This predominance of MSEs and self-employed workers in Latin America and the Caribbean’s productive infrastructure, and the lack of medium-sized companies, holds back growth in the economy and in good-quality employment. The size of the economic units means that 80% of the workforce works in sectors where productivity is below the region’s average, and only 20% of the workforce works in sectors which have above-average productivity; this translates directly into inequalities in the job markets.

The reality is clear: most policies supporting SMEs in Latin America are not working. Why? For at least two reasons: many governments opt for special regimes instead of improving the business ecosystem. These “favorable microclimates” are generally not enough to stimulate sustained productive transformation processes. Even worse, these types of policies generate incentives that distort business growth, because the advantages expire when the company reaches a certain size. It behooves entrepreneurs to keep their businesses small-scale in order to continue receiving state subsidies.

What is to be done? The approach that this type of policy takes needs to be rethought. We should move from SME policies to productive transformation policies and developing clusters or value chains. These policies must go hand in hand, naturally, with job market policies to reduce the scarcity of decent jobs in the MSE sector. Using this approach, an entrepreneurial ecosystem must be fostered, one that eliminates barriers to growth for medium-sized companies and stimulates collaborative processes for continuous improvement in productivity, in collaboration and in internationalization between companies of all sizes, boosting the productive framework’s economic diversity, in order to be able to compete successfully in international markets.

To enforce this new productive policy approach effectively, it is indispensable to rethink the nature of public institutions. We need a new model of state management that is capable of taking on risk, under appropriate conditions of transparency and accountability, and of operating flexibly and innovating through close public/public sector and public/private sector cooperation. The agencies promoting innovation, productive development and support for clusters that operate in territories such as Chile, Ireland and the Spanish Basque Country, are examples of good practice in this field.

7. What do you think is stopping the gender gap from shrinking in the labor market in Latin America?

We should start by acknowledging that progress has been made. Women’s rate of participation in the labor market has increased steadily, crossing the frontier of 50% in 2016. Improvements in girls’ access to education and increased female participation in higher education are behind this significant advance. However, men’s rate of participation continues to be 25% higher than women’s, and women’s rate of unemployment is higher than men, standing at 10.4% in 2016. Informality hits women harder; women are concentrated in the low productivity sectors. Furthermore, the wage gap is 15%, despite a reduction in the last decade. These are the average figures for the region as a whole.

Why do these gaps persist? There are several factors in play. An ILO survey conducted in conjunction with Gallup in 2016 across 142 countries tried to identify the hurdles for women joining the job market under the same conditions as men. In Latin America, except in Brazil, the work/life balance –including the existence of affordable care services— was identified as the most important problem. Insufficient public investment in comprehensive care policies means that caring for dependents continues to be primarily a household responsibility, and men’s lack of involvement means that this burden falls on women. The combination of both factors has turned this issue into one of the greatest restrictions facing women who want to join the job market and, once they are working, to developing a professional career in similar conditions to men. Therefore, to move forward towards equality, the concept of shared responsibility in care needs to be taught, and care infrastructure developed.

Another reason for the gaps is the persistence of gender stereotypes, which continue to confine women to a very small number of occupations, many of them linked to the roles that they have traditionally performed at home. This segregation is partly the consequence of segregation in the classroom, which can be seen in the lower participation of women in the STEM disciplines -Science, Technology, Engineering and Math- and in the more technology-based areas in general, both at university and in vocational work training. Incorporating specific measures into educational policies in order to attract more women into these areas is critical. But, what is more, and above all in the era of technology revolutions and industry 4.0, these policies must be coordinated with productive development policies to ensure that the most dynamic sectors in that country’s development also introduce measures to attract and retain these women.

Violence and high crime rates are also a major obstacle to reaching equality. Criminality in townships and cities limits women’s freedom of movement. Furthermore, domestic violence has a terrible impact on their lives, including in many cases the loss of their jobs, and with it their financial independence, which makes it more difficult to escape this vicious circle. Violence in the workplace limits their possibilities of growing professionally, reduces their performance and can also lead to their losing their jobs.

The ILO is in the process of putting together regulations on violence and harassment in the workplace, which will be debated at the International Labor Conference this year and in 2020. Achieving violence-free workplaces is another key goal in the path towards equality.

The wage gap is an important indicator that distills all these inequality factors, and has been addressed in the Agenda 2030, in SDG 8 on decent jobs and economic growth, specifically target 8.5. The wage gap in the region, as I mentioned above, was 15% in 2016, 6% less than a decade earlier. To tackle it, at the beginning of the year the Equal Pay International Coalition (EPIC) had its regional launch in Panama, led by the ILO, UN Women and the OECD, the goal of which is to work towards achieving target 8.5.

These 4 issues (social co-responsibility of care, the struggle against violence and discrimination, fighting gender stereotypes, and wage equality) are viewed by the ILO as the key causes that need to be tackled to make faster progress towards gender equality, That is why these are the priority issues in “Women at Work”, one of the organization’s 7 Centenary initiatives.  

8. You wrote the foreword to the ILO’s “2017 Labour Overview” report, published last December. What data would you highlight in the changes in the job market in 2017 and what can we expect in 2018?

In comparison with 2016, when the labor outlook worsened according to practically every indicator, 2017 was a year of mixed performance, with light and shade, some signs of improvement and others of deterioration in the regional and sub-regional averages, together with highly heterogeneous rates of performance by nations and sub-regions. In the context of these mixed results, growth in 2017 recovered to 1.2%, after slowing down for 4 years and shrinking for two.

The first figure I would highlight is that, despite the economic recovery of 1.2%, in 2017 the average regional rate of unemployment increased for the third year in a row, from 7.9% in 2016 to 8.4% at the end of 2017. This equates to 26.4 million unemployed people in the region, two million more than in 2016.

Brazil has a major influence on regional averages, as the biggest economy, and where around 40% of the region’s economically active population lives. When Brazil is stripped out of the figures, the average unemployment rate in the remaining countries in the region changed for the better, falling from 6.1% to 5.8%, according to year-on-year figures available to the end of the third quarter.

The picture is similar with the youth unemployment rate, which rose in 2017 for the region as a whole, but went down if Brazil is taken out of the figures. The rate for the entire region increased from 18.9% in 2016 to 19.5% in 2017. That is, for the first time in a decade, one in every five young people looking for a job is not finding one.

I would like to add something. The fact that economic growth in the region recovered to 1.2% in 2017, and is estimated at 2% in 2018, has been widely hailed as good news. But we should put it into perspective. The fact is that this “new normal” is not the level of growth the economics and societies in the region need. Growth rates of 1.2% and 2% do not provide the “escape velocity” needed to get poor populations out of their situations of poverty. Nor are they enough to meet the demands and expectations of the middle classes in terms of quality services and quality employment. And they are not enough to make a resounding difference to informality and the quality of employment.

Furthermore, 1.2% of economic growth in 2017 is a third of the world’s economic growth rate in the same year (3.6%) and less than a fifth of Asia’s growth rate (6.5%). In other words, we are lagging when compared with the dynamism of the global economy and of specific regions.

And we should not forget that this uptick in growth can be attributed to a large extent to a more favorable external environment, not to our own efforts to kindle new sources of sustained, inclusive and sustainable growth.

So, to move towards a future with better jobs, and to have truly transformational impacts on social indicators and labor markets, countries need to grow by at least 5% or 6% a year. This obliges us to face the low productivity challenge and the lack of productive development and diversification. That is the only way we can escape from the middle-income trap.  

9. On a certain occasion you said that there is a major interaction between the situation of labor markets and employment and that of social cohesion and democratic governability. How do you view this relationship?

I do believe that, yes, we have to start from the premise that labor markets can transmit and reproduce inequality and injustice, and thus can be corrosive to social cohesion. Or else they can work as powerful engines of social mobility, of income growth and rising living standards, and thus make a contribution to social cohesion.

So, what kind of labor markets do we have at the moment in Latin America?

• Of a labor force of just over 260 million people, we have more than 26 million unemployed in 2017, a rate of 8.4%, the highest in a decade.
• We have 135 million people working in the informal sector, 47% of the total labor force, most of whom cannot access healthcare, or a pension in their old age.
• 30% of the population is under the poverty line.
• 28% of all employment is self-employment, most of which is low grade.
• Average youth unemployment is 19.5%, that is, one in every five young people of working age. That represents 10 million young people looking for jobs who cannot find one. More than one in every two young people who work do so in informal conditions. And there are more than 20 million young people who neither study nor work (NEETs).
• We also suffer from persistent gender and race gaps and discrimination. For example, in practically all social, labor and income indicators, the gaps between indigenous and non-indigenous populations are wide. Indigenous people are disproportionately represented in the numbers of people who are victims of discrimination, child labor and forced labor. It is a clear and consistent pattern of exclusion from society and from productive systems.

Thus, in terms of the aspiration in the Agenda 2030 that no-one be left behind, it is very clear that in the region’s job markets and in the 21st century, many are being left behind. This state of affairs is linked to the high level of latent unrest in our societies, to the resentments and angers rooted in a primal sense of injustice, and the lack of a sensation that we are all in the same boat. That is, there is a link between the performance of labor markets and democratic governance.

There is one group that is particularly important in the political dynamics of all middle-income countries, and that is the middle class. When there are perceptions among the middle classes that they are falling behind, or that they are not making progress in line with their expectations; or that the quality services that the state should be providing are not of sufficiently high quality, and that they are obliged to take recourse to expensive private services… all this leads the middle classes to react with impatience and anger, and to mobilize on social media and in the streets to express that dissatisfaction and their demands.

These realities and perceptions are central for the functioning of social pacts, social cohesion, trust in the institutions and, naturally, in elections and their results.

10. What book have you read recently that has had an impact on you, that you found important or that you would like to recommend to our readers? Why?

I would choose Steven Pinker’s Enlightenment Now, that makes the argument for why reason, science, humanism and progress are such important ideas and why, if we are to continue along the path of progress, humanity must strive to be led by these ideas and ideals, and not by tribalism, authoritarianism, demonization or magical thinking.

KPMG edits a regular publication on behalf of the Institute of Audit Committees –La Gaceta del Instituto de Comités de Auditoría (ICA)-, on corporate governance issues that are relevant to company directors and senior management. The latest edition has three news items about promoting good corporate governance:

Audit Committee’s 2018 Agenda

The paper explains the areas that Audit Committee agendas should cover, bearing in mind the challenges set by changes in the economy and technology development.

Although Audit Committees’ main purpose relates to financial reporting, they must also bear in mind other issues that are relevant to their duties, such as monitoring the implementation of accountancy and fiscal standards, overseeing the work of management.

