Ignacio Méndez Fernández, Deputy Minister for Micro, Small & Medium-sized Enterprises

Like the rest of the region, most micro, small and medium-sized enterprises (MSMEs) in the Dominican Republic operate in the informal sector. The failure of nine out of every ten Dominican micro-entrepreneurs to register their enterprise is closely linked to poverty and inequality. Operating as a company in the informal sector is synonymous with limited growth, low productivity and limited access to a few local markets and no access to international ones. It also means having to use intermediaries, who end up keeping most of the profits. Informal business can only access expensive loans; have difficulties with legal defense if problems arise, and are unlikely to find sufficiently qualified manpower and thus to develop technical capacities.

In recognition of this state of affairs, a strategy was devised in 2012 to promote the creation of formal enterprises and to bring a high proportion of existing MSMEs into the formal sector. The portal “Formalízate” [Get legal] was created, making the process of setting up a company much simpler, in response to the wish expressed by many entrepreneurs. With the support of the Santo Domingo Chamber of Commerce, FEDOCAMARAS and help from the UNPHU university’s MSME Center,  we launched the pilot project “RD FORMALIZATE-SANTO DOMINGO” in Santo Domingo with the slogan: “We help you get started, because it’s good business to be legal”. Out idea was to get micro, small and medium-sized enterprises currently operating informally in the Dominican Republic to legalize their business, providing them with specialist help throughout the process.

It is true that we have made progress, but we are aware that there is a long way to go. Two major obstacles have yet to be overcome: the tax situation and enrollment in Social Security. We are currently putting out information and creating awareness about the new “UNICO” tax regime for micro-companies, in the hope of having everything ready to launch in the next few months. Being able to give MSME entrepreneurs clear information about where they stand in tax terms and how much their one-off obligations will cost them, will be a great help in our campaign to get enterprises into the formal sector. It will also lift a burden of worry from entrepreneur’s shoulders.

We will take a similar approach to the problems surrounding Social Security. At the moment the cost of Social Security is thought to be one of the reasons stopping MSEMEs from moving into the formal sector. The Entrepreneurs Act gives recently-registered enterprises a grace period of 3 years, during which time they only pay into their medical and workplace-accident insurance. Their payments into the pension system are also postponed until the fourth year, when it can be assumed that their company is on a more solid financial footing. In money terms, this means cutting their Social Security payments by nearly half.

This formalization strategy enables an entrepreneur to create a single-person company in 24 hours at a cost of just RD 500.00 (around USD 10.00). Enrollment is valid for 2 years. At present, registering a company and endowing it with legal personality takes 7 days (currently being brought down to just 3 days) and the cost is about RD 7,800.00 (USD 155.00) for two years, including the articles of incorporation, registering the company name, filing on the companies’ register, being assigned a tax number (RNC) and inclusion in the Social Security system and the Labor Ministry.

Bearing in mind that this process used to take between 22 and 45 days, and cost around RD 50,000.00 (around USD 1,000.00), this represents major progress. We are still working on including more entities in the platform and on improving it further. In a few months digital signature will become operational, so that people will no longer have to travel, and will be able to send and receive all their information and documents online. This lets entrepreneurs save both time and money.

The challenge we face is to make it easier to do business throughout the country. Our Ministry is setting an example of how to remove problems, as we put the MSME Certification service online. These certificates are currently required to tender for State contracts (public-sector procurement) and subsequently to sign up for the UNICO tax regime, as well as for labor matters.  The application process is now quick and efficient: companies can fill out the application online from their home or office. With the data we already have, using an internal link to the Tax Directorate (DGII) and the Social Security department, we can generate the certificate online, which they can obtain without going through the traditional paperwork process or even moving from their establishment.

Instead of presenting arid figures, the best way of explaining the effect of this improvement is to tell the story of Noemí Vólquez, owner of a small canteen that provides school breakfasts in Bahoruco, a province in the southwest of the country. Noemí had to spend an average of RD 5,000 every time she was obliged to go to Santo Domingo for her MSME certificate, the document that enables her to tender in the bidding process so that her canteen can continue to provide these meals for schools in her community.

Now, with her online MSME certificate, Noemí has been able to save around RD 20,000, which she can use to buy the freezer she so badly needs to conserve the food products she uses in her small business. She is just one example of the many MSMEs now accessing online services thanks to programs have that have simplified the procedures we handle. What is the final outcome? Everyone saves money, there is less bureaucracy and greater transparency for the general public.

Many hurdles still remain. But these offer opportunities for improvement. It is vital to keep our goal in our sights, continuing to work unflaggingly towards achieving a business-friendly environment… and to be able to rely on the assistance and participation of the stakeholders we serve.

The Economic Commission for Latin America and the Caribbean (ECLAC) published guidelines on August 20 to help countries in Latin America and the Caribbean (LAC) implement Agenda 2030* with the aim of achieving the Strategic Development Goals (SDGs).

The publication highlights the importance of excellent planning if Agenda 2030 is to be implemented, indicating the key challenges on the road to achieving the SDGs over the long term. It also points to the importance of keeping all the goals integrated, acknowledging the close relationship between the different SDGs while assessing how reaching one goal can have an impact on achieving the others and how, using this analysis, priorities can be set, without losing sight of the integral nature of Agenda 2030.

The document analyzes the different methodological phases in the implementation:

1. Identifying critical points between Agenda 2030 and the planning instruments. It endeavors to support the process of implementing the SDGs by using a tool that links the targets in Agenda 2030 with the specific targets in a national development plan
2. Planning systems and their linkage with SDGs. This phase aims to establish how the planning system of the country being analyzed is set up, and to assess whether it is propensive or not to carrying out actions to achieve the priority goals
3. Self-assessment of planning systems: Barometer plan. This formulates proposals for improvement after analyzing the development planning systems in place
4. SDGs and the citizenry. This point identifies public and private players who can contribute, or not, to achieving the goals
5. The challenge of the different sectors involved in the implementation of Agenda 2030. This identifies the relationships between the sectors implicated in achieving the selected Goal and targets.
6. The challenge of different time spans in the implementation of Agenda 2030. This phase identifies the relationships between the development plan’s long, medium and short-term targets.
7. Formulating the roll-out strategy for Agenda 2030 at a local level. This seeks to generate a set of recommendations so that the planning system can incorporate and implement Agenda 2030.
8. Analyzing future scenarios. This provides guidelines for exploring possible future scenarios and helps to establish lines of action before they occur, thus creating conditions in which the planning goals can be achieved.

On July 9 the Banking Authority published its approval of the Dominican Monetary Board’s new Microcredit Regulation of May 17, 2018, as its First Resolution.

The regulation overhauls the 2014 Microcredit Regulation, aiming to bring the regulatory framework up to date, bringing it into line with the new provisions in the Asset Assessment Regulations (REA)*. Issues around the granting, assessment and management of microcredits will thus be standardized to prevent unjustified distortions in the methods by which credit risk is measured, but still conserving differential features to tackle specific aspects of a microcredit’s lifecycle, as well as the various types of credit.

The most important changes in the Microcredit Regulation are listed below:

Definitions

• Inclusion of formal units in the definition of “small-scale activity or business”, in order to include those micro-enterprises that are in the formal sector.
• Removal from the definition of microcredit of the phrase “annual sales under RD 8 million”, to be replaced by “consolidated debts in the financial system that are less than 50 MMWs” (minimum monthly wage); given that the Regulation sets out the specifications for the microcredit product and not the client type, since it does not specify that it is a micro-enterprise.
• Amendment of the definition of “refinancing”, to reduce the importance of debt consolidation loans, bearing in mind that this may account for only a small proportion of the new loan and is not necessarily the main reason for the new application. The regulatory body grants greater importance to the punctual recovery of loans by financial intermediation entities (FIEs) within designated deadlines, placing particular emphasis on those cases where interest is paid before the principal.

Term extensions

The Regulation introduces innovations in the features needed to classify a credit transaction as a microcredit. Among others, it extends the term of the loan from 24 to 36 months, and in the case of fixed investments, from 60 to 72 months for greater consistency with the Asset Assessment Regulation (REA) and to give greater flexibility to repayment plans. It will take the increase in the amount as the cut-off point, equivalent to 50 MMWs.

Other important features

The amended regulation includes a series of documents that micro-entrepreneurs must submit in order to access loans. This means they must be duly registered and have properly organized accounts, while FIEs must make changes on their platforms from hard-copy files to electronic ones, as well as a few other updates.

The regulator has also stipulated that when assessing microcredit clients, their debts with FIEs must be consolidated. Nevertheless, another FIE that tries to weight a potential client may not be able tp view their credit rating.

Act 155-17, May 31, 2017, on Money laundering and Financing of Terrorism was taken into account for this new version of the Microcredit Regulation, given the importance of the documents it requires for the Due-Diligence process that FIEs are now obliged to conduct.

The updating of the Microcredit Regulation provides a positive instrument for the micro-entrepreneur, since the obligations inherent to entering the formal economy encourage entrepreneurs to grow, while the State gains better insight into the economic growth of the micro-entrepreneur segment.

The Securities Market Authority (SMA), the Peruvian securities market regulator, has published a Resolution amending the Alternative Securities Market (ASM) Regulations, which provides greater flexibility as to the requirements, obligations and information disclosure than in the general regulations, to make it easier for companies meeting the requirements therein to access the securities market.

The regulation seeks to support the development of the Alternative Securities Market as another financing option for market agents and came into force on July 23rd, 2018.

The defining premises of the ASM

The amendments made to the regulations include section 4.2.1., which extends from three to five years the number of consecutive financial periods that must be taken into consideration when deciding whether a company meets the conditions necessary to remain within the scope of the ASM, bearing in mind also the increase in the average annual revenue from the sale of goods or provision of services from PEN 200 million to PEN 350 million.

Risk Rating Report

Although the regulation previously established that the Risk Rating Report had to be included in the appendix to the request for entry onto the ASM’s Securities Market Public Register and onto the Securities Exchange Securities Register (SSR), the amendment makes it obligatory for companies to report any change in that rating, which must be flagged up as an “Important Event”.

