Actualidad Dominican Republic

Rules for formalising, registry and checking collateral

SIB Circular 002/16

The Rules for the Formalisation, Registry and Checking of Collateral set out new procedures that financial intermediation institutions must follow in order to manage different types of collateral; it has been prepared in response to the provisions in the Asset Valuation Regulation and to take into account the new law’s dispositions over the development of the mortgage and trust market in the Dominican Republic.

The Asset Valuation Regulation (REA in the Spanish acronym), which came into force on 29th December 2004, established the procedure by which financial intermediation companies handled different types of collateral that underpin the loans. After setting up the trust market, with the passing of Law 189/11 on the Development of the Mortgage and Trust Market in the Dominican Republic, and the regulations on Collateral and Trust Agents (16th July 2011), the REA regulation needed to be updated. The banking watchdog decided to prepare a set of rules to bring together all the REA provisions concerning collateral, and to include the previsions on trusts in the same document.

On 15th March 2016 the “Rules on Formalisation, Registry and Checking of Collateral” came into force, by virtue of SIB Circular 002/16, having determined that “financial intermediation institutions should have appropriate policies and procedures in place in order to manage collateral received to underwrite credit transactions, with the aim of ensuring that this collateral serves at all times to mitigate effectively the credit risk assumed”.

The Rules establish the procedure that financial intermediation institutions should follow to manage multiple security transactions, sets a clear position as to the admissibility or not of letters of proof, establishes minimum requirements and criteria for the initial valuation and formalisation of collateral, and unifies criteria for the transactional and accounting records of this collateral.  It will be applicable to multiple banks, banks offering savings and loans, credit corporations, savings & loans associations and to public-sector financial intermediaries.

Collateral, formalisation and filing

The types of collateral covered in the new rules are: cash deposits and financial instruments, real estate, moveable goods and fiduciary warranties. For the formalization process, a series of requirements, fully explained in the rules, must be met. Financial intermediation institutions must file the transaction with the book entry for collateral received, complying with the stipulations in the “Accounting Manual for Financial Institutions”, issued by the regulator.

Monitoring and control

Amongst other new requirements, “financial intermediation institutions must set up policies and procedures to identify particular situations or events that may give rise to the potential impairment of the collateral received, with the purpose of taking corrective measures at an early stage”.

If the provisions are breached, the rules refer the reader to the sanctions established by the banking watchdog in Law 183-02, Monetary and Financial Code, 21st November 2002 and the Regulations on Sanctions, 18th December 2010 and subsequent updates.