These Committees’ agendas should also cover the analysis of new risks their companies may have to deal with and focus the internal audit on those which might represent a threat to the corporate reputation, strategy or operations.

Innovation: the risks and advantages

The latest issue of the ICA Gazette describes the two sides of innovation: the risks it may imply, but also the opportunities it can offer. To deal with these risks, innovation needs to be viewed as inherent to the company’s strategy; it is essential to define the risk exposure the company is prepared to accept, and to have the requisite financing.

New International Financial Reporting Standards (IFRS)

Finally, the newsletter discusses the coming into force of new IFRS and amendments to some of the existing standards. While IFRS 15 (revenues from contracts with customers) and IFRS 9 (financial instruments) came into force on 1 January, the effective enforcement of others will be delayed until 2019* and 2021** although they can be adopted earlier.

The Basel Committee on Banking Supervision published this report in February, analyzing the implications of the fintech era for banking institutions and supervisors.

It built on research conducted by the committee on the fintech industry, a number of sector papers, as well as the replies to the surveys on activities carried out by member of the committee in the field.

The point of departure is a description of the various fintech developments and scenarios in recent years. First off, it defines the scope of the fintech offering, its main products and services, areas where it has an impact and the size of the industry, comparing it with other periods of innovation and disruption throughout history.

It goes on to focus on the risks and opportunities for banks and supervisors, and finally on the implications for both of using new technology developments.

For the fourth year in a row, Larry Fink, CEO of BlackRock, the largest fund manager in the world, has sent an open letter to the CEO’s of the biggest companies in Europe and the United States, reflecting on how to tackle some of the challenges that they are currently encountering.

The letter starts by outlining the prevailing uncertainty in which people are facing serious social problems such as slow wage growth, the lack of infrastructure (healthcare, energy, security, education …) or inadequate pension systems.  In the light of this scenario, he argues that the role of companies is key in providing solutions to these questions, since it is they who really have the resources, the management capabilities and the talent.

Thus, he believes that companies should put their focus on making a positive contribution to society as well as on generating financial profitability: “to benefit all stakeholders, which includes shareholders, employees, clients and the communities in which the company operates.”

Among other issues, he defends that they should be working on a new corporate governance model based on interaction between the company and its stakeholders and, specifically, between shareholders and investors. A model in which company directors focus on the long term rather than just the quick wins, without losing their focus on social ends.

On this issue, Fink reflects on the role of BlackRock and, in general, on that of investors to move this conversation forward and prevent governance bodies from returning to the short-term approach; he offers to help companies rethink their role in society and to build a long-term vision.

In this report, the consultants McKinsey present their main conclusions from research conducted on over 1,000 companies in 12 countries, in a follow-up to their 2015 report, Why diversity matters.

Comparing the data from 2015, there is evidence of greater awareness of inclusion and diversity: many successful companies view these two values as sources of competitive advantage and growth accelerators. This confirms the importance, at a global level, of the increasing correlation between diversity (more women and a greater mix of ethnicities and cultures in the leadership of major corporations) and a company’s financial performance.  Among other conclusions, the report points to the following:

• The relationship between diversity and economic performance has persisted since the initial analysis in 2015
• Women having leadership roles increases the likelihood of raising a company’s profitability
• Diversity must be understood in the broad sense: not just gender, but also ethnicity and culture
• There is a performance penalty when there is no diversity or inclusion in companies
• Local context matters in the implementation of practices and policies to encourage inclusion and diversity

To explain the results, the report used the business models of 17 companies representing all major regions and multiple industries. It looks at where diversity matters most in the organization, and how these leading companies have successfully harnessed the potential of inclusion and diversity to meet their growth objectives.

Line Bareiro, consultant in the Gender Affairs division of the Economic Commission for Latin America and the Caribbean (ECLAC), has written this report as part of the 2015-2017 Cooperation Program between ECLAC and Spain’s International Development Agency, to support the preparations for and monitoring of the XIII Regional Conference on Women in Latin America and the Caribbean.

The paper echoes the recommendations made by the Convention on the Elimination of all forms of Discrimination against Women (CEDAW) to the states of Latin America and the Caribbean, up to and including 21 July 2016, prior to XIII Regional Conference on Women.

The report has three parts:

• The first presents a methodological and conceptual introduction to the autonomy, empowerment and rights of women as expressed in the CEDAW
• The second is an analysis of the progress made and challenges to come in guaranteeing women’s rights, according to the recommendations made there, and
• The final part consists of the author’s conclusions, pointing to the important role played by the CEDAW for measuring the region’s advances and the work still to do. Here she stresses the fundamental importance of women’s equality in the implementation of the Regional Gender & Sustainable Development Goals Agenda.

Two years after the adoption of Agenda 2030 for Sustainable Development (Agenda 2030), UN Women’s report analyzes the progress achieved in gender equality and the challenges still ongoing if countries are to succeed in implementing the 17 Sustainable Development Goals (SDGs).

The purpose of the report is to enable Member States and all other interested parties to track the progress made in gender equality and to support women’s rights advocates to demand accountability for gender equality commitments as implementation unfolds.

In the words of Phumzile Mlambo-Ngcuka, UN Women Executive Director, the report is an “urgent call to action”, because the current backdrop of socio-economic and political instability worldwide means that there are clear gender inequalities in each and every one of the sustainable development dimensions and there are disheartening obstacles in the way of improving the lives of women and girls.

The report provides a wide range of recommendations for implementing the changes needed to promote gender equality and to be able to maximize the transformative potential of the Agenda 2030:

• Support the inclusion of specific gender indicators in the 17 SDGs by 2020
• Work towards the regular collection of data for gender-specific indicators, ensuring quality and comparability
• Develop global, regional and national strategies for identifying groups that are being left behind
• Promote and adhere to quality benchmarks, human rights standards and other fundamental principles of official statistics
• Accelerate the development of global standards for gender-specific indicators
• Strengthen commitment at the highest political level to an open, inclusive, transparent and gender-sensitive SDG monitoring process
• Strengthen accountability through gender-responsive implementation on a worldwide, regional and national basis

A report on the current situation in the microlending sector in Colombia was published on 30 January. The report gives the results of the survey conducted by the Central Bank of Colombia and Asomicrofinanzas, who looked at the sector in the last quarter of 2017 in Colombia and the outlook for microfinance institutions in 2018.

According to the intermediation institutions that took part in the survey, in the final quarter of 2017 there were virtually no applications for new microloans, because of the economic slowdown.

The report cites the factors that have an impact on the process for approving new microloans and the reasons for refusing them, or for only granting smaller amounts. The institution must have some prior knowledge of the client, their credit history, and the low risk level of the credit granted to grant such microloans. The main reasons for refusal are customers’ lack of ability to pay and their existing level of indebtedness.

As regards restructuring microcredit -based mainly on applying for a loan extension and a reduction in the installment payment- the report revealed that 75.9% of the institutions surveyed had refinanced part of their existing microloans in the previous three months. Most of the refinancing agreements were for loans in the trade, agriculture and personal finance sectors.

Finally, the report anticipates an upturn in economic activity in 2018, albeit a slow one. Against these expectations, 82% of intermediation entities stated during the survey that they had put strategies in place to manage the credit risk; of these, 75% include financial education plans or programs.

On 3 March, the Banking, Insurance & Pension Fund Management Authority, the SBS, published the anti-money laundering and combating the financing of terrorism (AML/CFT) regulation applicable to regulated entities supervised by Peru’s Financial Intelligence Unit (UIF).

The regulation applies to entities who, pursuant to Acts 29038 and 27693 (which we discussed in Progreso 13), are required to report the following information to the UIF about transactions they have conducted: date and time, amount and transaction type, data about the person reporting, account number, currency, among others.

Under the terms of SBS resolution 789-2018, a regulated entity is understood to be a natural person with a business or a legal person engaged in the activities regulated under the resolution: realtors, machinery sales; trading in jewelry, metals, gems and coins; mining companies, currency exchange, trader of vehicles,  embarkations and aircraft; construction and/or real estate, trading in objets d’art and philately; hippodromes, lotteries, certain non-governmental organizations (NGOs) and entities engaged in lending or pawning. The most important areas to be regulated are described below:

Anti-money laundering and combating financing of terrorism system (AML/CFT system)

By virtue of the regulation, a system to prevent money laundering and the financing of terrorism (AML/CFT) must be set up by managing AML/CFT risk exposure. This should consist of the policies and procedures established by the regulated entity for reporting, in line with the regulation. These should imply, at least:

• Approval of policies and procedures for managing AML/CFT risk
• Appointing a compliance officer
• Approving due diligence policies
• Conducting internal and external AML/CFT system audits
• Approving procedures to prevent, detect and communicate to UIF-Peru all suspicious transactions that might have a link to AML/CFT, through a Register of Suspicious Transactions (RST).   
• Issuing the Compliance Officer’s annual report on the AML/CFT situation.
• Implementing mechanisms to handle requests for information made by UIF-Peru and the corresponding authorities.

Compliance Officer

A natural person appointed by the regulated entity who, as well as being in charge of the appropriate implementation and operating of the AML/CFT system, is the liaison between the regulated entity and the supervisory body. If the regulated entity is a natural person, (s)he can take on this role as well.

There is exhaustive regulation on the requirements that must be met in order to be a compliance officer: how the post is nominated, removed and when there is a vacancy. The different hierarchies are specified too: the alternate compliance officer who is the substitute for the incumbent officer, and the corporate compliance officer, appointed by regulated entities who are members of the same economic group.

Register of transactions (RT) and reporting suspicious transactions (RST)

Regulated entities will be required to have records in electronic format of the transactions made by their clients and keep a security copy.  They will also have to report to UIF-Peru, through their compliance officer, the transactions they consider to be suspicious within 24 hours, independently of the monetary sum involved.

Other important issues:

• Internal standards for regulated entities: it will be obligatory to have a manual and a Code of Conduct on AML/CFT preventative measures and risk management.
• Identification and assessment of AML/CFT risks: considering risk factors by client, products and services, and geographical area
• Standards that are specific to the regulated entity in question
• Preserving information: information relating to the AML/CFT system must be stored for at least 5 years

This new legislation includes a Final Additional Provision regulating, among other matters, the time-limits for adapting to the regulation.  Regulated entities -apart from those engaged in currency exchange- will have 6 months in which to apply the new stipulations regarding the Registry of Transactions, while those who are authorized to have a corporate compliance officer will have 2 months to comply with the provisions of the regulation.