Corporate governance and financial information

Bearing in mind that the ASM has relaxed its requirements and obligations, companies must complete, at the least, Section A and the “Comply or Explain” assessment in Section B of the “Report on Compliance with the Good Corporate Governance Code”.

Now that the regulation has come into law, issuers will be able to set the frequency with which they present their financial information to the market, which can be on a quarterly or half-yearly basis.

The European Union has launched its WE EMPOWER program in G7 countries. Developed in conjunction with UN Women and the International Labor Organization (ILO) it aims at empowerment through responsible business conduct. The EU is also financing a sister program in 6 countries in Latin America and the Caribbean, the Win-Win program, and is considering replicating it in Asia.

As Federica Mogherini points out, “gender equality is not just about women. When half the world’s population does not have the same opportunities as the other half, we are limiting our collective potential. We all come out worse, not just women.”

Gender equality has become one of the key priorities for the United Nations and the G7 to achieve sustainable development, whether through access to a decent job or to entrepreneurial opportunities. However, the process is still going too slowly. Governments have the responsibility to break down the barriers preventing women’s empowerment, but they need support from the private sector, civil society and communities.

The private sector are also invited to take up UN Women’s Empowerment Principles (WEPs). A free, confidential online self-assessment provides an introduction to the principles, enabling people to signal their commitment, offering them a route map to follow.

The European Union’s WE EMPOWER program will promote the adoption and roll-out by the private sector of WEPs over the next 3 years, encouraging a two-way flow of experience and best practices in the working environment (equal wage for equal work, work/life balance, care of children and dependents, etc) and stronger European associations of female entrepreneurs.

Click here to access the document.

The guide published by the Spanish Data Protection Agency (AEPD) is part of a set of trade publications produced by the AEPD replacing the earlier “Videosurveillance Guide”. The new publication lays out how processing is regulated under the General Data Protection Regulations, in force since May 25, 2018.

It covers the use of security videocams, including an analysis of specific scenarios; another chapter describes numerous cases in which videocams are used for purposes other than security: traffic monitoring, recordings in educational and health centers and for scientific research.           

The guide also describes how images from emerging technologies such as onboard cameras and drones should be processed, indicating those cases when the data protection regulations do not apply.

The Mexican Federation’s Official Gazette published several general provisions on September 10 that concern Fintech entities (FTEs) in compliance with the stipulations in the Law to regulate Fintech Entities (the Fintech Law)* passed in March:

Provisions in article 58

The general provisions covered in article 58 of the Fintech law create the regulatory framework for preventing transactions using the proceeds of crime and avoid the financing of terrorism. Minimum procedures are set in place that FTEs must observe to prevent their being used as vehicles to commit these felonies and to stop improper use of the financial system through the new services available to the public thanks to innovations in technology.

The highlights of the article are as follows:

• Risk-based approach and due diligence on the client

FTEs must design and implement the methodology they need to assess the risks to which they are exposed. To conduct transactions with their clients FTEs must fill out an individual file containing relevant information about what the client type, for which entities must draw up a client identification policy. They must establish the client’s transactional profile (Know Your Customer policy, KYC) and classify the client into one of the three categories set out in the law: low, medium or high risk.

• Internal structures

The regulations require FTEs to have a Communications & Monitoring Committee which will submit the results of implementing the risk assessment methodology to the Board of Directors and set the criteria for classifying clients depending on their risk profile. The law stipulates the creation of the position of Compliance Officer, an employee who must have been awarded the requisite certificate from the National Banking & Securities Commission and who will draw up the Compliance manual, which will outline in detail the entity’s identification and KYC policies.

• Regular reporting

FTEs must send regular reports to the governmental Secretariat via their Communications & Monitoring Committee. There must be reports on Significant Transactions, Unusual Transactions and Worrying Internal Transactions; reports on transactions in foreign currency above USD 500; reports on international transfers for sums above USD 1,000; and reports on Transactions with virtual assets.

Provisions applying to transactions using electronic payment fund entities

These provisions, approved in Circular 12/2018, regulate transactions in local and foreign currency, direct debit, cross-border transactions and instances of card theft or loss.

General provisions applicable to FTEs

These provisions are applicable to all kinds of FTEs, both crowdfunding entities and electronic payment services, and contain 8 appendices with templates for the collection of biographical information about the individuals being nominated for directorships and for setting accounting criteria, among others.

The most important points are the following:

• Requests for authorization to operate as Fintechs

The provisions require greater formal requirements: together with the request for authorization to operate as a Fintech, the applicant must also submit a business plan, a financial viability study and information about its risk management, among others. Furthermore, the CNBV’s authorization is needed for certain transactions such as making transfers, whether in local or foreign currency.

• Minimum capital to operate as a Fintech

They establish the minimum capital needed to operate as a Fintech: this is the equivalent in local currency of 500,000 Investment Units (UDIs), when the Fintech has been authorized only to make one type of transaction in local currency; and the equivalent of 700,000 UDIs, if the Fintech is allowed to make two or more types of transactions, or if the transactions are conducted in virtual assets.

On August 31 the Chilean Banking and Financial Institutions Authority (SBIF) published Circular 3.640 modifying Chapter 1-13 of the Updated Regulatory Recompilation (RAN) on how management and solvency are classified, in order to set the guidelines and good practices for managing cybersecurity, and Chapter 20-8, on Information about operational incidents, specifying which of these need to be reported to the regulatory organ.

Chapter 1-13. Classifying management and solvency

As defined in the new Appendix for the amended text, cybersecurity should be understood as all action taken to protect information in cyberspace*, as well as the supporting infrastructure, that has the aim of avoiding or mitigating the adverse effects of the risks and threats inherent to information security and the future of the institution’s business.

The most important features of the Circular are as follows:

• Assessing Banks’ management: administering operational risk. The standard stresses the importance of having a definition and of identifying the principal information assets, as well as the physical infrastructure supported, and safeguards the security of the same. For these purposes, there is an express requirement that the safety of information assets exposed to cyberspace risk must be managed.
• Good management. Cybersecurity management needs structures to be provided that cover the issues described in the new Appendix 3 to the Circular which regulates, one, management of critical cybersecurity infrastructure and, two, the database of cybersecurity incidents.
• Management of critical cybersecurity infrastructure. The Board of Directors must put a management framework in place with a specific strategy for handling this risk, the institution’s tolerance threshold, the liability of the participants and the methodologies to be used for its management, bearing in mind the best practices and characteristics of its business activity.
• Cybersecurity incident database. This includes the baseline conditions for developing and maintaining an Incident Database, to include a regular review on the part of the Board of Directors of this type of incident and their corresponding conclusion about the incident in question. It also mentions the minimum variables that must be considered when drawing up this database.

Chapter 20-8 Reporting operational incidents

The standard also makes amendments to Chapter 20-8 because of the new operational risks inherent to the development of the financial industry, in particular the use of technology in the way it generates, processes and handles its information assets. The most important features it sets out are:

• Requirements relative to the information that must be sent to the SBIF when operational incidents occur
• Obligation to keep clients properly informed about certain events
• Banks’ duty to share information about cybersecurity attacks

In June, the Financial Reporting Council put out a new corporate governance code for large private companies (“The Wates Principles”) to public consultation. It was prepared by a working group led by James Wates CBE*, in which the FRC and other industry players also participated.

The new Code was written against a backdrop of major reform ago to the corporate governance system, which began several years ago, aiming to strengthen good governance across the country’s firms and deepening trust among investors and other stakeholders in the British economy.

The reform is focusing now on large corporations because they account for a major proportion of the country’s companies, and because their activity and results have significant impact on employees, suppliers and other players.

The Code contains six principles, backed up by guideline notes on how to apply them, which are based on the recently revised corporate governance code for listed companies that we discussed in issue 14 of Progreso.

These principles are voluntary, so the companies that decide to adopt them will have to explain how they have done so, or else the reasons that have led them not to follow a particular recommendation, if this is the case. We provide a brief summary below, although the definitive version of the Code will not be published until December 2018:

Purpose

An effective Board of Directors must define the company’s purpose clearly and ensure that this definition is aligned with its values, strategy and corporate culture.

• These values should be a reflection of the behavior expected from those in the company and should be integrated throughout the business’ functions and operations, specifically in the roles of internal audit, ethics, compliance and risk management.
• The strategy must be designed to create value that is sustainable over time; it is the Board’s responsibility to make sure it is rolled out through the entire organization.
• Corporate culture –defined as the combination of values, attitudes and behavior of an institution in its operations and relationships with stakeholders– is key in creating and protecting long-term value.

Composition

The Board of Directors should have a balanced mix of skills, experience and expertise; its size will depend on the scale and complexity of the company’s activities. In particular, the document stresses that:

• The Chair leads the Board and is responsible for its effectiveness.
• A good balance of profiles, aptitudes and experience encourages strategic decision-making, diversity, accountability and objectivity.
• All directors must be capable of demonstrating the value provided by the organ of governance and of showing that their competences are aligned with the needs of the company and its stakeholders. Institutions must be committed to the professional development of their board members, and these must make the most of any opportunity that presents itself to learn.
• Individual assessment of directors will look at the contribution they make to the work of the governance body.
• The Board should be able to determine whether its size and structure are appropriate for tackling the institution’s strategic needs and challenges. So, it must be big enough to provide a suitable level of analysis, but also flexible enough to foster efficient, effective decision-making.

Responsibilities

The Board must clearly understand its responsibilities and ensure that corporate governance practices are in place that encourage accountability and effective decision-making, making sure that shareholders’ roles and responsibilities, those of the Board itself, and those of the firm’s senior management have all been clearly defined.

The Board must also be confident that the information with which it has been provided to take decisions is sound. In this way, the institution must ensure that formal procedures have been defined so that control systems and mechanisms work effectively, and that the quality and comprehensiveness of the information given to the Board is reliable and enables the directors to supervise the company’s performance.

Opportunity and risk

The Board must work towards the company’s long-term success, identifying opportunities to create and safeguard value, and carrying out effective supervision to identify and mitigate risk.

Remuneration

The Board must encourage the creation of remuneration structures that are aligned with the company’s long-term success and with its corporate values. It should also establish a transparency policy for these structures that guarantees accountability for all stakeholders.

Stakeholders

The Board is responsible for overseeing the entity’s commitment to its stakeholders and for promoting good relations with them. Specifically, every year it must conduct an objective, balances and comprehensible analysis of the company’s situation and its future plans and make this available to all its stakeholders.

On August 25, the  Securities Market Authority  (SMV) published Resolution 025-2018-SMV/01 amending some of the clauses in article 7 of the anti-money laundering and financing of terrorism regulations* (AML/FT) regarding the due diligence measures that regulated entities must conduct on their clients.

This Resolution completes the regulatory requirements recently introduced under Resolution 073-2018-SMV/02, which we discussed in  issue 15 of Progreso. Among other subjects, Resolution 073 makes the provision, in the case of politically exposed persons (PEPs), that regulated entities must record and verify the relationship of legal persons or entities where these PEPs have a holding equal to or higher than 25% in the share-capital, contribution or participation; raising the holding percentage from 5%, as required in the earlier legislation, to 25%.

Under the new Resolution 025, this 25% stake is applied equally to the holding that legal persons might have in any other institution.

On July 20, the Republic of Nicaragua’s National Assembly published Act 977 on the Prevention of Money Laundering, Combating the Financing of Terrorism and the Financing of the Proliferation of weapons of mass destruction (AML/CFT/FP).

The regulation aims to protects the economy and the integrity of the financial system from risks associated with AML/FT/FP. To this end, the provisions set out the following specific measures:

• Setting up mechanisms designed to strengthen prevention, investigation, pursuit and punishment of AML/CFT/FP crimes
• The implementation of financial measures adopted by international organizations of which Nicaragua is a member
• Strengthening of national legislation
• Reducing the financial and operating capacity of criminal organizations

The most significant points are as follows:

Regulated parties*

Natural and legal persons conducting activities in the capacity of financial institutions, and non-financial activities and professions**  must report to the Financial Analysis Unit (FAU)*** directly and may not argue that discretion is required or use any other diversionary tactic:

• Financial institutions supervised by the Banking & Other Financial Institutions Authority: banks, financial companies, insurance, reassurance, sureties and insurance broking companies, bonded warehouse companies, securities exchange companies, central securities depositories, stockbrokers, settlement & clearing firms, fund managers, investment firms, pension fund managers, banking agent offices and foreign financial institutions, companies operating under the special regime covered by the General Banking, Non-Banking Financial Institutions and Financial Groups Act.
• Institutions supervised by the National Microfinance Commission: microfinance intermediaries and microfinance institutions.
• Institutions supervised by the FAU as to their AML/FT/FP prevention: microfinance institutions that are not regulated by CONAMI, pawn and loan stores, casinos, certain categories of traders and fiduciary service providers, among others.
• Chartered Accountants

Duties of regulated entities

• Verification of client’s identity and the beneficial owner. This must be done when the service relationship is being set up or, if subsequently, within 10 days of the outset of this relationship, once the Regulated Entity has confirmed that the AML/FT/FP risks are under control and provided that it is necessary in order for the business to be carried out properly.

• Transparency. Legal persons registered in Nicaragua should file appropriate, accurate and updated information about the beneficial owner and the ownership and control structure.

• Individual risk assessments. AML/FT/FP risks should be assessed on a case-by-case basis by clients, countries or geographical regions, products, services, transactions, distribution channels and dispatch; the use of ICT, etc. and other factors viewed as relevant; information from national AML/FT/FP assessments must be used. These assessments must have documentary support, be updated regularly and the outcomes subsequently reported to the respective supervisor.
• ML/FT/FP prevention programs. Regulated entities must set up programs that enable them to manage and mitigate effectively the risks found thanks to national, industry or individual ML/FT/FP risk assessments. These programs should consist of:
  • Know Your Customer (KYC) Due Diligence that is appropriate to the level of risk exposure: intense, simplified or standard; as well as the functions or structures overseeing compliance with these
  • Existing liabilities regarding how measures, monitoring and procedures are implemented
  • Appropriate staff selection procedures and continuous training programs for employees and senior management
  • Independent audit or assessment function to test the effectiveness of the program and its implementation
• Physical cross-border transfer of money and other monetary instruments. Any natural or legal person, whether Nicaraguan or foreign who comes into or leaves the country carrying money in the form of cash, securities and/or precious metals for a sum equal to or more than USD 10,000.00 or its equivalent in local currency, must declare it on the form provided by the customs authority.

Non-profit organizations

These must meet certain requirements such as making financial transactions through regulated financial channels, applying the “know your beneficial owners and associate Non-profit organizations” rule, having formals accounts for their assets, complying with the requirements for receiving donations, and keeping on file for at least 10 years their annual financial statements and the records of local and international transactions.

Bearer shares

For the purposes of identifying their shareholding and control structure, limited liability companies may not issue bearer shares, nor convert nominative shares into bearer shares.

Finally, the Act introduces a number of amendments**** to the Penal Code regarding ML/FT/FP felonies, lays the groundwork for future regulation in this area and in its Temporary Provision specifies a 12-month period for private companies who have or issue bearer shares and certificates for converting them into nominative shares.

The new provisions published in June by the National Banking, Securities, Insurance & Sureties Commission and the Retirement Savings System bring Mexican regulations up to date in improving the transparency and reliability of financial information about financial groups’ parent companies, by improving the external audit services hired by these companies.

Independent audits

The provisions consist of four main sections and 43 articles, which set out the requirements that companies and independent external auditing firms must meet when providing audit services of the individual and consolidated financial statements of financial groups; the standards that apply to external audit projects, and the contents of the report that these firms submit.

Specifically, the provisions highlight the role of the parent companies’ boards of directors in approving the substitution, when this occurs, of the external auditing company or auditor, and the fees receivable for the internal audit itself.

The role of the audit committee

The audit committee also has an important role, which includes the following functions:

• Validating before their appointment that the auditing firm and the external auditor meet the legally mandated personal, professional and impartiality requirements
• Obtaining from the auditing firm its statement of compliance with the quality control standard corresponding to the financial period audited, as submitted to the professional trade body
• Issuing an opinion on whether the proposed resources for conducting the external audit program are reasonable and commensurate with the scope of the audit, the nature and complexity of the transactions, as well as the structure of the financial group
• Reviewing the terms of the audit brief, before the service provision agreement with the audit firm is signed

The committee should also monitor the external audit’s activities, and among other matters:

• Help to ensure that the internal audit area facilitates the external auditors’ task
• Encourage the creation of policies in the parent company and its subsidiaries such that they have the appropriate staff who can prepare, review and authorize the documents being submitted to the external audit
• Supervise the roll out of such corrective measures as may be necessary in response to the external auditor’s findings and recommendations

Finally, the provisions state that this committee will be responsible for a regular assessment of the external audit company’s work and, at the end of their task, for assessing the auditors’ opinion; the committee will be authorized to request such documents as it wishes to demonstrate the company’s compliance with the obligations and requirements in the regulation, as well as those in the formal service provision agreement.

In  Progreso 11 we covered the publication of the European Parliament and of the Council’s Directive 2017/828, 17 May 2017, amending Directive 2007/EC on the encouragement of long-term shareholder engagement, to reinforce active and transparent engagement with shareholders in companies that have their registered office in a Member State and are listed on a regulated market located or operated in a Member State, and to promote their long-term commitment to the company and its strategy.

The Ministry for the Economy & Business has put out for public consultation the bill transposing this EU Directive into Spanish law, endeavoring to solve the following problems that have been detected:

Institutional investors and asset managers

One of the issues highlighted in the Directive is insufficient involvement of institutional investors and asset managers in the listed companies in which they invest.

To that end, it proposes aligning shareholders’ and managers’ interests to prevent short-termism, by requiring companies to approve a long-term engagement policy for shareholders that defines the investment strategy and is made available to the public by these asset managers.

Directors’ remuneration and performance

The Directive states that there is insufficient correlation between the remuneration and performance of directors of listed companies and the companies do not disclose any clear, comprehensible or comparable information about their remuneration. It also argues that shareholders lack appropriate tools to express their opinion of the remuneration of members of the administrative body.

In view of this, the regulation requires listed companies to prepare a directors’ remuneration policy, which must be submitted for the Annual General Meeting’s approval. It also requires a remuneration report describing how this remuneration policy has been applied, which should also be submitted to the institution’s shareholders.

Related-party transactions

The regulation points to a lack of supervision and monitoring by shareholders of related-party transactions, and shareholders’ difficulties in accessing enough information in a timely manner on these types of transactions.

As a solution, it proposes that timely information must be published about a forthcoming transaction between a listed company and a related party, and that this transaction should be submitted to approval by the shareholders (or, where applicable, the board of directors or equivalent).

Proxy advisors

The Directive refers to the inadequate transparency standards applied to proxy advisors used by institutional investors and asset managers to exercise the voting rights associated with their investments, with the consequence that these advisors take on a very important role in the decision-making of listed companies.

Thus it proposes that proxy advisors must publish the methodologies they use to draw up their recommendations and should put policies in place to manage and minimize conflicts of interest.

Exercising shareholder rights

Finally, the Directive acknowledges that the exercise of rights attached to shares is difficult and expensive, particularly when there is a chain of intermediaries in the holding of a share, since the information about exercising shareholder rights intrinsic to the holding of shares is not always properly transmitted along the chain of different entities.

The solution proposed by the regulation is to set up obligations incumbent on the financial intermediaries involved in the custody of shares. These could include the obligation to transmit both to the listed institution and to its shareholders, such information as is necessary to exercise the right to vote, in the time frames and formats set out in the European Commission’s regulation.

Consultation period

The consultation period on this Bill ended on 12 July. We will keep Progreso readers informed about the publication of the final version.

This guide has been published jointly by the Excellence in Management Club, the Spanish Association of Social Responsibility Officers (DIRSE), Forética, the UN Global Compact (Spanish Network) and SERES, the Responsible Society & Company Foundation.

The document analyzes two key goals that organizations must bear in mind: excellence in management and sustainability, furnishing the officers in charge of these areas with the keys to managing and integrating these concepts.