At the end of last year the comprehensive law against money laundering and the financing of terrorism (Act 19754) was passed in Uruguay. This new law consolidates all the country’s legislation -previously disperse- into a single document on anti-money laundering and combating the financing of terrorism, while also incorporating into this legislation the latest recommendations from the Financial Action Taskforce (FATF). We consider the most important amendments below:

Institutional organization

A Commission to coordinate anti-money laundering and combating the financing of terrorism (“the Commission”) has been set up, reporting to the Office of the Presidency of the Republic. Its responsibilities include developing and rolling out an information network to support the work of the public authorities, and producing statistics and indicators to review the effectiveness of the system on a regular basis.  

The Commission may propose that financial countermeasures and sanctions be imposed on countries that are considered to pose a high money laundering risk.

The law also refers to other public bodies, such as the National Secretariat for Anti-Money Laundering & Combating the Financing of Terrorism, which will also report into the Office of the Presidency of the Republic and will have technical autonomy. Among its functions, it will be in charge of: i) designing the general action plan in the battle against money laundering and the financing of terrorism, ii) preparing and coordinating the enforcement of national policies, iii) defining training programs, iv) monitoring compliance with AML/CFT regulations, v) reaching agreements with national and international bodies to comply with its functions, and vi) enforcing any financial sanctions that may be imposed.

Regulated entities

All regulated entities, whether financial or otherwise, will be required to report to the Financial Intelligence Unit (UIF) any operation or transaction, completed or not, that they come across that is not supported by a clear economic or legal explanation, or that appear to be unjustifiably complex. They will also have to report all transactions that are unusual or suspicious, or that involve assets of suspicious origins.

Another of the amendments brought in with the law is the inclusion of notaries, lawyers and accountants for the first time as non-financial regulated entities. The obligation of notaries and lawyers to report suspicious transactions is restricted to those operations in which they act on behalf of their clients, unless this comes about as a result of the advice that the professionals have given these clients.

The accountants’ obligation holds for both the transactions and exceptions applicable in the case of lawyers and notaries, and also for those transactions resulting from the drafting of limited-scope reports and the auditing of financial statements.

Due diligence measures

All regulated entities will be required to define and implement due-diligence policies and procedures for their clients, in order to identify them properly and to learn some information about them (KYC), depending on the volume and type of business in which they engage.

These policies and procedures should be applied to all new clients, or to existing clients when commercial relationships are initiated or when they conduct occasional transactions that breach the thresholds for each activity. The regulated entities themselves may decide on the degree to which due diligence measures will be applied, depending on a risk analysis, which should be set out in writing, together with the type of client, their businesses, products and transactions.  

Simplified measures can be applied in those cases where clients, products or transactions are low risk, and, by contrast, intensified measures in cases of higher risk.

Special due diligence procedures should be defined for:

• Politically exposed persons, that is, people who hold or have held in the last 5 years important public posts in the country or abroad.
• Legal persons, and particularly companies with bearer shares
• Trusts, in order to establish their control structure and beneficial owners

In any event, entities must keep a record of all transactions conducted with their clients, and all the information that has been obtained from the same during the due diligence process.

Other stipulations

Other areas regulated by the law focus on the information exchange between the UIF and its opposite numbers and specialist public bodies, the transport of cash, monetary instruments and precious metals, the crimes of money laundering, special investigation techniques and international criminal cooperation.

On the occasion of the latest World Economic Forum (WEF) in January 22, the 2018 Inclusive Development Index (IDI) was published, measuring the level of growth and development in 103 countries.

The index ranks countries by their current level of development on three vectors: growth & development, inclusion and intergenerational equity.  It also considers a set of key performance indicators, including Gross Domestic Product.

The forum was convened under the tagline “Creating a Shared future in a Fractured World” and one of the most outstanding novelties in this year’s IDI was its identification of 15 areas of economic policy that can contribute to greater growth at the same time as fostering social participation.

Of the 29 advanced economies it analyses in 2018, Norway is the most inclusive country, followed by Iceland, Luxembourg, Switzerland and Denmark.

The emerging economies that the IDI rates highest are Lithuania, Hungary, Latvia and Poland, which in the Latin-American countries, Panama is ranked sixth, while Uruguay and Chile hold the eighth and ninth place, respectively.

The report on the IDI findings shows the importance of public-private partnerships in fostering a people-centred growth model that pivots around the domestic economic policy and international economic integration.  

The Sustainable Development Goals Fund (SDG-F), created in 2014, were the first mechanism for development cooperation set up by the United Nations specifically to implement its Agenda 2030. In order to include the private sector in this endeavour, through public-private alliances for sustainable development, it set up a Private Sector Advisory Group (PSAG), comprising business leaders from large corporations in industries all over the world.

For three years running, both institutions have published various reports analysing the role of the private sector in promoting and achieving the Sustainable Development Goals. This year’s report: Empresas y ODS 16 contribuir a sociedades más pacíficas, justas e inclusivas, was drawn up by the SDG-F in collaboration with the PSAG, la the University of Pennsylvania Law School with the specialised legal support of the law firm, McWill & Emery. It observes the relevance of the 16 SDGs (peace, justice and sound institutions) for the private sector, and studies how private-sector companies can contribute to achieving peace through initiatives fostering justice and inclusion.  

Behind the report lies a survey of the PSAG companies, focussing on the following areas:

• Contribution of the private sector to Agenda 2030 and the 16 SDOs
• Public-private partnerships
• Legal framework and governance
• Key recommendations

The answers gathered were put together to draw up this guide of best practices, trying to show how an efficient legal framework can help the private sector to generate confidence among the general public. It shows how companies can incorporate the 16 SDGs into their business planning, thereby enhancing elements such as corporate social responsibility, governance, transparency and accountability.  

The report also includes examples of success stories in fighting against corruption, preventively and after the fact. It highlights the work done by several leading companies in Colombia to integrate thousands of small-scale farmers in conflict areas into their supply chain, in order to help create jobs and support the reconciliation initiatives.  Amongst these, Bancamía, the BBVA Microfinance Foundation member in this country, merited special mention for providing financial services to low-income households in zones hit by armed conflict. It has recently taken part in the Macrorrueda para la Reconciliación, a project to raise funding for reconstructing Colombia’s social fabric.

Paloma del Val Tolosana, General Secretary FMBBVA 

This time of the year is when companies present their annual results and come up with plausible explanations for their good, bad or middling performance… Aggregated numbers can invite creative interpretations.

Recently, Morrow Sodali, a London-based consultants firm, published the results of its third annual bellwether survey, in which this year 49 institutional investors world-wide with assets under management of USD 31 trillion expressed their opinions and expectations.

One key question focussed on the most relevant factors when making decisions about proxy-voting on the items in the AGM agendas for their portfolio companies.

The 2018 answers to this show that institutional investors score good corporate governance higher than good financial earnings. In their view, long-term sustainability trumps short-term wins. They watch the whole movie, not just the trailer. And they care about the companies’ contribution to society as much as the returns they offer shareholders.

There are three points that most worry investors, over and above the economic performance –which ranks fourth in intensity of concern. These relate to business strategy and reporting, the work they expect the board of directors to do, and stakeholder relations.  These issues hold increasing sway over decision making.

First and foremost in the survey answers, investors express the need for quality and coherence in their portfolio companies’ business-strategy reporting. They want to see the board play a very active role in assessing and monitoring the corporate strategy.

Without a doubt, the market needs abundant clear, to-the-point information to understand the coordination between the business fundamentals, the strategic goals and the associated risks. Investors want to be able to measure the value contributed by the directors and the links between the policies and how their decisions feed into effective administration that achieves long-term financial returns for the company.

When analysing the dynamics of the board for the 2018 Annual General Meetings, the investors hone in on: the directors’ ability to position their companies within an evolving society and enhance their capacities to create sustainable value; the connection between corporate strategy and the management of associated risks; ongoing digital transformation and innovation; cybersecurity; internal talent management and an ever-closer relationship with shareholders over the long term.

Another of the concerns flagged in the report refers to the composition of the board of directors. Transparency regarding this issue has improved substantially over recent years, thanks to a combination of new regulations and corporate governance codes that have focussed on the procedures for appointing independent directors and ensuring they are recruited on the basis of objective merit, such that their profiles match the requirements of the enterprise.

The survey shows that investors expect the boards of their investee companies to play a vital role in developing communities where they operate, and consider they should represent a similar degree of diversity as they find in those communities.

This is such an important matter, that the October 2017 issue of The Parker Review published an article on board representativeness, arguing that it should not only consider gender but also ethnic and geographical diversity. It proposed that every FTSE 100 board should have at least one director with an ethnic-minority background for 2021, and that this requirement should be extended to every FTSE 250 board by 2024.

The debate about the diversity of board members will unfold further in the next few years, and will doubtlessly remain an important benchmark for investors, regulators and governments, as different stakeholders become increasingly powerful and increasingly diverse.

However important the tendency towards greater diversity in director’s backgrounds, it must always be accompanied by the right match with the skill sets and experience that boards require each of their members to display in order to effectively perform their duties.

The third concern among institutional investors was the quality of stakeholder relations. Investors increasingly analyze companies to see how much they integrate ESG (Environment, Social & Governance) principles and policies into their management processes. They want the materiality of the companies’ commitments to be properly disclosed, so they can track key performance indicators in the annual reports and, in particular, in the corporate governance reporting.

The Morrow Sodali document shows that investors are become more and more insistent that ESG principles underpin long-term corporate sustainability. Specifically, the survey reflects the investors’ opinion on the degree to which their portfolio companies mainstream these principles into the way they manage their business. The result is encouraging: 93% of those surveyed state that ESG principles are either “fully integrated” or “progressing towards full integration”.

Just behind financial and business performance in the survey, at some distance, institutional investors express concern over their companies’ relationship with shareholders. Further behind still ranks the availability of board members to communicate directly with shareholders.

The 49 international investors, with over USD 31 billion of assets under management, show that they are putting their money behind good governance, transparency and commitment to society and stakeholders. These are as the key “business attitudes” they consider to best reflect their portfolio companies’ underlying performance over time.

Chile’s Financial Inclusion Advisory Committee has presented its 2017-2018 National Strategy (ENEF).

Financial Education must be treated as a tool for promoting society’s welfare and the population should be educated from an early age. This will enable people to become more financially literate and understand how the economic system works.

The 2017 ENEF sets up Financial Education programs and an Action Plan especially targeted at young people and women. These two segments have been given priority because of the impact of this training in the early years of economic activity, in the case of young people, and because of their greater economic vulnerability, in the case of women.

The paper selects contents and competences that are aligned with guidelines from the OECD, the World Bank and the G20, essential factors when drawing up these programs.