The guidelines present the EFQM model (which started out in 1992 under the leadership of, and promoted by, the European Foundation for Quality Management), together with other corporate responsibility management models, such as the SGE 21 Standard, Sustainable Development Goals (SDG), etc., so that it can be applied, in a straightforward, comprehensible way on a voluntary, non-regulatory basis by any organization, whatever its size or industry sector.

The basis of the EFQM philosophy is that what cannot be measured cannot be improved. To enhance an organization’s competitiveness, it is necessary to know its position on the competitiveness spectrum and, from there, identify the changes and actions needed to make progress on the road to excellence in management.

The model provides a framework which enables the organization to analyze its management and its roll out of actions to anticipate the changes in local and global environment, helping it to:

• Identify strong points and areas for improvement through a team effort which helps to expand perspectives and encourages a participative culture
• Set a level of excellence in management (scorecard) in each of the key areas
• Establish the priorities for action

The document diagnoses the factors limiting productivity in the Andean region and a route map for boosting growth, based on greater investment in physical capital, with an appropriate balance between public and private investment, together with labor, tax, financial and export reforms to improve productivity.

Among other symptoms of low productivity, it identifies the following:

• Micro enterprises with low efficiency rates and low likelihood of survival
• High level of employment in the informal sector and self-employment
• Lack of development in the non-traditional export sector
• Low penetration of financial products and services, which limits access to enterprises with productive potential.

Finally, the study puts forward a series of recommended public policies to mitigate these distortions and correct market faults, so that important productivity gains can be realized and the process of development and convergence of the region’s income towards that of advanced economies is given greater momentum.

Act 30822 modifying Act 26702, the General Financial & Insurance System Law, together with other related regulations was published on July 19, 2018 by the Banking, Insurance & Pension-Fund Supervisor (SBS). The recent set of regulations, which will come into force on January 1, 2019, sets out the legal framework for Savings & Loan Cooperatives (COOPAC), authorizing the SBS to supervise these institutions.

As the Head of the SBS, Socorro Heysen commented in her interview in issue 12 of Progreso, the regulation aims to strengthen the Cooperative System, as well as offering greater security to cooperative members, in an effort to overcome one of the weaknesses affecting the financial system: the direct competition between informal, unsupervised companies and microfinance institutions. Another of the regulation’s intentions, according to Socorro Heysen Zegarra, is to reinforce corporate governance in municipal savings & loans.

The regulation lays down the characteristics defining those savings & loan cooperatives that only operate with their members and are not authorized to capture resources from the public nor operate with third parties, indicating, among other areas, that COOPAC organs of governance must be identified.

It divides the COOPACs into three different modules according to their total assets:

• Level 1: COOPACs with assets up to 600 taxation units (UITs).
• Level 2: COOPACs with total assets between 600 and 65,000 taxation units.
• Level 3: COOPACs with total assets of over 65,000 taxation units. They must have an annual risk rating that is SBS-compliant.

The type of transactions that COOPACs can carry out depends on their module category; some may extend their activities, among them to accept compensation for time of service (CTS) deposits.

In addition, the regulation has created the National Record of Savings & Loan Cooperatives that are not authorized to capture resources from the public, which will be supervised by the Cooperatives Adjunct Authority; COOPAC must file for inclusion in the National Records within twenty (20) working days, starting the day after they are entered on the Public Records.

Finally, the regulation provides for the creation of the Cooperative Deposit Insurance Fund to protect COOPAC members who have contributed for 24 months and the obligation to comply with anti-money laundering and financing of terrorism regulation in their capacity as regulated institutions.

New strategies to support the farming sector are proposed in Bill 014, July 23, 2018 to create jobs and increase investment in production, such that capital remains inside the country. The aim is to provide immediate, interest-free financing for farmers, enabling them to import machinery, equipment and inputs tax free. Some of the key aspects of this bill worth highlighting are:

Financing

• The proposal that for the first 3 years in which the regulation is in force, the Savings Bank, Panama’ central bank and the Agricultural Development Bank (BDA) should set aside all their profits exclusively for the agricultural sector, offering interest-free loans. This type of loans would consist solely of property mortgages and collateral pledged against equipment or future production.
• Loans granted by state-run banks to producers may not be refused on the grounds of the client’s credit history, a proposal which would mean another amendment to the 2002 Act 24 regulating the provision of information on consumers’ and clients’ credit history.
• The State will acquire all national agricultural produce that the private sector, for whatever reason, has not been able to buy. Farmers will be paid through Panama’s central bank no later than 60 days after reception of such produce.

Duties

• Import duties will be set by the State in conjunction with national producers’ associations.
• Third party intermediaries may not import. The State will import all agricultural sector products directly, dispatching all earnings in full to the BDA, to be used to grant zero-interest loans.

Tax breaks

• Companies or natural persons who normally work in the agricultural sector will be granted a 3-year tax holiday, on both their national and municipal taxes.
• The exemption will apply to import taxes and taxes on the transfer of goods and services for importing machinery, seeds, fertilizers and all inputs required for agricultural activity.
• Fuels and oils used by agricultural companies will be exempted from paying tax. Every quarter, the State will refund the producer the sums paid on these taxes.
• To be eligible for the benefits offered in the regulation, agricultural producers must be certified by Panama’s Chamber of Commerce, Industries and Agriculture and by a Chartered Accountant, validating that they are engaged in this activity.

Location and border control

Since the Central Provinces and the inner heartland of the country are the areas that produce all the food consumed domestically, the regulation proposes a 90-day work plan to relocate and create some governmental institutions. Part of this work plan will involve drafting a list that includes all the administrative districts in the country where farming takes place or may take place, so that their needs, the solution and its execution can be specified.

Impact in the administrative arena

• Non-compliance with this regulation on the part of civil servants will be cause for dismissal, without prejudice to the criminal action applicable for delay in the exercise of their functions.

It is important to remember that this Bill is closely linked to the provisions contained in Act 4, May 17, 1994 establishing a preferential interest-rate system for the agricultural sector and other measures, since it shares the same aim of supporting the country’s agricultural sector. If the Bill is passed, it would be a major boost for the sector and have a beneficial impact on Panamanian families, whose households are suffering the economic impact of their product; it would provide the possibility of developing employment in the sector.

On July 10, the Ministry for the Economy & Business published a draft bill of measures for the digital transformation of the financial system.

The regulation supports the digital transformation of the economy by monitoring the risks that financial innovation may trigger. It reinforces legal certainty, such that the protection of the financial services consumer and the integrity of markets are not affected, preventing the financial system from being used to launder money and finance terrorism.

The draft bill consists of four sections which cover different areas of the new digital environment. Of these, Section II, regulating the controlled testing space, is particularly important. This space, known as the “regulatory sandbox” has the following legal definition: “all the legal dispositions that provide protection for tests that are part of a controlled and restricted pilot project”. To this end, the tests are carried out under supervision by the competent authorities, their scope, duration and characteristics having been defined beforehand, ensuring the highest level of guarantee when the participation of real clients is needed.

Legislation of project testing and protocol

The rules for tests are specified in the regulation and in the protocol for tests agreed between the developer and the supervising authority, once the project has been awarded a preliminary favorable assessment. This protocol will contain the pilot project’s conditions:

• Limits over volume and testing time
• Information to be given to the authorities and how to access it
• Project phases and targets for each phase, together with the test’s scope and duration
• Resources the developer must have to conduct the tests
• System of guarantees to cover possible liability

The testing protocol, compliance with which is obligatory for participants, will ensure the financial consumer is protected; the consumer must have been given the information beforehand, must give their consent, and may abandon the project whenever they wish. Throughout the testing period, the developer and the supervisor will coordinate with one another, and once the testing has ended, the developer will have to submit a report on the results.

Requirements for access to the regulatory sandbox

• Projects must have a technology-based financial innovation and be at a sufficiently advanced stage that they can be tested. The regulation defines this type of innovation as one that can give rise to new business models, apps, processes or products that have an impact on financial markets, the provision of financial and ancillary services or the performance of public functions in the financial arena.
• Innovative projects must also offer a potential added value in at least one of the following areas:
  • Be designed to improve regulatory compliance by perfecting or standardizing processes or other instruments
  • Represent a potential utility for users of financial services: enhanced quality, better conditions of access or availability of financial service provision, or increased protection for customers
  • Increasing the efficiency of institutions or markets
  • Providing mechanisms for improving regulation or better exercise of financial supervision

Access to the sandbox does not equate to authorization for conducting an activity or providing professional services on a permanent basis. Once the tests have been completed, the developer will prepare and submit to the supervisory authority a report assessing the results and the pilot project as a whole, and at this point may request permission to begin their activity.

Other important issues

The regulation makes provisions for a testing committee to be set up to coordinate the activity, stipulating that authorities should cooperate with one another, and establishes specific communication channels between the supervisory authorities and individuals involved.

Finally, the bill requires the General Secretariat of the Treasury & Foreign Financing to draw up an annual report which summarizes the new technological developments, international performance and the effects of these innovations on financial stability, among others.

If this regulation is finally passed, technological innovation applied to financial services will be given a boost insofar as it gives the customer a framework of protection, it helps to modernize the Spanish economy within the global digital environment and it encourages greater efficiency on the part of financial institutions.

Decree 358/2018 “on the handing over in usufruct of idle state land”, and its supporting regulations, Decree 350/2018, which come into effect on October 7 were published on August 7.

This new regulation, revoking Decree 300, July 20, 2012, endeavors to boost the agricultural sector by promoting the efficient use of land and greater protection for the beneficiary.

Idle state lands

The Decree authorizes idle state land to be handed over in usufruct cost-free for 20 years –extendable for a further 20– to natural persons, and to legal persons for an indefinite period, so that the land can be exploited on a rational, sustainable basis.