Suggested core contents include such basics as the financial panorama and its regulation, consumer protection, saving and consumption, budgets and planning, investment, credit and indebtedness, financial digitization, taxes, public spending and insurance.

On the subject of competences, the ENEF has a list which varies depending on which of the two segments is being addressed, and which takes into account the different stages of learning of these groups throughout their lives.  

The Action Plan defines 25 lines of action and 76 specific actions focusing on 3 levels: one general and two specifically focused on each of the two priority segments:

• Specific actions for all. These are generic interventions such as disseminating Financial Education information and contents on digital platforms; running campaigns, giving lectures, training programs and workshops; developing recommendations and guidelines based on international standards, and providing support in drafting and using codes of good practice.
• Actions targeted at students. Actions designed both for students and for teaching faculty: giving courses and lectures about economic and financial education and linking Financial Education to the curricular subjects taught in educational centers, among others.
• Actions targeted at women. Actions such as training for women in cooperative groups, running workshops with rural women and approving programs for entrepreneurial women.

Act 4/1994 established a system of preferential interest rates in Panamanian territory for the agricultural sector, the purpose of which was to create a mechanism for offsetting the interest rates paid on loans to the sector. This allocation was achieved by creating the special interest compensation fund (FECI), establishing a 1% surcharge on clients with commercial and personal loans (the main customer base of Panama’s banks), using this to set up a fund to offset a lower rate for personal loans.

Due to high demand for loans from the agro sector in 2016, the existing funds, allocated to the Agricultural and Livestock Development Bank, were oversubscribed by 200%. In response, Bill 448 proposed amendments to certain articles in Act 4/1994, presented by the parliamentarian Rubén de León.

Proposed amendments to Act 4/1994

• Increase the number of loans per productive cycle by item, by natural and legal person: this proposal is a consequence of agro productive cycles and the importance of increasing production, since projects may have two or three stages, whereas loans have been limited to one, which restricts sector growth.

• Increase the proportion of the FECI Fund that is used for research and investment in the agro sector: by reducing the proportion that goes into the National Treasury, these revenues would instead be allocated to the Ministry for Agricultural and Livestock Development (MIDA), the Agricultural and Livestock Development Bank (BDA), the Agricultural and Livestock  Insurance Institute, the Trust for Agricultural and Livestock Science Studies, the FECICOOP (fund exclusively for agricultural and livestock production cooperatives, managed by the BDA) and the Ministry of Economy & Finance.

• Draw up a list of activities eligible for the FECI program subsidy: all the activities eligible for the subsidy will be listed, to eliminate the gap in current legislation, which leaves it up to the civil servant’s individual criterion to decide whether the potential beneficiary’s activity is eligible or not.

Veto of the Bill

The Bill was passed on its third reading on 31 October 2017, after the proposal had been assessed. Nevertheless, the Bill was not given definitive approval, given that it might give rise to:

• Deficit: more capital would be used on paying this subsidy than the amount incoming from amortization.
• Possible extinction of the Fund: the amendments passed would endanger the sustainability of the fund given that the outgoings from the Special Interest Compensation Fund (FECI) would grow at a faster rate than its income.
• Activities specified in the project: The project proposes a closed list of economic activities eligible for the FECI subsidy, which could give rise in the future to an activity in the agro sector not being covered, in which case the regulation would have to be amended again.

The Agricultural and Livestock Affairs Committee has requested that the passage of the law be unblocked, in light of the fact that the proposed draft contravenes no existing laws, agreements or conventions.

Approval of the Bill

At its third reading, Panama’s National Assembly finally decided to approve Act 448, amending Act 4/1994, on preferential interest rates for the agricultural and livestock sector.  The regulation will be published in the next few days in the Official Gazette.

Decree 350/017, published on 31st December 2017, and Act 19.593, published on 26 January, have together amended the Financial Inclusion Act 19.210, 29 April 2014, discussed in the first issue of our newsletter.

Decree 350/017 reformulates articles 35, 36 & 38 of the Financial Inclusion Act. The regulation restricts the use of cash* on sums of 40,000 Indexed Units (IU)** or more when paying for transactions or legal business. It also specifies which payment systems are acceptable when conducting transactions of 160,000 IU or more, among which are included electronic forms of payment and post-dated crossed checks made out to the bearer.

The regulation, which also amends the Electronic Payment Systems Act 19.506, from 30 June 2017, lifts these restrictions when one of the parties in the exchange is a financial intermediation institution, an electronic money issuer or an institution providing currency, credit or transfer financial services regulated by the Uruguayan central bank.

The Decree also stipulates that non-compliance with the obligations therein will incur a fine of 25% of the sum paid when payment systems other than those permitted are used, with a minimum payment of 1000 IU, except for recurring offenders, when the minimum fine will rise to 10,000 IU.

To calculate the amount of the IUs, the sums of all the payments into which the transaction or legal contract has been divided, if this is the case, must be added together.

Act 19.593 amends the provisions in the Financial Inclusion Act for the social subsidy system and updates the timeline for the Young Home Savers Program.

Under the terms of the law, social subsidies and other provisions*** must be paid into an account in a financial intermediation institution or into an electronic money instrument chosen by the beneficiary or by the social security institute.

For the effects of the Young Home Savers Program, the Law has extended until 30 June 2020 the deadline for calculating the balance in the Housing Account product, although it has maintained the subsidy at 30% of the final balance in the account, with a monthly limit of 750 IU.

Finally, in response to innovations in electronic money payments, the law enables the Government to set the technical rules that ensure that electronic payment processing networks are compatible, and that this payment system works reliably.  

On 16 February, the Uruguayan government promulgated Act 19.596 which creates the Guarantee Fund for Milk Producers’ Debts (FGDPL), to help debt restructuring for producers in the sector.

The Fund will also open up access to loans for technology reconversion, given that as they pay off their guaranteed obligations, the unused funds made available can be applied as collateral for programs to improve sector efficiency and competitiveness.

To be eligible for a subsidy from the Fund and with a view to improving the restructuring of existing credits with financial institutions or suppliers of agricultural goods and services, the level of indebtedness entailed in the industrialization process may not go over the limit set in the regulation; to this end, a debt ratio per liter of milk produced has been set.

The Fund, which is controlled by the Ministry of Stockbreeding, Agriculture & Fisheries and the Ministry of Economy & Finance, will be financed, as well as by donations and legacies, by means of a deduction collected by the pasteurizing plants. These will deposit the sums collected in the central bank, Banco de la República*.

The FGDPL will have a start-up capital of USD 36 million, of which 27 million will be used on restructuring loans with the financial sector, the industry and suppliers of agricultural services; 3 million will be invested in a dependent fund to smooth price fluctuations, and the remaining 6 million will be distributed to farmers with an annual production of under 480 million liters, who will each receive a subsidy of at least USD500.

In order to promote the agricultural sector, the Government has also passed Act 19.595, a VAT rebate for rural producers on their purchases of diesel. Producers of milk, rice, flowers, fruit and vegetables can get a rebate on the value added tax paid on diesel used for these activities, provided they are not eligible to pay income tax (IRAE). This measure will require a document validating eligibility, come into effect on 1 March and last one year.

Sheep and beef producers are also eligible for this subsidy with the passing of Act E/915, 26 February, which requires at least 0.4% of a producer’s income to come from this type of stockbreeding in order to be eligible.

On 23 February 2018, the President of the Republic of Panama passed five (5) regulations to boost the agricultural sector and assure nationwide food security.

• New stockbreeding development fund. Act 16/2018 creates this fund, which will receive its income from the product of the country’s stockbreeding activity. These revenues will be liable to a duty of USD2.00 for each animal slaughtered in any of the country’s slaughterhouses, public or private. The money generated in this fund will be used for research and to improve stock production, to promote the consumption of beef, training and enterprise-building and support for the stockbreeding sector, as well as for administering collection of the tax in the slaughterhouses.

• Rice as a food security crop. Rice has been declared a nationwide food security crop by virtue of Act 17/2018, because it is the staple in Panama’s basic food basket. The state will adopt a number of measures to support production of this product:

• • Mechanisms will be implemented in the short term to waiver import taxes on priority inputs in the cultivation of this product.
  • There will be an agricultural subsidy of USD7.50 per 100 kg of unwashed, wet paddy rice, an amount that will be reviewed every three (3) years. In the case of dry rice, its equivalent weight in unwashed and wet rice will be taken.  
  • Exemption of 40% of the cost per liter of diesel and 40% of the cost of lubricants that are used in the growing of rice.
  • In the case of contingency rice imports due to shortage, the Executive Branch will provide a subsidy of USD0.50 for every 100 kg of imported rice.
  • Within a month of its passing, the Executive Branch will draft the secondary legislation on this law.

• Regulation on the special transport of fuel for agricultural machinery. Act 18/2018 creates the regulatory framework for special transport of fuel for farm equipment and machinery, and the conditions that motor vehicles or trailers used for this purpose must meet. Some of the most important points of the regulation are as follows:

• • Farm machinery: understood as machinery or equipment used by farmers for work, such as: tractors, crop harvesters, soil harrows, cutters, mowers, hay tedders, fodder wagons, mixers, balers.
  • Criteria for moving this machinery and schedules
  • The upper limits for transporting hydrocarbons for agricultural purposes are laid out.
  • Requirements that vehicles transporting hydrocarbons for agricultural purposes must meet: license to drive type C vehicles or larger, vehicle insurance cover up to USD25,000 to include civil liability and environmental damage cover, permit and sticker issued by the Firefighters’ authority.
  • The special transport permit will have an annual cost of USD50.00.
  • The supervisory bodies enforcing this regulation will be Panama’s Insurance & Reassurance Authority and the Republic of Panama’s Firefighting Authority.

• New special agricultural zone: Palmar municipality. Act 19/2018 defines “rural areas: special farming zones”. The purpose of the regulation is to encourage agricultural activity in the El Palmar (Ocú) region, classified as an area suffering generalized poverty, together with the development of productive activity in other zones classified as special agricultural areas. Agricultural areas must meet three of the following definitions:

• • Location in remote areas and ones suffering from extreme poverty.
  • Situated in areas that are difficult to access.
  • A population of more than three thousand (3,000) inhabitants.
  • Lacking even minimal transport and communication facilities.

We should point out that zones classified nationally as special agricultural zones will take priority when allocating budgets for basic community services, highways and support in selling agricultural products.  