Under the legal definition, idle state land is defined as follows:

• Land that is not being used for farming, stockbreeding, forestry or fruit production, unless it is being left fallow as part of a crop rotation system.
• Land that is covered in the spiny marabú weed, brushwood or invasive plants
• Land that is being used for crops or plantations that are unsuited to the soil, that is significantly depopulated and performing badly
• Land that is used for stock-breeding that has a low density of animals per hectare

Other changes

Other new features in the regulation are:

• Fund of Idle land. The following categories of land are included in the Fund:
  • Idle land managed by state-owned firms
  • Idle land in state-run firms with legal personality, basic cooperative production units, agricultural production cooperatives and credit & service co-ops, after a binding resolution revoking the usufruct held by the Delegate or Municipal Agriculture Director has been obtained;
  • Land left unworked for over 6 months, which was granted in usufruct for its workers’ self-sufficiency, once a binding resolution revoking the usufruct is obtained
  • Idle land that is acquired in the interests of the State from agricultural produce cooperatives or from smallholders
• Upper limit of land areas to be handed over in usufruct. The maximum land area that can be handed over to natural persons requesting land for the first time for agricultural and forestry produce has been raised from 13.42 ha to 26.84 ha. Where the applications are for large livestock and crops, the hectare limit rises to 67.10 ha, provided that the conditions allow it, so that it is more practical to apply more advanced techniques and achieve competitive results.
• Reasons for resolving the usufruct contract. New reasons for terminating these contracts are specified, such as the use of illicit financing, such as that emanating from money laundering, corruption and other criminal acts, or non-compliance with the obligations laid out in the Special Social Security Regime.

Regulatory development

Decree 350, which provides the supporting regulations for Decree 358, develops the matters raised there in more detail: the Fund of Idle Land which can be handed over in usufruct, the requirements that legal and natural persons must satisfy in order to be usufruct beneficiaries: the procedure for legalizing the usufruct, extending the amount of land affected, and prolonging its duration; the main contents of the Usufruct Contract, compliance and termination; improvements made to the land*; control of the handing over of idle land and the commitment and involvement of the beneficiary.

Colombia’s Congress has retabled a bill to amend the current provisions for habeas financial data, as discussed in issues 8 and 13 of Progreso.

The new legislative proposal, aimed principally at protecting parties whose data is stored in credit rating agencies, borrows from earlier drafts in its amendments on issues such as:

• The requirement for financial institutions to report new information about their clients at least once a month to credit rating agencies.
• The amendment of the maximum term of negative reports from 4 to 2 years, starting from when the debt obligation has been settled.
• A data subject’s rating may not be lowered internally because credit checks have been run by other ratings agencies. These checks will be free of charge at all times and may not be used for job-related purposes.

The new draft also incorporates the additions suggested in the previous text (Senate Bill 141/2017), on:

• Immediate elimination of the negative rating in the case of expired obligations worth 20% or less of the current monthly minimum wage (about €45).
• Negative rating to proscribe 5 years after the obligation has gone into default or after the legal recovery process has finished.
• A specific procedure for eliminating negative reports in cases of identity theft is laid out (not covered under current legislation).

There are two new provisions that were not covered in earlier draft bills, relating to:

• The term of a data subject’s negative report, which should be a maximum of 18 months, from when the obligation was due.

The backing by the Colombian government of the signing of international treaties that enable foreign financial, commercial and credit ratings and measurements to be accepted in domestic dealings.

Finally, the draft regulation proposes that there should be a transitional period during which the negative report on subjects who have already repaid or who settle their obligations within six months of the bill coming into law, should have a maximum life cycle of six months after the entire debt has been paid off.

Lead partner of Garrigues Colombia

Roberto Borrás Polanía is the lead partner of the capital markets and banking and finance practices of Garrigues Colombia. He served as Chief Financial Superintendent of Colombia, Director General of the Financial Compliance Unit of the Colombian Ministry of Finance and Public Debt, and Chairman of the Colombian Securities Market Self-Regulatory Body. He also served as Deputy Superintendent for Risks and Superintendent for Conglomerates in the Financial Superintendency of Colombia.

During his practice as a lawyer and legal adviser, he has worked as an international consultant for the World Bank, the Inter-American Development Bank, the Association of Supervisors of Banks of the Americas (ASBA) and USAID.

He served as Chief Negotiator of Financial Services in Colombia during the negotiation of the Free Trade Agreement with Canada and the EFTA countries, and was a member of the negotiating team of the financial services chapter of the Free Trade Agreement with the United States of America.

Between 2011 and 2012 he was a partner in the Financial and Securities Market practice of one of the main law firms in Colombia. His legal practice has focused on commercial and corporate law, financing transactions, banking regulations and capital markets law, as well as on issues related to transactional services and payments. He is an arbitrator of the Bogota Chamber of Commerce in the areas of commercial and financial law.

He has been a professor on the postgraduate program in Banking and Financial Law at Universidad del Rosario, on the capital markets program at Pontificia Universidad Javeriana, on the Masters Degree in Banking and Stock Market Law at Universidad Externado de Colombia, on the Masters Degree in Private Law at Universidad de Los Andes, and at Universidad Sergio Arboleda.

1. Before joining Garrigues Colombia in 2015, you headed the Colombian financial authority for two years. What would you highlight from that experience? What was the biggest challenge you faced there?

But first of all, let me thank the BBVA Microfinance Foundation and Progreso for inviting me to take part in this fascinating conversation.

My time as Superintendent was marked by different challenges at both global and local level. Let me just discuss the two biggest ones. In the first, we had to deal with the fall-out of the Lehman Brother collapse, just weeks before I took over the institution in November 2008, one of the events that triggered the global financial crisis. As supervisors, we had to carefully monitor the complex events impacting key financial systems and capital markets worldwide. And of course, we had to take actions to track the effects this turbulence was having on the Colombian economy –exposed to an extreme shock which led it to contract— and protect the stability of the financial industry there. This required active coordination between government and industry which, along with the limited connection with contagion factors, the strong equity in the financial system and the counter-cyclical measures adopted in the macro economy, enabled our supervisory and regulatory systems to mitigate the effects of an extraordinarily severe situation.

At the same time, in the second half of 2008, Colombia was facing a severe crisis with a proliferation of pyramid schemes to illegally raise capital. As I took office, a state of constitutional exception was declared. The social emergency led the President of the Republic to take over special powers to tackle this unprecedented crisis. The Superintendency had to act in various different parts of the country, detecting these illegal schemes and suspend their activity in an orderly manner.

The fight was tough on both fronts. The Financial Superintendency had a highly committed team, whose skills were vital in overcoming situations that I can describe briefly today, but that entailed months of hard work and some very tricky moments. We learned key lessons, which we tried to inject into stronger regulation and supervision. This has remained in force over the last few years, with ever closer convergence to the Basel standards and other benchmark regulations.

The global crisis showed the importance of robust, efficient corporate governance in financial institutions. This provides the necessary underpinnings for managing them properly. The local crisis ratified the need for more robust financial literacy programs and more intense financial inclusion initiatives.

2. Could you give us your angle on the Colombian economy’s performance over recent years? What do you see as the main challenges facing it?

The country has made progress, but clearly still has several challenges, of which I would focus on two. Firstly, Colombia should be growing faster, and the growth should spread to more of its population. This is a key factor in reducing poverty. It is necessary to foment development by consolidating an environment that eliminates unnecessary burdens when setting up businesses; incentivizes investment; smooths the way for entrepreneurs, and makes it easier to access resources.

A system that encourages businesses to operate in the legal market, in line with labor law, will enable us to make better use of the enormous talent, innovative spirit and energy that characterizes Colombians. It lays the foundations needed to diversify our production, making our products and services more competitive. On this front, I would highlight the enormous challenge in incentivizing rural development, helping small farmers grow their businesses, and making major agribusiness projects into an attractive investment.

Another challenge I would highlight is the need to balance public finances. The fall in oil prices in 2014 hit the Colombian economy hard, substantially reducing State revenues. That goes to show the need for overcoming our dependency on this model of production. Although tax reforms have been brought in recently, there is a broad consensus that end-to-end measures should be adopted to bring about a fiscal equilibrium, improving State revenues, rationalizing public spending and strengthening the tax administration, so that it can harness state-of-the-art technology to optimize its management.

Pension and health reforms are very relevant for society and have a significant fiscal impact. They are also fundamental in consolidating this equilibrium in the medium and long term.

3. Apart from holding high-profile public positions during your career, you have acted as consultant for several multilateral agencies, like IDB, USAID, the World Bank… What role do you think such agencies should play in the development of the finance and microfinance industries?

Government authorities can encounter support in the programs of these multilateral agencies for initiatives that are fundamental for the design and implementation of public policies. The technical experience and skills of the teams working for the agencies has helped to update and elevate supervision and regulatory standards in the financial system. Some of the key regulatory reforms in the sector were preceded with technical assistance programs rolled out by multilateral agencies.

The microfinance industry has been no exception to this positive experience. Multilateral agencies have supported the development of initiatives in regulations, supervision methodologies, portfolio origination techniques and risk management, transactional and payment services and on several other fronts.

Indeed, some multilateral agencies have been shareholders in institutions in the microfinance industry, making their good governance, financial capacity and management more robust.

4. In your opinion, what are the best public or private actions to propitiate financial inclusion in Colombia?

Although Colombia has drawn up some initiative for inclusion that have been successful, a major part of its population still has no access to financial services.

Several studies coincide in that first of all, one needs a genuine financial inclusion policy which, when the State recognizes its importance, propitiates correct coordination of public and private sector policies and defines priorities to take action. The definition of a strategy makes it possible to identify supply-side and demand-side measures so that they can be institutionalized to reach the financial inclusion goals identified.

To start with, for example, a review of regulations applicable to the microfinance business would help identify regulatory factors affecting competition within the sector, or prudential charges that don’t correspond to the nature or risks inherent to the business that are too burdensome.

It’s also necessary to continue to propitiate the expansion of the geographical scope of microfinance institutions, especially in rural or remote areas, facilitating the use of technologies to make it easier to provide services there.

It is imperative to propitiate the formalization of labor and business activities. This is a key fundament in building up an ecosystem that generates information, the principal input for decisions on granting credit or offering other financial services.

The demand for financial education must continue to be a priority. Many Colombians are unaware of the products the microfinance industry is offering or don’t know how they might be tailored to their needs and possibilities. Especially when we’re talking about micro-entrepreneurs, they need a helping hand in the commercial and financial side of things, so they can better define the services they require. This redounds to a better understanding of their obligations and prevents overborrowing.

5. How do you see the current situation of the microfinance industry in Colombia? How advisable is it to draw up a set of specific regulations for microfinance?

The microfinance industry in Colombia has grown at a fast pace. Firstly, I would highlight the process of businesses migrating to become recognized as regulated institutions. In my judgement, this factor has contributed significantly to their consolidation as sound providers of financial services, specialists in origination techniques for their products and adopting increasingly stringent standards in managing their businesses and their risks.

I would also highlight the institutionalization of the industry, the consolidation of Asomicrofinanzas as its trade association and the preservation of the Bank of Opportunities Program.

However, although measures have been adopted to optimize the environment for microfinance business, something recognized by several different studies and indicators, I still think that an in-depth revision of the regulatory standards would enable us to spot elements that don’t correspond to the specific business in this industry and may thus be generating disincentives to do certain things or distorting competition.

6. In your opinion, where do the Colombian institutions stand with respect to applying standards of good corporate governance in their business management?

The adoption of good corporate governance standards in Colombia is on the up. Especially in sectors like the finance industry and in larger companies, you can, in general terms, see how good governance is becoming a priority, propitiated by the demands of supervisors and the motivation coming from shareholders and management alike.

Perhaps the biggest challenge in the application of better standards faces small and medium-sized companies and some family-based organizations that could do more in adopting corporate governance standards.

7. Your capacity to juggle your intense professional activity with lecturing at various universities is admirable. Being in contact with young people is usually enriching. What advice do you give to your students about their future careers?

Indeed, a professorship imposes a duty to keep on studying and stay up to date. It gives you first-hand knowledge of the young people’s worries and expectations, and let’s you learn from them.

Apart from giving my students the curriculum content, I share the experiences that influenced my professional life with them too. Especially the mistakes, as it’s the mistakes that teach us the most important lessons.

The first tip I give them, which is pretty obvious, is to aim for excellence. In an ever more competitive environment, disciplined study and good preparation really makes a difference. Excellent will enable them to be ready to grab those opportunities that arise and can make all the difference to their careers.

I also remind them of the importance of staying true to their principles; to behave ethically, honestly and transparently. Through my professional roles, I’ve come across cases of careers forecast to be brilliant, which were stopped short by ethical misconduct motivated by personal financial interests.

8. Is there any specific achievement from your long career that you feel especially proud of, which you can share with our readers? Or a personal achievement, if you wish?

On the professional side, I feel it has been a real privilege to be able to work in public service, as a consultant at multilateral agencies and now in the private sector, as a partner in a major law-firm. This combination of challenges and experiences has been very special. It is what enables me nowadays to adopt a comprehensive approach to analyzing tasks and problems, considering private interests but also public sensitivities. Now, I must confess, that when I embarked on my career, I never imagined I would become Financial Superintendent in Colombia, let alone manage to be partner in a law-firm with the track record and prestige of Garrigues.

On the personal side, I am filled with pride by the family Adriana, my wife, and I have formed, along with our children, Santiago and María Lucía. They are my constant motivation, my place of peace, where I can ‘recharge batteries’. I also feel very proud of my students. Watching them grow and consolidate their professional lives gives me great joy.

9. And what book would you recommend?

We’ve spoken at length about my country in this interview, so I think it would be pertinent to suggest “Historia Mínima de Colombia”, a minimalist history of Colombia by Jorge Orlando Melo.

Executive Decrees 236 and 241-A were published in the Official Gazette 28572-B on July 11, part of a domestic and international drive to improve the position of women in society, pushing through gender equality policies, empowerment and inclusion for all women.

Executive Decree 241-A, July 11, 2018

This decree provides the supporting regulation for Act 56, of July 11, 2017, setting the minimum quota of women for the boards of directors of public and private entities* at 30%. This proportion must be effective and in place within three years of the law being published. The move gives a boost to women’s access to and involvement in decision making throughout the country. The regulation differentiates between the public and private sectors as follows:

• Public sector: this kind of designation will be made by the appointment authority concerned. In cases where the law specifies that appointments should be made by a non-governmental body, a list of candidates of both genders will be submitted to the authority in question. In the case of a draw, the appointment authority should give the casting vote in favor of a candidate of the gender less represented on the Board of Directors.

The Ministry of Economy and Finance (MEF), in its capacity as regulator, will monitor compliance with the gender quota stipulated by law, and will produce statistics and reports on this, which will be posted on its website and available to all.

• Private sector: The regulations distinguish between:
  • Mixed capital companies: in this type of enterprise both the management body and the representatives of the entity’s private capital must ensure that appropriate persons are appointed to the Boards, in compliance with the legal quotas.
  • Private capital companies: these must select the candidates best qualified for these positions, prioritizing candidates of the less represented gender on the Board of Directors if this candidate is as well qualified as the candidate of the more highly represented gender.

Financial auditors acting as regulators for the purposes of this decree, will lay down corporate governance and best practice standards about how these members are chosen. They will produce reports and questionnaires monitoring due compliance with the regulation. Such information will be public and remain permanently available on the website and other media.

Executive Decree 236, July 11, 2018

This regulation creates the National Council for Gender Parity, the main purpose of which is to promote the inclusion of women in the Panamanian labor market and foster education options for girls and women. This regulation has been passed bearing in mind the adoption by Panama of the Sustainable Development Goals (SDG) in 2015 and its commitment to the Agenda 2030 for Sustainable Development. The most important features of the regulation are as follows:

• Composition. The Council will be made up of seven public-sector civil servants and seven figures from the private sector, whose participation will be honorary. The President of the Republic will choose which Minister will chair the Council and may appoint further members.
• Functions. The most important functions of the Council are:
  • To support the measures and actions relating to women’s participation in the labor force (with an emphasis on arts and humanities degrees) and the promotion of entrepreneurship giving opportunities to women, as well as to encourage the integration of a gender approach in the employment ecosystem.
  • To boost the uptake by girls, adolescents and young people of further studies and professions most in demand in the region.
  • To support programs such as: “The International Coalition’s National Plan for Wage Equality”, the implementation of Act 56, July 11, 2017 (women on Boards of Directors and regulated companies), to drive the Gender Parity Program (GPP) and incentivize the rise of women to decision-making positions.
• Methodology of the sessions and decision making: Council sessions will be convened by the Council’s Chair, or by at least seven of its members. Sessions may take place provided that more than half of the body’s members are present.

Decision-making will be by consensus, but should a vote be necessary, resolutions will be carried by simple majority.

• Steering committee: The Council will have a Steering committee composed of:
  • The United Nations Development Program
  • UN Women
  • International Labor Organization
  • National Institute for Women
  • National Institute for Job Training and Human Development
  • National Private Enterprise Council
  • Panamanian Business Executives Association
  • SUMARSE
  • Association of Women Company Directors
  • Ciudad del Saber Foundation

As a result of the inspections conducted on a number of regulated financial entities since 2017, Panama’s Securities Market Authority (SMV) has noted some recurring deficiencies among some of them, relating to their anti-money laundering measures.

To this end, the SMV has published Circular SMV-09/2018 “Notes on recurring deficiencies and guidelines for the market on anti-money laundering”, which contains a series of recommendations that should be taken into account by regulated entities and, where necessary, corrected.

The recommendations are as follows:

Self-assessment template

An internal control classification process by which each regulated entity measures its performance and defines the possible risks inherent to its processes; it must cover the following areas:

• Corporate Governance
  • Board of Directors and how the committees work
  • Information received and handled by the Board of Directors and Committees from different operating areas
  • Resolutions adopted
  • Frequency of meetings by the Board of Directors and Board Committees
  • Composition of the committees and how operating areas are represented
  • The autonomy of the Board of Directors, of its independent members, of the Compliance Officer and Board Committees.
  • Continuous training of coworkers in areas such as due diligence, compliance, risk and such fields as may be required to perform their roles correctly.
• Internal control
  • Systems: adoption and implementation of risk mitigation manuals;  system implementation and automation of processes; triggering of alerts and frequency with which these are reviewed;  exceptions.
  • Internal Communication: information flow and procedures in the event of suspicious transactions; reporting between departments and Committees; processing of information received from the Board of Directors through the Committees; scoring of process execution (eg. time taken to conduct processes and deal with alerts).
• Due Diligence
  • Onboarding and segmentation of clients:  controls carried out to identify clients, beneficial owners, source of funds;  identification of client by risk profile; use of systems for the custody and analysis of static and dynamic client information;  procedures for reinforced identification.
  • Internal Due Diligence: for employees, suppliers and bank agents.
• Internal Audit
  • Internal Audit Plan during the year and scope of the review of the same
  • Communication of results of audits to the Board of Directors and relevant departments and committees
  • Implementation time of measures recommended for compliance

Sub-accounts

The Circular recommends that measures necessary to prevent this type of account from being used as a vehicle for money laundering crimes should be adopted. One of the measures recommended is that a limit be put on the use that the client can give to each account, adapting it to their transactional profile.

Payment to third parties

The Circular reminds readers that this activity is restricted to banks.

Substantiating the source of funds

Due Diligence must go beyond merely asking the client to provide their financial statements; the source of their wealth and of the funds in their accounts must be justified. To that end, regulated entities are required to solicit such information as may be necessary to corroborate the legitimate provenance of these funds, such as the proof of ownership or the holding of shares in a company or a copy of the purchase deeds of a piece of real estate.

Classification of Trust Funds

Private-interest trust funds should be classified as high-risk institutions, under FATF recommendations, as embodied in the National Risk Assessment and under article 28 of Act 23/2015*.

Identification of beneficial owners

The identification of  beneficial owners must be enhanced in line with the provisions of articles 7, 8 and 9 of Agreement 6-2015**. Where the client is a legal person, the file entry of their ownership of nominative shares onto the Share Register must be verified. Where the client is a natural person, it is important to check that the owner of the account is not acting on behalf of a third party and that the identity provided is not false. The Circular reiterates that the documents proving a client’s affiliation must include a declaration from the beneficial owner.

Panama’s Securities Market Authority (SMV) strongly encourages regulated entities to implement these recommendations in their institutions, to improve the country’s financial system, strengthening its mechanisms to combat money laundering and the financing of terrorism.

Royal Decree 5/2018, includes urgent measures to adapt Spanish law to European Union data protection regulations was passed on July 27h.