• Support for agricultural producers affected by adverse climate conditions: Act 20/2018, amends Act 24/2001:
  

• • Loan amortization: loans granted after this amendment becomes law will be amortized over a twenty-five (25) year period at an annual interest rate of up to 2% on the balance as an actual rate (previously, loans had a term of seven (7) years, with annual interest of up 5% on the balance as an actual rate).
  • Elimination of outstanding interest: by virtue of the new regulation small and medium size producers who have debts outstanding in the period between June 2001 and 31 December 2014 (awarded pursuant to this law) will have their outstanding interest payments condoned as soon as this law comes into force, and the references on their credit history will be expunged.
  • Functions of the Committee: the regulatory committee will take on additional functions. It is to have powers to approve loans, arrange payments of delinquent credits and transfers of written off loans to delinquent portfolios, as well as to issue internal regulations, among others.
  • Unused assets: finally, there is a decision on the budgetary resources that are left unexecuted for 8 months in the Special Contingency Credit Fund. They should be transferred to the Banco de Desarrollo Agropecuario (BDA) [Agricultural Development Bank], to be used as loans to micro, small and medium agricultural producers.

At the end of 2017, the European Banking Authority (EBA) published its final report, with a raft of recommendations about the outsourcing of cloud services by financial institutions, specifically, by credit institutions, investment companies and the corresponding authorities in the field.

The recommendations have been developed based on the Committee of European Banking Supervisors (CEBS)’s outsourcing* guidelines and endeavor to provide further steering for those institutions that outsource their activities to cloud service providers, so that they take reasonable measures to avoid undue operational risks.

They will be applied using the principle of proportionality, that is, commensurate with the size, structure and operational surroundings in which institutions work, and also with the nature, scale and complexity of their activities.

The report covers six key areas: i) access rights; ii) the security of data and systems; iii) the location of data and data processing; iv) audit rights; v) chain outsourcing, and vi) contingency plans and exit strategies. We highlight below the most important areas:

Materiality assessment

Before outsourcing activities, the European Authority recommends that institutions assess their importance, bearing in mind:

• Their risk profile (for example, whether they are critical for the institution’s continuity or viability and to fulfil its obligations with its customers)
• The operational impact of any interruption to the outsourcing, and the inherent legal and reputational risks
• The impact that any disruption to the activity could have on the institution’s revenue forecast
• The potential impact that a breach of confidentiality or lack of data integrity could have on the institution and its customers

Financial institutions will have to inform the supervisory body as to which material activities will be outsourced to cloud service providers, giving this body data on the supplier’s name and parent company, the activities that will be outsourced, when this will start and the applicable law, among other matters. The supervisor will be authorized to request any further information it may deem necessary.

They will also have to keep an updated record with information about all those material and non-material activities that have been outsourced to cloud service providers, both at a company and group level.

Rights of access and audit

The recommendations specify that the provisions in the contract between the financial institution and the cloud service provider must ensure full access, both for the competent authorities and for the entity itself and its auditors to their premises, devices, systems, networks and supplier data, as may be necessary to provide the subcontracted services (right of access).

They must also confer unrestricted rights of inspection and audit on matters relating to the services subcontracted (right of audit).

The effective enforcement of these rights should not be impeded or limited by contractual arrangements. If the performance of an audit might represent a risk for another client’s environment, alternative ways must be found to provide a similar level of assurance to that required by the institution.

Security of data and systems

The security measures that cloud service providers must adopt to protect the confidentiality of the information transmitted by the financial institution is an important issue, inasmuch as these are key in the management of operational risk. Thus, prior to outsourcing, institutions will have to:

• Identify and classify their activities, processes, data and systems by the level of protection needed;
• Carry out an exhaustive risk-based selection of the activities, processes, data and systems that they are planning to outsource;
• Define and decide the appropriate level of protection of data confidentiality, continuity of outsourced activities and the integrity and traceability of the data and systems in the context of the proposed outsourcing.

These measures must be set out in writing in an agreement with the service provider. They must monitor the performance of activities and security measures, of the incidents generated and, if applicable, of the corrective measures implemented.

Data location and processing

The EBA advises special care on the part of institutions when they enter into service outsourcing agreements outside the European Economic Area, because of possible data protection risks and risk to supervision.

The banking authority recommends that institutions should address the potential risk impacts, including legal risks and compliance issues, as well as oversight limitations related to the countries where the outsourced services are being provided and there the data are being stored. The assessment should also include considerations on the political and stability and security of the jurisdictions in question; and the laws in force (especially those on data protection); and, among other considerations, the legal provisions on insolvency that would apply in in the event of a cloud service provider’s failure. All these risks must be kept within acceptable limits commensurate with the materiality of the outsourced activity.

Chain outsourcing

The guidelines include specific requirements to mitigate the risks associated with chain outsourcing, where the cloud services provider subcontracts elements of the service to other providers. This outsourcing will be permissible provided that the services are not affected, and that the obligations that the supplier agreed on at the outset with the financial institution are met.

In any event, the financial institution must review and monitor the performance of the overall service, regardless of whether it is provided by the cloud service provider or by a subcontractor.

Contingency plans and exit strategies

Finally, the EBA recommends that institutions plan and implement well-defined contingency plans and exit strategies to maintain the continuity of their businesses in the event that the provision of services by a supplier fails or deteriorates to an unacceptable degree.

The European authority also advises institutions on the contents of contractual and organizational agreements relating to these plans and strategies.

Application

These recommendations apply from 1st July 2018.

In April last year a law came into force in Iceland to eliminate the wage gap between men and women in companies with more than 250 employees, who are required to publish an annual report on their wage structure, with a breakdown by individuals and gender.

Together with this law, which we discussed in  issue 11 of Progreso, at the beginning of this year the Law on Equal Rights for women and men was passed, in order to establish and maintain equal opportunities and thus promote gender equality in all areas of society, through methods such as the following:

• Defining and approving policies and decision-making in all spheres of society that bear gender equality in mind,
• Improving the position of women and promoting their opportunities in the labor market,
• Promoting a reasonable work/life balance,
• Increasing education and awareness about gender equality,
• Analysis and research on gender equality,
• Combating wage and other forms of gender discrimination in the labor market, gender violence and harassment, and
• Fighting negative stereotypes about women’s and men’s roles.

Gender institutions

In the first place, the law has created a number of institutions (Gender Equality Center, Gender Claims Committee, Gender Equality Council and Gender Equality Forum) responsible for: i) overseeing the enforcement of this law in all spheres of society, ii) defending the interests of those people affected by breaches of the law and who make complaints, iii) ensuring that people have the opportunity to express and defend their interests on gender issues, and iv) driving forward gender equality, especially in the labor market, and a reasonable work/life balance, among others.

Wage equality

The law focuses particularly on wage equality and sets out that women and men who work for the same employer must have the same wages and conditions (determined using the same criteria) for the same or equivalent jobs.

It also requires all those companies and institutions with at least 25 employees to acquire a governmental certificate confirming that their wage equality policies meet legal requisites, after submitting to an audit carried out by the certification body. This body must report to the Gender Equality Center on the certificates it has granted and on those instances where it has not been possible to award them, presenting a report with the reasons and results obtained. The certificate must be renewed every three years.

The Gender Equality Center will keep a record of companies and institutions that have obtained the certification and will display this in an accessible place on its website. The record should contain information that includes: i) the names of the companies or institutions, ii) their tax numbers and addresses, iii) whether the company or institution has received certification, and iv) how long the certificate will remain valid. It will also keep a record of those companies and institutions that have not received the certification.

If the provisions in the regulation are breached, the Gender Equality Center will have the power to instruct the company or institution to take appropriate corrective measures within a reasonable time, or else face a monetary fine.

Iceland has taken another step with this law towards gender equality, becoming the first country in the world to demand that companies pay employees carrying out the same functions equally, independently of their gender, race, sexual orientation or nationality.  

Alejandro Laguna Cano, Compliance Area, BBVAMF

February marked the end of the consultation period for the Bill amending the Anti-money Laundering and Combating the Financing of Terrorism Act 10/2010, and also for the draft amendments to the Royal Decree 304/2014, 5 May, resulting in the approval of the secondary legislation for the above mentioned Act 10/2010.

Both projects have a twofold purpose: firstly, to transpose into Spanish law some of the items pending from the IV European Directive*; and secondly, to make certain regulatory amendments to reinforce prevention mechanisms.

Specifically, the draft Royal Decree makes a number of adjustments in order to adapt the regulation to the amendments included in the draft bill, with a view to improving the law’s efficiency and its contents.

The main changes that will be brought in by the bill are:

General provisions

The Additional Provision, which dealt with two matters, related to the loss of the “equivalent third country” classification, and the upkeep of a list of States, territories or jurisdictions which the General Secretariat for the Treasury and Financial Policy considered had the condition of equivalent third country.

New regulated entities are included, among them: financial credit institutions, securities fund management companies, banking asset fund management firms, electronic money institutions, online gambling operators who use online, informatic, telematic and interactive channels, and crowdfunding platforms.

The draft defines who should be treated as the beneficial owners in the case of Trusts as they are understood in the US/UK sphere of influence. It clarifies that for legal instruments of this nature, regulated entities have the duty to identify and take appropriate measures to confirm the identity of the people occupying equivalent or similar positions to those being treated as beneficial owners.

It also broadens the duty of identifying the beneficial owner in structures without legal personality, trusts and any other structure of this nature, and authorizes regulated entities to collect information from their clients about the beneficial owners without the explicit consent of these.

Due diligence measures

A communication of suspicious operations can be sent without completing the defined due-diligence process, when there are indications or certainty that there is an AML/AFT link, and the regulated entity has reasonable grounds to believe that that its request for additional information could alert the client of its suspicions. Should it be necessary to terminate the business relationship and where this cannot be effected immediately, operating limitations must be put in place until the definitive termination of the relationship.

Likewise, third parties may be used to apply due diligence measures, provided that: they apply due diligence requirements and preserve records appropriately, that these are equivalent to those provided for in EU Directive, and their compliance is supervised by the competent authorities. Finally, the bill acknowledges the new European regulation on electronic signatures for the purpose of clarifying remote identification mechanisms.

Act 10/2010 already included that, as well as the usual due diligence measures, regulated entities must apply reinforced measures commensurate with their risk analysis, in those situations which inherently present a high risk of money laundering or financing of terrorism. In any event, the following transactions fall into this category: i) private banking; ii) money remittances, and iii) foreign currency exchange.

According to the project, those projese reinforced measures should also be applied to businesses or transactions involving people with public accountability, and will have to establish the lowest hierarchical level necessary to authorize these business relationships, which must take the transactional risk and specific client risk into account. These members of staff must have enough knowledge about the individual’s exposure to money laundering risk and terrorism financing risk and have the experience and seniority required to take decisions that affect this exposure.