The reason for passing the regulation using a Royal Decree was the urgent need to incorporate certain provisions from the European Union’s General Data Protection Regulations (GDPR), as discussed in Progreso 7, into Spanish law. The GDPR, which came into force on May 25, 2018, displaced certain domestic legal provisions with which it was incompatible. However, the European regulation refers back to domestic law in some of its provisions and the legislative adaptation completed to date is limited to a draft organic law which is currently going through parliament. In view of the delay in the Organic law, this Royal Decree was passed as an interim measures until the new organic law comes into effect.

The most important areas the Royal Decree regulates are as follows:

• It describes the professional profile of those suited to holding the investigative powers granted by the GDPR and regulates how they exercise these powers
• It refers to the penalty system in place, determining which persons can incur liability and the time limits on the infractions and the penalties imposed by the GDPR
• The procedure to follow in the event of the GDPR being infringed is set out, including the stages during which claims are processed and the possibility of temporarily shelving the file in those cases where the Spanish Data Protection Agency, the AEPD, does not process the claim but can resolve it on its own.  There are provisions for a time extension when the opinion of Authorities in other Member States needs to be sought, in cases where the AEPD is the coordinating authority.
• The AEPD is designated as Spain’s representative to the European Committee.

The contracts of data processing controllers signed before May 25th, 2018 under the previous regulations will remain in force until their maturity date and, if they are open-ended, until May 25th, 2022.

The National Securities Market Commission (CNMV) has approved Circular 2/2018, June 12th, amending the current models in place for annual corporate governance reporting and for annual directors’ remuneration reports.

In publishing this Circular, the body responsible for supervising and inspecting the Spanish securities markets hopes to achieve three goals:

To make the formats for presenting reports more flexible

Up till now, those entities required to submit an annual corporate governance report and the annual directors’ remuneration report have found that the models created for this purpose were  rigid to complete. These formats limited their ability to organize and structure the information in the manner in which they believed best described their activity and performance. Furthermore, many found it necessary to fill out another template with a format that was better adapted to their particular context, circumstances and corporate image, for distribution among their shareholders, institutional investors, proxy advisors and other stakeholders.

The new Circular enables those institutions that do not want to use the standardized electronic document to submit their reports in the format they wish. Nevertheless, they must still abide by the minimum contents specified in the regulation and must include statistical appendices so that a minimum level of information is available in a standardized format to make it easier for the CNMV to compile and manipulate it, so that it continues to carry out its supervisory functions effectively.

Inclusion of new contents

The Circular introduces the new contents required under Royal Decree 18/2017, as we discussed in Progreso 13, amending the Commercial Code, the consolidated text of the Corporate Enterprises Act and the Audit Act, where they concern financial information and diversity.

The additional new information that must be included in both reports includes, most importantly:

• Directors’ ages, training, disability and professional experience
• Reasons and circumstances surrounding departures of directors, specifying whether these were resignations, dismissals or another reason, especially in the case of independent directors
• Proposals submitted to the Annual General Meeting that were not approved
• Description of corruption-related risks that affect the business

Simplified reports

The experience of recent years has demonstrated the need to make some technical adjustments. To this end, the Circular reduces or eliminates clauses that are no longer relevant in the current context, while expanding and introducing others that lend themselves better to understanding the corporate governance systems in place in institutions issuing securities and directors’ remunerations in listed companies.

Regarding the annual report on directors’ remuneration, Circular 2/2018 sets out the additional information that should be included about how the bonuses received have been arrived at, while the content of the information about stock option arrangements has been recast, as has the data on pensions and long-term saving systems.

Finally, there is an appendix with a new annual corporate governance report template for institutions in the public sector that issue securities other than shares; the model is simpler and better adapted to the particularities of these entities.

With this law, the Colombian government transposes into its domestic body of regulation the treaty on cybercrime, adopted on November 23rd, 2001 in Budapest, and in force since July 2004.

The Treaty is fruit of the need for cooperation between nation states and the private sector in the fight against cybercrime, and of the necessity to curtail actions that infringe on the confidentiality, integrity and availability of IT systems. The law seeks to put sufficient measures in place to fight such crimes as are on the statute books and that infringe these interests.

The purpose of the Treaty is to provide guidelines for the “Member States” for the adoption and implementation of legislative measures that specify as crimes actions involving illicit access to an IT system, illicit interception of data, interference (damage, erasure, alteration or suppression) of data, falsification and IT fraud, child pornography, infringements of intellectual property and similar rights, among others.

The Act also stipulates the commitment of these states to adopt such measures as may be necessary to enforce the criminal liability of legal persons for the crimes listed above, whether these have been committed by natural persons, by individuals or by a member of a body pertaining to these legal persons. It also provides for criminal liability on the part of a legal person when lack of supervision or monitoring enables these crimes to be committed.

When implementing their internal measures, Treaty States must adopt the principles of international cooperation, extradition, mutual assistance and information-sharing, and the commitment to appoint a contact point available 24/7, in order to ensure that immediate help is provided in investigations and procedures relating to crimes involving IT systems and data.

The Colombian government proposes to regulate the use of virtual currencies in transactions and operations carried out in its territory, and to set out the broad lines for protection, supervision, inspection and monitoring to which these transactions will be subject.

The draft regulation establishes that the use of cryptocurrencies will be subject to the principles of inclusion and innovation, the promotion of private competition, improved protective measures for consumers and fraud prevention.

This broad framework provides for transactions (sale, handling and trading) with cryptocurrencies on the part of specialist entities, known as “cryptocurrency transaction entities”, that have previously been authorized by the Information Technologies and Communications Ministry. These entities must have systems for managing anti-money-laundering and financing of terrorism (AML/FT) management systems in place that have been duly approved by the Information and Financial Analysis Unit (IFAU).

The draft also puts forward obligations and measures to ensure consumer protection, such as restrictions on the use of cryptocurrencies handled where there are no disbursement facilities, as well as the duty of providing information about the technical features and risks of using virtual currencies.

Trading, for the purposes of the bill, is defined as buying and selling virtual currencies on a technology platform. Traders, responsible for conducting these transactions, should also be authorized by the Information Technologies and Communications Ministry.

Entities that operate without the proper authorization may be penalized with the removal of their commercial license, their business forcibly wound up, their commercial premises shut down and the imposition of monetary fines. 

Turning to the fiscal impact of using cryptocurrencies, the draft regulation provides for the creation of a tax on transactions with cryptocurrencies (5% of the final transaction), to be paid quarterly. Funds from this tax will be used to create a Reserve Fund for Cryptocurrency Fluctuation, managed by the Treasury and Public Lending Ministry, in order to subsidize those acquiring cryptocurrencies that subsequently disappear from the market.

New regulations issued by the Ministry of the Treasury and Public Lending contain a number of different measures, amongst them criteria that must be taken into account when assessing the degree of linkage of a financial conglomerate. A linked entity is defined as one in which a financial conglomerate has a controlling or significant holding (10%).

Regarding conflicts of interest, the Board of Directors of the financial conglomerate should set the guidelines for an appropriate way of identifying, revealing, managing and overseeing any conflicts that may arise between the conglomerate and its linked entities. To this end, the guidelines should contain, at the least, the duties of disclosure, reporting and transparency, as well as the requirement to avoid actions that generate conflicts of interest.

The regulation also specifies the duty of financial groups to define policies for the exposures both of its own entities and its linked institutions, which must be approved by its Board of Directors. These policies must meet minimum guidelines, and also specify the following limits:

• For exposures of entities within the financial conglomerate: ceiling of the conglomerate’s tangible equity for accumulated exposures
• For aggregated exposure with a linked party: maximum % permitted of the conglomerate’s technical equity for the sum of exposures it holds with a linked party, the exposures being different from those pertaining to the financial conglomerate.
  

SFC, Colombia’s Financial Authority, its monitoring and supervisory body, may require the different entities to make such corrections to their exposure policies and defined thresholds as it deems necessary, in line with the risk analysis it conducts. If these instructions are not followed, the Authority may impose commensurate penalties on the entities.

The EBA published two reports on Fintechs on July 3rd. Both documents are the products of the EBA’s FinTech Knowledge Hub and report on key issues in the Fintech sector. The first is a report on the impact of Fintech on incumbent credit institutions’ business models, and the second is the EBA Report on the prudential risks and opportunities arising for institutions from Fintech.

Report on its impact on business models

Society has gone through huge technological change, which has had a direct impact on the banking industry. Above all, it has led to higher expectations and new behavior patterns among clients, tighter profit margins, increased competition and required amendments in the regulatory framework.

The report highlights two trends when tackling digitization programs: digital transformation, understood as a transformation of the internal processes that enable transactions to be optimized; and digital disruption, involving the creation of a new market using innovative technologies that includes new ways of interacting with the client in order to improve their experience.

Furthermore, according to the EBA, there are five factors that could have a significant effect on the industry’s business models from the perspective of sustainability: the aptitude of the digitization and innovation strategies that well-established institutions pursue to survive in a constantly changing environment, the challenges arising from legacy ICT systems, the operational capabilities to implement the necessary changes, concerns about access to and retention of talented staff and, finally, increased competition from new entrants.

Report on the risks and opportunities of Fintechs

To illustrate the risks and opportunities implicit in the use of new technologies, the paper analyzes seven user-cases applicable to financial services: biometric authentication using fingerprint recognition, investment advice using robo-advisors, the use of big data and machine learning for credit scoring, Smart contracts for trade finance, using Distributed Ledger Technology (DLT) to streamline customer due-diligence processes, mobile wallets and uploading core banking onto the cloud.

The report concludes that although the commitment to Fintech involves potential risk that must be assessed and managed exhaustively, such risks could also turn out to be potential opportunities.

On July 25, Peru’s Banking, Insurance and Pension-Fund Management Authority (SBS) passed the Basic Accounts Regulations to extend financial inclusion in the country and harmonize the standards applicable to basic accounts with those for simplified e-money accounts.

As set out in the draft bill, which we analyzed in issue 14 of Progreso, the regulations cover the terms and features of basic accounts, among them the thresholds on transactions and balances that should apply to these types of accounts. So, given that the regulations aim to further financial inclusion, basic accounts can be opened simply by presenting a national identity card or foreigner’s residence card and the client’s current address.