If the individuals concerned no longer perform a public duty, the regulated entities must continue applying appropriate due diligence measures commensurate with the client’s risk level, until it can be established that they present no specific risk deriving from their previous condition as a person with public accountability.

On the other hand, the bill defines correspondent relationships as: the provision of banking services by a bank, in the capacity of correspondent, for another bank, in the capacity of client. These services include the provision of current and other liability accounts and related services, such as the management of cash, international fund transfers, settlement of checks and currency exchange services. This concept also covers any relationship between credit institutions and/or financial institutions, including payment entities, providing services similar to those of a correspondent to a client, namely, relationships set up for transactions with securities or fund transfers, among others.

Finally, the control requirements over these correspondent relationships have been broadened. Thus, transactions carried out as part of business operations must be subject to reinforced and continued monitoring, taking into account geographical risk, client risk or risk inherent to the type of service being provided.

Reporting obligations

There must be reinforced and permanent monitoring of the business relationship; the entity’s internal procedures must state the lowest hierarchical level necessary to authorize, establish or continue business relationships with the persons listed above and the other measures laid out must be applied. These measures expire two years after the person with public accountability has stopped performing these functions. The above notwithstanding, due diligence measures will continue to be applied commensurate with the risk that each individual represents for the institution.

Preservation of records

Regulated entities must conserve for at least 10 years the documents accrediting their compliance with legal obligations. The Bill specifies that five years after the business relationship has ended or the one-off transaction has been completed, the records preserved may only be accessed through the institution’s internal control bodies or, if applicable, those in charge of its legal defense. In no case may this information be used for commercial ends.

Whistle-blowing channels

Internal processes will be created so that employees, directors or other agents can report infractions against Act 10/2010 anonymously and these whistle-blowers will be protected from reprisals, discrimination or any other unfair treatment. The foregoing is not a substitute for the required existence of specific independent mechanisms to report suspicious transactions internally.

Personal data protection and information exchange

The need to obtain consent for processing data has been removed in the following scenarios: when a) it is needed in order to comply with information obligations, and when b) the data is for compliance with due diligence obligations between regulated entities that belong to the same business group. Similarly, high levels of security, as provided for in the personal data protection regulation, must be applied over the resulting files.

Finally, regulated institutions may create shared systems to store the information and records collected while conducting due diligence. Finally, regulated institutions may create shared systems to store the information and records collected while conducting due diligence. This information may only be accessed by regulated entities when the natural or legal person is their client, or during the process of signing them up as a client, and always after authorization has been received from the interested party.

International financial countermeasures

The Bill indicates that the financial sanctions to block funds and other economic resources established by the United Nations Security Council Resolutions and adopted pursuant to article 41 of the UN Charter must be applied to any natural or legal person from the moment they are published by the Security Council. The Bill proposes that the Council of Ministers, at the request of the Ministry of Economy, Industry and Competitiveness, may agree to apply financial countermeasures over third countries that represent a higher risk of AML/AFT or of financing the proliferation of weapons of mass destruction.

Financial ownership file

The scope of this file will be expanded from its original purpose in order to impede and prosecute AML/CFT and their concomitant crimes, as well as broadening the information that should be declared for payment accounts and safe deposit boxes.  Furthermore, it adds to the list of entities who may access this file, including the Justice Ministry’s Asset Management & Recovery Office, the Anti-Terrorism & Organized Crime Intelligence Unit and the National Securities Exchange Commission, among others.

Financial Intelligence Unit & AML/CFT Supervisory Authority (SEPBLAC)

Its functions in the areas of operating and procedural guidelines have been extended, together with staff hiring processes. Its supervisory scope when dealing with economic groups has also been more tightly defined. The Bill recommends that its supervisory tasks and annual plans be conducted employing a supervisory risk-based approach which should determine what kind of reviews are conducted, how deep these should go and how frequently they should take place. In addition, SEPBLAC will have access to the information supplied to the Tax Authorities and may not divulge this information except when it is being divulged to domestic or international supervisory authorities.

Other content

• The section on disclosure restrictions has been updated, specifying the exceptions and clarifying the way in which information can be exchanged between institutions within a group.
• Entities may not commission independent reviews from any natural or legal person who has supplied or is supplying any other kind of remunerated AML/AFT prevention services during the three years prior to or after the report is published.
• Directors and agents are included in the scope of employee training.
• Defines treatment of payment systems subject to intervention.
• With regard to the trading of goods, it sets out the importance of complying with the obligations specified in articles 3, 17, 18, 19, 21, 24 and 25 of Act 10/2010, on transactions in which the charges or payments are made by non-resident natural persons for sums over EUR10,000 euros in cash, over one or several transactions.
• Adds two breaches to the list of those classified as very serious, and five to the list of those treated as serious. Maximum sanctions have increased, and the minimums have remained the same. There is a provision for publicizing the sanctions anonymously, should no agreement be reached on how to make them public.
• External experts may now be held liable for breaches that are chargeable on the grounds of harmful or negligent conduct.
• The scope of those potentially liable to sanctions for committing very serious, serious and minor breaches has been extended considerably, and the criteria for grading those breaches, and when they lapse, have been brought up to date.

If you are interested in the draft amendments to the Royal Decree 304/2014, 5 May, resulting in the approval of the secondary legislation for the above mentioned Act 10/2010, you can click in the second link “Download the document“.

As it does every year, the Economic Commission for Latin America and the Caribbean (ECLAC) has published its Preliminary Overview of the Economies of Latin America and the Caribbean, presenting data current at November 30th, 2017.

This year, ECLAC has analyzed the region’s 2017 economic performance in the international context, looking at the export sector, employment, wages and macroeconomic policies put in place by its member countries.

The report highlights that the momentum of raw material prices, which it sees as an important determinant for Latin American and Caribbean economies, has been positive in 2017, recovering from its 2016 results, and predicts that these levels will hold in 2018.

It also shows the increase in the rate of women’s presence on the labor market, which reveals a slight reduction of the participation and occupation gaps between women and men, but not in the unemployment gap.

Likewise, the report acknowledges that tax consolidation has been the main feature of changes in fiscal policy in the region over 2017. It notes that average inflation in the region continued to drop during the first ten months of the year, so current levels are the lowest since the end of 2013.   

Finally, it flags up the outlook and challenges for 2018, forecasting that 2018 performance will remain buoyant, while pointing to the trend in financial deregulation as one of the challenges.

On 21st December 2017, the Banking, Insurance & Pension Fund Management Authority (SBS) published its draft regulatory program for deposit accounts, known as basic accounts, to help drive the country’s financial inclusion, seeking to bring the regulations applicable to basic accounts into line with those applied to simplified e-money accounts.

The draft sets out the conditions this product must meet. Only available in Peruvian currency, nationals and foreign residents can open these accounts from correspondent bank ATMs.

There will be an upper daily threshold on deposits of PEN 1,000.00 and a limit on each title holder’s consolidated balance, per financial institution, of PEN 2,000.00; in addition, accumulated monthly deposits and withdrawals per deposit holder from a single financial institution may not exceed PEN 4,000.00. Attempted transactions that breach these limits will not be accepted, and financial institutions will inform users of non-acceptance.

Basic accounts do not require a minimum opening deposit or a minimum monthly balance, and may only be used for domestic transactions.

Furthermore, market conduct regulated for basic accounts is subject to equivalent regulations, among them those referring to inclusion in the simplified system set up in the Market Conduct Management Regulation. Users may also use channels that financial institutions must make available to them to lodge claims.

The regulation also requires companies in the financial system to implement training programs for their customer-facing staff about areas relating to basic accounts. These include: what they offer and how they work, the procedure for opening or closing them, and customer service procedures; as well as the mandatory  information to users about costs, conditions and product characteristics before and during the signing of the contract, together with the minimum content of that contract.

Finally, the draft indicates the AML and AFT issues that are germane to basic accounts, among others those referring to inclusion in the simplified KYC due-diligence system, as well as the identification and verification requirements for opening and closing basic accounts.

On 20th December, the Draft Loan Act for Rural Women was presented, which aims to ensure access to credit and other types of non-credit financial support for rural women.

The bill, based on the principles of financial inclusion and gender equality, facilitates the granting of microloans with preferential interest rates, supports development projects and boosts micro and medium enterprises.

The National Loan Program for Rural Women, financed through a trust*, will include action to implement the National Loan Policy for Rural Women. The program will define the financial conditions of the microloans, the action plan to encourage the development of companies and productive activities, legal help for rural women to set up companies, financial literacy campaigns, as well as technical and financial training for the program’s female beneficiaries, among other programs.

As well as regulating microloans channeled through microfinance institutions, the bill provides for non-credit support designed to improve rural women’s entrepreneurial skills, to further professionalize loan-granting organizations and to improve and extend the supply of microfinance services they offer.

The sums involved in the loans being granted will be announced through public tenders that will specify the terms, conditions and necessary requirements to apply and, in any event, the programs funded must drive job creation and economic development.

Lastly, the bill provides for the creation of a Consultation Board for Lending to Rural Women. This Board will be entirely made up of women and will prepare public policy recommendations to promote the empowerment of women in the rural environment.

On January 6th the Wage Transparency Act became law in Germany, the draft of which we discussed in  issue 10 of Progreso, to drive wage equality between men and women for the same or equivalent job.

With this law, the German parliament is trying to tackle the wide wage gap – 21% – accounted for by structural and sociological factors, such as the type of jobs people do, women’ disproportionately low presence in senior management, leaves of absence from work for childcare, etc.

Even when these causes are stripped out, the Act estimates that the wage gap is around 6% for the same job. It is therefore establishing wage transparency as a fundamental right, which is considered of benefit not only to employees but also to employers, since it generates trust and shows that companies and authorities encourage and defend income equality.

The law bans any kind of direct or indirect discrimination on grounds of gender that affects any component of remuneration or payment conditions. It confers an individual right to disclosure for employees in companies with 200 or more members of staff to be informed of the average wage of at least six colleagues of the opposite sex occupying the same positions or carrying out comparable work in the company. In addition, they can ask to be told the criteria and procedures employed by the company when setting wages. This will make it easier for people to make legal claims to enforce their right to receive the same payment for the same job.

It also obliges all private-sector companies with more than 500 employees to report on wage and gender equality in their annual management report. Specifically, they will have to explain what measures the company has adopted to promote gender equality.

The passing into law of the Wage Transparency Act brings Germany a step closer to gender equality and is aligned with other initiatives such as that carried out by Iceland, which we also discuss in this issue of Progreso.

The paper Broadband Policies for Latin America and the Caribbean (LAC) analyzes the digital situation of LAC countries and offers recommendations for developing the Applications Ecosystem for which the pre-existence of a digital infrastructure is indispensable.

According to this report published by the Inter-American Development Bank (IDB), there is a close relationship between countries’ economic development and that of digital communications. So, a 10% increase in broadband penetration in LAC countries triggers a 3.19% jump in GDP, a 2.61% rise in productivity and the creation of 67,000 direct jobs.

The document provides a comparison between LAC countries and member countries of the Organization for Economic Cooperation and Development (OECD), looks at how digital policies have been rolled out in different arenas, and the impact that information and communication technologies (ICTs) have on modern life today.  In the financial sector, ICT development represents an opportunity for financial inclusion. In education, there has been an expansion of mass online open courses (MOOC) and educational mobile apps. And in the agricultural arena, it constitutes an opportunity for growth despite the sector’s low productivity, given that this sector accounts for nearly 19% of employment in the region and 9% of GDP.

As can be inferred from the paper, the situation in LAC countries is different to that of OECD member states. An example of this is the classification of the Index of the App Ecosystem: in a list of 58 countries, Chile comes top out of LAC countries (at 26), followed by Costa Rica, Uruguay, Panama, Brazil and Colombia that are ranked in positions 32, 35, 36, 37 and 38 respectively.

The paper concludes by making technical, regulator and public policy recommendations to achieve an ecosystem with new apps and digital services to create the right environment across different economic sectors and improve efficiency and access to the services on offer.

On January 1st the Organic Law came into force, to recapitalize the economy and strengthen the dollarization and modernization of financial management in order to generate economic development in conditions of efficiency, competitiveness, productivity and justice. To do this, as its preamble makes clear, entrepreneurship must be promoted, with particular emphasis on micro-enterprises* and a Solidarity-based Economy for the People.

To achieve these goals, the Law amends the following regulations, among others: the Domestic Tax System Law, the Organic Code for Production, Trade and Investment, the Tax Code, the Corporate Enterprises Act, the Organic Monetary & Financial Code, the Organic Law on the People’s Solidarity-based Economy and the Organic Law for the Prevention, Detection and Eradication of the Crime of Money Laundering and the Financing of Crimes.

The main changes affecting the microfinance sector are as follows:

• Exemption from Income Tax: the categories of beneficiary have been extended. Thus, financial institutions working with social and solidarity-based undertakings that are in sectors other than those already covered by the regulation** will also benefit from the exemption. In addition, new micro-enterprises that start operating from January 1st, 2018 onwards can sign up for exemptions for three years.

• Obligatory Accounting: above annual revenues of USD 300,000, natural persons must maintain accounting.

• Amendment to tax rates: the tax rates on micro- and small enterprises and regular exporters has been cut by three percentage points.

• Electronic payment systems: the Law incentivizes their use, and in particular requires public overland transport cooperatives and certain institutions that have journey charging systems to use this type of payment system.

Congress has tabled for its first debate the bill to cut down on the use of cash and incentivize electronic transactions, encouraging citizens to become banked and financial institutions and the government to roll out electronic payment systems.

The wording also includes an option using which the government could underwrite agreements with financial institutions to boost citizens’ financial education training.

It contains tax incentives for legal persons who prioritize the domestic use of electronic transactions during the first 3 years after the law comes into force, which have to be regulated by the Ministry of Finance & Public Credit.

This special guarantee scheme enables micro, small and medium-sized companies (MSMEs) to access loans backed by the National Guarantee Fund (FNG in the Spanish), subsidizing the fee they would otherwise be charged, which is paid by the Bogotá district government.

The Bogotá Microcredit Scheme works as follows:

• Program’s total endowment: USD 491,000
• Eligible beneficiaries and economic sectors: micro-enterprises (natural or legal persons) active in any sector of the economy apart from the primary agricultural sector, with total assets of not more than USD 133,000
• Use of credit: working capital and/or acquisition of fixed assets
• Maximum guarantee: loans of up to USD 6,600 extended to each debtor by a financial intermediary
• Credit term: up to 24 months
• FNG cover: 70% of the outstanding balance of the loan capital

The deadline for reserving sums for transactions eligible for these guarantee products is 31 October 2018 or until the endowment allocated for this program is fully reserved, whichever is the sooner.  

Throughout 2017 and the first quarter of 2018, the Colombian government has been very active in its support of the agriculture and livestock sector, passing regulation and boosting financing for productive programs.

These initiatives include Law 1876, 29th December 2017, Resolution 464/ 2017 by the Ministry of Agriculture & Rural Development, Resolutions 12, 13, 14, 15 & 16/2017 by the National Agricultural Credit Committee and Regulatory Circular P-04/2018 by the Agricultural Sector Financing Fund (FINAGRO). The highlights of these regulations are listed below:

• Creation of the National Agricultural Innovation System (SNIA), to establish policy, strategy, programs, projects, methodologies and mechanisms to manage, promote, finance, protect and divulge research, technology development and innovation in the agricultural and livestock sector.

• Introduction of measures to strengthen family farming productive systems, supporting agricultural and livestock programs and sustainable production.

The most important strategies in achieving this aim are: i) encouraging the use of financial services in rural areas to promote the economic development of the farming community and enable agricultural and livestock products to be sold more widely, together with ii) buy-in form microfinance institutions.

• The National Farming Credit Committee has set the budget for the agricultural loans granted by FINAGRO, estimated for 2018 at USD 4.8 billion, and also the conditions for placing these credits.

Special lines of credit have been created this year for small and medium producers, at advantageous interest rates.

• Details of the Annual Farming Risk Management Plan, enabling agricultural crops, pastures, forest plantations, together with stockbreeding (including agroforestry) fish farming and aquaculture (including shrimp farming) to be insured under the farming sector subsidy.

Regulation is also being drawn up for farming insurance cover, to protect against the damage caused by natural and biological risks affecting farming, including loss of income.  This includes the disbursement of the corresponding insurance pay-out if an indicator defined in the insurance contract reaches a certain level. The indemnity will be used to compensate affected producers or to set up a disaster fund when the beneficiary of the insurance is a public-sector institution.

• The drive to make farming credits available to the demobilized, reintegrated and returning population: people who were outside the law but who have laid down their weapons and reintegrated or returned to civil life, and who have certification or accreditation of this from the Operations Commission for Abandoning Weapons (CODA in Spanish) or the Officer of the High Commissioner for Peace, or their representatives.

The “Entrepreneurship and Gender in Latin America 2017″ study identifies the obstacles facing entrepreneurial women in the region that prevent them from participating effectively in the economic development of their countries.

342 entrepreneurial women from 15 countries around Latin America were interviewed for the research, which was conducted by the INCAE Business School.

The report notes that over 27% of the businesswomen surveyed stated that they had suffered discrimination because of their gender; over half feel that opportunities are not equal when it comes to setting up a business, and only 48% of women expect their business profits to rise in the next two years due to the difficulties they face because of their gender.

At a company level, the research analyzed the situation of both genders in senior management positions.  95% of female entrepreneurs employ a majority of women in their companies’ senior management posts, a much higher percentage than the number of women who occupy positions of responsibility in companies set up by men, where the proportion does not reach 50%.

The paper also recommended that political measures and support systems be rolled out, both in the public and the private sectors, to encourage the creation of SMEs. To reduce the lack of balance in the number of women entrepreneurs, the report says that training and mentoring programs are key measures, together with better access to funding.

Decree 2145 published by the Colombian Ministry of Agriculture develops the fundamental ideas contained in Law 731/2002, to promote the situation of rural women and improve their standard of living.

The regulation provides for action to be taken to benefit rural women in an integrated manner, including training, access to working capital and credit, access to land, technology, financing and technical support.

Article 34 of Law 731 specifies that the Government will have to approve a plan to review, assess and monitor the programs that are run for rural women; in compliance with this, Decree 2145 approves the Review, Assessment & Monitoring Plan, designed by the Women’s Equality Board.

The regulation also provides for the option of creating cross-institutional committees involving rural women, in charge of enforcing the plan’s goals. So, the Decree sets up the Inter-agency Tracking Committee, as a forum in which the different sectors involved can work together. This committee will be made up of several ministers and representatives from indigenous groups, such as the Raizal and Palenquero communities, Afro-Colombian women, subsistence farmers and LGBTI collectives.

Their functions, among others, will be: i) to amend or make adjustments to the Plan, ii) to publicize and monitor public policies to help rural women, and iii) to recommend strategies for rural women, as established by international bodies. This Inter-agency committee will be supported by an Operations Committee and a Technical Secretariat.  

In the past few months a number of regulations have appeared, bringing Spanish regulations into line with good governance trends in the areas of human resources, fundamental rights and environmental policies.

The Royal Decree must transpose into Spanish law the contents of EU Directive 2014/95, 22nd October, on the disclosure of non-financial information and information about diversity on the part of large corporations and certain business groups. With this in mind, the Spanish Securities Exchange Commission (the CNMV) sent out a Draft Circular for public consultation in January, modifying the templates used for annual reports on corporate governance and directors’ salaries that listed companies must submit every year to this supervisory body.

Specifically, the draft wording refers to the need for annual corporate governance and remuneration reports to cover the company’s policies on diversity, providing a profile including issues such as training and professional experience, age, disability and gender.

In addition, consistent with the principle of transparency in the European Directive and given the lack of flexibility accorded companies in organizing and structuring the information in the manner they consider best, the draft proposes getting rid of the obligatory format of the standard electronic documents used for these reports. Companies will be able to use whatever format they wish, provided they present statistics in such a way that the CNMV has a minimum of information in a standard format, in order to compile and process the data.

The CNMV also sees the need to make certain technical amendments to the templates of both reports in order to eliminate or simplify some sections which are no longer relevant in the current context and develop others which enable the supervisory authority to better understand companies’ corporate governance system and directors’ remuneration.

Royal Legislative Decree 3/2011, 14th November, approving the consolidated text of the Public-Sector Contracts Act, also covers diversity and gender issues that might be important. Among the qualitative criteria that can be set by the hiring body to better assess value for money, environmental and social inputs can be included, relating to the subject of the contract. With reference to social conditions, these include: i) gender equality plans applied when implementing the contract and, in general, equality between women and men; ii) encouraging the hiring of women; and iii) creating a reasonable work/life balance.

The decree also stipulates that hiring bodies can set special conditions around the execution of the contract, with the following provisos: they must be linked to the subject of said contract; they may not be discriminatory, either directly or indirectly; they must be compatible with EU law, and they must be indicated in the invitation to tender and in the specifications.  In any event, at least one of the special operating conditions must be laid out in the terms and conditions specifications, of which the following are highlighted: i) eliminating inequalities between women and men in the market in question, promoting the application of measures encouraging equality between women and men at work; ii) promoting greater participation by women in the labor market, and iii) promoting a reasonable work/life balance.