Unlike the draft bill published in December 2017, the regulation has removed the obligation on companies in the financial system to implement training programs for customer-facing staff, and also the requirement to set up channels for presenting claims and complaints in, at least: (i) the public branch network; and (ii) a telephone, digital and/or website customer service channel.

The regulation, which will come into force on October 1, 2018, will amend the regulations on transactions with electronic money, together with the regulations on additional customer-service channels incumbent on companies in the financial system and e-money issuers, as well as revoking SBS Resolution 2108-2011, amending the additional anti-money laundering and financing of terrorism standards.

The Organic Law on productive development, inward investment, job creation and fiscal stability and balance was passed on August 21st. The aim of this regulation is to support the productive sector and exports, create employment, encourage private investment and achieve fiscal stability.

The new regulation introduces substantial amendments to laws such as the Organic Domestic Tax Regime Law, the Organic Monetary and Finance Code, the Law for an Economic Reboot, Greater Dollarization and Financial Management Update Law, and the Companies Act, among others*.

The most important measures covered in the Act are as follows:

• Interest forbearance.  The law allows interest, fines and charges deriving from tax or fiscal obligations to be 100% condoned, excluding those maturing after April 2, 2018 and those corresponding to the 2017 annual tax return. Requirements:

• • Companies with gross revenues for the latest three tax years greater than USD 5 billion: time limit of 90 days from publication of the Act.
  • Other contributors: the time limit for meeting their obligations will be two years. These payments will be made by paying out equal monthly dividends of the capital balance; the Tax Code’s general rule of an initial 20% payment does not apply.

• Reforms to boost the export and tourism sectors

• • Additional deduction of expenses incurred in commercial promotion. This can be applied on up to 100% of the total value of costs and expenses incurred on promotion and advertising for long-term exporters and in the reception tourism sector.

• • Rebate of the Foreign Currency Outflow (ISD) Tax for long-term exporters importing raw materials and capital inputs and goods, provided they can demonstrate the net inflow of foreign currency into the country.

• • Expansion of the scope of priority sectors exempted from paying Income Tax (IR) pursuant to article 9.1 of the Domestic Tax Regime. The scope is extended to exports of services, the agricultural sector, oleo-chemicals, energy efficiency, software development and services, industry, agribusiness and associative farming, among others.

• • VAT and ISD tax rebate on exports of such services as determined by the Tax Policy Commission.

• • Income tax exoneration for community and/or associative tourism enterprises. The exoneration will last for 20 years.

• Incentives to inward private investment. Income tax will be waived for new investments in priority sectors defined in the above-mentioned article 9.1 of the Domestic Tax Regime for a 10-year period**. Investments in the industrial sector will also be exempted for between 10 and 15 years***, which can be extended a further 5  years for investments made in cantons in the country’s border areas. Furthermore, the Act exonerates new productive investments that sign up to investment contracts from ISD tax.

• Support for MSMEs and entities in the popular and solidarity economies The law raises from 1% to 5% the percentage of deductible expenses when calculating the income tax payable by micro, small and medium-sized enterprises investing in technical training and productivity improvements.

• Other measures:

• • Value Added Tax (VAT):

• • • Imports and transfers of inputs from the agricultural, fish-farming and fisheries sector will be zero-tax rated. solar panels; fishing vessels entirely built in a shipyard; components and machinery for agricultural use, fish-farming and small fishing operations, agricultural insurance and land rentals for agricultural use, electric cars, among others.
    • VAT tax credit: can be used for up to 5 years.
    • Social housing: VAT rebate for companies developing social housing programs, on the tax paid on local purchases of goods and services used to develop the program and zero-rated VAT on social housing construction services.50% rebate on VAT: paid on development expenses, pre- and post production on audiovisual, television and film production activities.

• • Special Consumption Tax (ICE): Electric vehicles for public transport and other goods such as cookers will be zero-tax rated.
  • Indebtedness ceiling: the law lays down that the balance of public debt may not be higher than 40% of Gross Domestic Product (GDP). Only the National Assembly may change this ceiling.

On July 20*, the Law to boost SME competitiveness through the development of consortia was published. The law creates a regulatory framework that supports the creation, development and growth of SME consortia as an associative mechanism to foster competitiveness and expansion in the MSME sector.

SME consortia are associations of two or more natural or legal persons, accredited as SME** or SMAP*** with a voluntary consortium contract. This legal instrument obliges them to conduct activities involving the promotion, cooperation or selling of goods and services for a predefined period.

Types of SME consortia

The regulations differentiate between the following types of SME consortia:

• Business cooperation consortium:  group of companies working together on a joint project, each within its own specialty, to achieve group efficiency.

• Export consortium:  group of companies that have partnered together to promote their members’ goods and services abroad and cooperate in the export of the same with joint action.

• Consortia at source:  unlike export consortia, the partnership is between producers of the same product in the same region, their goal being to add value to a product by virtue of its traditional place of origin.

• Others: consortia that have been designated as such through regulation by the Ministry of Economy, Industry and Trade (MEIC).

Incentives in the running of SME Consortia

The law sets out a range of incentives for running consortia. These include the following:

• Access to business support services: They will have the same advantages as those granted to SMEs through funds from the Development Banking System, the Propyme Fund and Fodemipyme, together with other programs created under Act Nº 8262 May 2, 2002, to foster small and medium-sized companies.

• Access to funding:  State banks will provide advantageous conditions on the term and interest rates of their credit facilities.

• Consideration as public sector suppliers:  This new regulation, amending the Public Sector Tender Act****, enables SME consortia to bid in public-sector tenders.

Other relevant points

The requirements and conditions for creating and registering SME Consortia are established, recognizing the MEIC as the steering body overseeing the National Register of SME Consortia, and including other stipulations regarding the licenses and obligations of these enterprise associations.

Colombia’s Congress has tabled a bill to eliminate some financial services charges, aligned with the regulatory trend to protect financial consumers.

Thus, the draft proposed that financial institutions may not charge for the following services:

• Fixed charge for checking an account balance in the institution’s ATMs
• Charge for cash withdrawal from the institution’s ATMs
• Charge for online transfer between accounts with different titleholders but in the same institution
• Charge for making online payments to third parties
• Charge for paying in a deposit in a domestic branch office other than the one where the account is held.

This regulatory bill amends the current agricultural insurance system, allowing the use of additional funds to complete national budgetary resources, so that new instruments can be created and put in place to manage risk in the agricultural sector.

The Bill seeks to amend the target of agricultural insurance and the type of insurance, to include additional areas of cover and to expand the sources of funding for the National Agricultural Risk Fund.

The proposed amendments are summarized below:

Target of the insurance

• Current legislation: agricultural investments based on funds received from the National Agricultural Lending System or the producer’s own resources
• Proposal: all or some of the agricultural investments based on funds received from the National Agricultural Lending System or the producer’s own resources: the producer’s opportunity cost; expected income

Type

• Current legislation: no provision
• Proposal: parametric or by indicator – indemnity is payable if an indicator is reached, without taking into account the real loss assessment at the time of the claim, but instead a fixed sum predetermined in the policy

Cover

• Current legislation: Ministry of Agriculture and Rural Development (MADR) will regulate the cover – natural or biological risk
• Proposal: MADR will regulate cover (natural or biological risk) and additional cover (associated with transport risk, selling, theft or death of animals, among others) inherent to agricultural activity.

Target of the National Agricultural Risk Fund

• Current legislation:  no provision
• Proposal:  to provide resources for the reinsurance of agricultural insurance; to subsidize insurance premiums for producers, when approved by the National Agricultural Lending Commission; to grant subsidies, support and incentives to implement risk management instruments in the agricultural sector, among others

National Agricultural Risk Fund resources

• Current legislation: percentage of the National Government’s profits from mixed economy companies and the State’s industrial and trading firms, as regulated by the National Government; profits from the  National Agricultural Risk Fund
• Proposal:
  • A minimum of 2% of the National Government’s profits in mixed economy companies and the State’s industrial and trading firms, both financial and non-financial, as regulated by the National Government in the COMPES document on profit distribution
  • No less than 15% of the gross profits from every annual period the Banco Agrario ends; percentage set by the Banco Agrario’s Board of Directors
  • Contributions from public or private institutions through agreements or transfers
  • Reimbursable and non-reimbursable resources from national, international and multilateral institutions
  • Other resources allocated to any title

Parties receiving agricultural and fisheries parafiscal contributions

• Current legislation:
  • Technology research and transfer, technical advisory and assistance.
  • Adaptation of production and  health & safety monitoring.
  • Organization and development of sales infrastructure and channels.
  • Promotion of exports and consumption.
  • Support for regulations on supply and demand to protect producers against excessive price fluctuations and ensure their revenues.
  • Economic, social and infrastructure programs of benefit to respective sub-sectors.
• Proposal: in addition to the above, the following have been added:
  • Installation, operations, maintenance and automation of the national network of weather stations located in agricultural areas, with the technical specifications established by IDEAM, the Institute of Hydrology, Meteorology and Environmental Studies.
  • For the payment of agricultural risk management instruments, including agricultural insurance.

The Ministry of the Treasury and Public Funding has issued the regulations with provisions for crowdfunding, the draft of which we discussed in  issue 13 of Progreso.

The decree establishes that crowdfunding (defined as an activity in which more than one contributor are in contact with recipients raising funds in their own name, targeted on a productive investment project) may only be conducted by entities properly authorized by Colombia’s Financial Authority.

This activity, conducted on an electronic platform, can be of two kinds: i) crowdfunding through debt securities (promissory notes or commercial paper, for example); and ii) crowdfunding through capital securities (shares).

The regulation establishes the requirements for the constitution of these crowdfunding entities, the prohibitions or limitations on how they conduct their activity, the adoption of a procedure for selecting the projects to be funded and the minimum content in their operating regulations.

Crowdfunding institutions must supply a minimum of information, both to contributors and to recipients of funds, that should be updated, free of charge to access and easily viewable on their websites and any other means providing entry.

Furthermore, the regulation sets investment limits on contributors (maximum 20% of their annual income or of their wealth, whichever is higher) and maximum funding amounts (between  EUR 666,000 and EUR 2,219,000).