Costa Rica’s Executive has reformed the regulation on the Competition & Consumer Defense Law, Decree 37899-MEIC, providing greater clarity and legal certainty to all participants in the e-commerce market.

The amendment adds a specific chapter on consumer protection in e-commerce and is ruled by the principle of functional equivalence. This puts the safeguards for information and transactions conducted by e-commerce on an equal footing with those incumbent on other forms of trading.

It brings into the regulations a series of obligations relating to the information the consumer must be given by the merchant: the merchant’s identity, the goods and services offered, the terms and conditions of the transaction, the confirmation process and the total price. On this last point, the merchant must provide information about any additional costs associated with the provision of the good or service.

When a merchant pre-selects any service, or customers are automatically signed up to successive service provisions or renewals, the new regulation defines it as mis-selling if the subscription that is bundled into a sale is not in the consumer’s interest. In order not to incur such conduct, the merchant must ask the consumer for explicit consent in a format that can be proven subsequently to prove the subscription was voluntary.

The regulation also obliges merchants to send consumers, by e-mail or another form of communication previously agreed upon by the parties, a full, accurate and permanent receipt of the transaction.

It also regulates advertising targeting minors and vulnerable or disadvantaged consumers, warning that advertising must not undermine their wellbeing or dignity.

Finally, the regulations specify that the consumer can choose whether they wish to receive commercial messages or not, and that the merchant must refrain from sending messages by any electronic means when this has not been previously requested by the consumer.

The Banking, Insurance and Pension Fund Management Authority (SBS in the Spanish acronym) published on December 11th, 2017, its amendments to the Anti-Money Laundering and Anti-Financing of Terrorism (AML/AFT) Risk Management Regulation, which was approved in SBS Resolution 2660-2015, as analyzed in Progreso 4, to add more detail, adjust and include certain new provisions into the secondary legislation for Act 27693, that we also analyzed in Progreso 13.

The Resolution goes beyond extending the duties and functions of the Compliance Officer. It also enables companies, depending on their size and complexity, to give this role a structural position in the tasks of administrative coordination. The CO’s autonomy and independence to deliver on AML/AFT responsibilities must be guaranteed, so the position should not be subordinate to other officers.

In terms of the AML/AFT risk assessment for customers, the Resolution makes clear the obligation incumbent on companies to carry out this classification, as well as the frequency with which it must be updated and the procedure to be followed with customers subject to the simplified system.

The regulation sets out the provisions for transferring funds applicable to the originating companies, defining the information and/or supporting documents that should be requested from the originator when electronic or cash transfers are carried out.

On the matter of the transaction register, the regulation has included other types of transactions that must now be registered, among them: transfer of securities, payment of commissions on insurance broking, payment of contributions in the case of savings & credit cooperatives that are not authorized to conduct transactions with funds belonging to private citizens, among others. Furthermore, to register transactions, the Resolution differentiates between single and multiple transactions, setting the applicable exchange rate in each case.

It also makes it incumbent on companies to request additional information, if necessary, to enable them to determine and substantiate the source of the funds when they are carrying out cash transactions in foreign currency, for the following sums and higher:

• US$ 7,500.00 for fund transfers
• US$ 10,000.00 for foreign currency purchase and/or sale transactions
• US$ 50,000.00 for any other transaction

Finally, the period in which suspicious transactions should be reported has been shortened from 15 days to 24 hours, starting from when the transaction is classified as such.

The Banking, Insurance & Pension Fund Management Authority (SBS) has published Regulations on managing market risk, which apply to companies in the financial system, as well as to the central bank, Banco Agropecuario (AGROBANCO), Corporación Financiera de Desarrollo (COFIDE) and the MIVIVIENDA Fund. This regulation brings together in one place the regulations on supervising market risk and managing exchange rate risk, and strengthens the current guidelines in the Corporate Governance & Integrated Risk Management Regulation, analyzed in Progreso 10.

The Regulation defines market risk as the likelihood of losses arising from oscillations in the interest rate, currency exchange rates, the prices of variable income instruments and other market prices that have an impact on the valuation of positions in financial instruments.

So that institutions can manage market risk, the regulation identifies who should be in charge of carrying out this function, giving power to the institution’s Board to set up a Market Risk Committee, which should meet at least once a year and consist of three (3) members, one of whom should be a non-executive member of the Board and chair the committee.

Similarly, the professionals responsible for the areas involved in market risk management will have to receive appropriate training, skills and have necessary experience, as well as demonstrating a suitable level of professional ability. They must perform their functions and responsibilities with integrity and ethics.

In terms of market risk limits, the regulation establishes the obligation to set internal thresholds, that are commensurate with the size and complexity of the transactions, risk appetite, the degree of risk exposure and the company’s liquidity and systemic importance.

Based on its exposure to market risk, the SBS may oblige companies in the financial system to apply market risk measurement models, stress tests and retrospective testing; they may also have to prepare a market risk contingency plan and submit to regular validation by an independent unit.

The regulation also provides for exchange rate risk, defining it as the possibility of losses on positions on and off the balance sheet deriving from oscillations in exchange rates and in the price of gold when it is treated as a currency.

Likewise, under the regulation, the Market Risk Unit is responsible for the functions of identifying, measuring, assessing, monitoring, reporting and controlling exchange rate risk; and it sets the limits on the overall overbought/oversold FX position, which is calculated bearing in mind the latest financial statements submitted by the company and authorized by the SBS.

The Regulation will come into force on June 1st, 2018. From this date onwards, the Regulation on Supervising Market Risk (SBS Resolution 509-98) and the Regulation on Exchange Rate Risk (SBS Resolution 1455-2003) will cease to have effect.

On December 28th, 2017, the law banning wage discrimination between men and women came into force, in accordance with the constitutional mandate on non-discriminatory opportunities in labor relations and the guidelines on equal pay for equal work described in  Act 28983, enforcement of which is the duty of the National Labor Supervisory Authority (SUNAFIL) and regional labor authority offices.

The regulation bans wage discrimination between men and women by setting categories, functions and wages that allow the principle of equal wage for equal work to be enforced.

Specifically, the law requires companies to introduce tables with categories and roles that set, the wages for each category, without gender discrimination. This measure must be implemented by companies within six months, dating from when the regulation comes into force.

The regulation also seeks to make job-creating companies ensure equality between men and women in their in-work training and job-skills development programs, as well as ensuring decent treatment, a work environment based on respect, a reasonable work/life balance, together with prevention and punishment of sexual harassment.

Within the framework of the provisions in ILO Convention 183 on maternity protection, the law bans corporate employers from firing or not renewing work contracts when the female employee is pregnant or lactating.

Finally, the regulation stipulates, among its secondary provisions, that natural or legal persons carrying out discriminatory actions may be fined with sums up to 3 tax units* or the temporary closure of the premises for up to one year.  

The supporting regulations to the law will be published within two months of the law coming into force.

The consultancy PriceWaterhouseCoopers (PwC) has put together a report with the Spanish Association of Foundations (AEF) to bring a global perspective to bear on the governance structure and operations of Spanish foundations’ boards of trustees.

Prior to writing the report, PwC and the AEF sent two surveys to over 500 of the foundations that are active in the AEF. One was directed at the foundations’ legal representatives, with questions about relevant and objective issues, and another to the trustees about key elements of the foundation’s governance, with questions about performance levels.

The report recognizes that governance is a necessary instrument if institutions are to be sustainable and inspire confidence among all their stakeholders. It also points out that for foundations, good governance is particularly important, because of the nature of their mission, their activities and their social repercussion.

In this spirit, using the results from the surveys, the report summarizes the key features and attributes of good governance in Spanish foundations, analyzing factors such as size and composition, organization and operations, transparency and information disclosure, as well as interaction with the governance bodies.

Finally, the report looks in some depth at the current situation and future outlook of foundations, listing the principal challenges and scopes of action that need to be tackled by trustees in the area of governance.

The Bill on the payment services market transposes into Spanish law EU Directive 2015/2366 of the European Parliament and Council, November 25th, 2015, on “PSD2” (Payment Service Providers) payment services in the domestic market, replacing the previous payment services law 16/2009, November 13th*.

PSD2, in force since January 13, makes it easier to develop an integrated and efficient retail payment services market in the European Union, one that rewards competition and innovation and provides consumers and corporations with reliable, safe services at the lowest price possible.  

Respecting the spirit of the EU regulation, the Spanish law concentrates primarily on three areas:

Service provision

Pursuant to the regulation, payment services are those business activities that enable cash to be deposited and withdrawn from a payment account, together with all the transactions necessary to manage them, fund transfers, execution of payment transactions when the funds are covered by a line of credit, and money remittances. The law has extended its scope of application to include, along with payment services, payment initiation and account information services:

• Payment initiation services: The user will be able to ask the payment service to initiate a payment order from a payment account opened with another payment services provider. That is, it allows the service provider initiating the payment to give the beneficiary of the payment order the certainty that the payment has been initiated.
• Account information services: the payment service user can have an overall and immediate view of their financial situation, given that they are provided with aggregated online information on one or more payment accounts held with one or more payment service providers.

Transparency for the user

The draft regulates the transparency of conditions and information requirements for payment services, while upholding the principle of contractual freedom. The payment services provider must make available to the user all the information and conditions relating to the payment service provision, in a format that is easily accessible.

Rights and obligations of the parties to the contract

The regulation increases user protection and payment security, reducing the amount of fraud and abuse of consumers. To better protect consumers, the payment services market Bill does the following:

• Reduces the response time for resolving user claims against payment services, down from two months as per the previous regulation, to fifteen working days.
• The application of the law includes international transactions when at least one of the end points, whether the user or the merchant, is in a European country.
• Increases the levels of scrutiny and supervision over payment services providers: in the case of unauthorized payments the user’s liability will be limited to €50, unless there has been negligence on their part.
• Reduces the payer’s maximum liability threshold for losses resulting from unauthorized payment transactions deriving from the use of a lost or stolen payment instrument, bringing this down from €150 to €50.
• Strengthens the procedure for identifying customers (additional security check) for online access to accounts by account aggregators and payment initiators.
• Submits to Spanish and EU law on issues concerning data protection, data processing and data transfer relating to activities regulated by this law. For these effects, explicit consent from the payment service user is required to obtain, process and store their personal data necessary to provide the payment service, except in those cases where these are needed to ensure the prevention, investigation and discovery of fraudulent payments.
• Lays out a description of penalties that can be handed out to payment entities**.