Published legislation and draft legislation - Costa Rica

Regulation on the suitability of directors and managers of financial institutions

SUGEF Accord 22-18

In recent years, the Costa Rican financial system has undergone a major reform aimed at reinforcing the corporate governance system of the institutions that form part of it. One of the first initiatives was to approve the regulations on corporate governance, in effect since June 2017, which we discussed in Progreso 10.

The current regulation on the suitability of members of the governing body and the senior management of financial institutions (hereinafter, the Regulation) supplements the contents of Chapter II of the aforesaid corporate governance regulation, establishing that a set of principles must be defined concerning the profile of members of the governing body, with a view to ensuring that its composition ensures a balance of skills, competences and know-how that collectively, have the necessary apptitudes to run the entity.

Chapter II also establishes that it is the responsibility of the governing body to set the personal, academic, technical and experience criteria necessary for each of the members of the governing body and the senior management, along with defining the mechanisms that guarantee a revision of compliance of these criteria, in order to guarantee that these people can fulfil their responsibilities at all times.

Suitability policy

The Regulation establishes that entities must have a written procedure to determine the suitability and experience of the people that occupy or who are going to occupy a position on the governing body or in senior management.

  • First of all, an appraisal of their honesty, integrity and repute must be conducted, carrying out an analysis as to whether the persons in question: i) have been found guilty of any crime; ii) has been sanctioned by an investigation or a disciplinary procedure conducted by any regulatory body; iii) if they have held any key position in any organisation that has been sanctioned or which has become insolvent, wound up or taken into administration while that person was in office.

The analysis will also include whether or not the person or entity in which that person has been key staff has any application for insolvency or bankruptcy pending, or whether there are any outstanding trials or whether they are in a process of receivership or reorganisation due to judicial intervention, either in the country or abroad.

  • Consideration will be given to their experience in important areas for the financial institution or in carrying out their duties on the governing bodies and in the management of other financial institutions, along with their academic education and supplementary training (certifications).

Additional considerations

Apart from the individual suitability criteria, financial institutions must review the resulting composition of the governing body and its support committees, if any, once the person in question takes office.

They must ensure that the governing body has a diversity of profiles, know-how, experience and qualifications in accordance with the importance of the institution, the complexity of its operations, its structure, legal character and the market it operates in. The entity will promote a balance of experience, know-how and skills in the governing body and the participation of independent directors.

With respect to the senior management, the entity must consider whether or not its composition is in accordance with the profiles required, whether the profile of the new member is in line with the needs of the body, the complexity of the entity’s operations, its nature, structure and with the market in which it trades.

Documentation

Entities must have a written policy for creating, keeping and updating a public dossier that includes the qualities of the people appointed and the analysis conducted on the suitability of the people who are to hold the jobs. At the very least, the file must include the following information:

  • Sworn statement contained in Annex 12 of the regulations on authorisations  of entities supervised by the SUGEF and about authorisations and the working of financial groups and conglomerates
  • Sworn statement declaring whether the person has any conflict of interest with the entity appointing them or with the entities of its financial group, and, if so, the mechanisms in place to mitigate it
  • Sworn statement stating that the person has sufficient time available to undertake the duties of their position and to fulfil their responsibilities
  • Credit history
  • The result of the assessment of the suitability criteria and the global assessment that justifies the appointment

Performance assessment

The Regulation establishes that entities must have a written policy to assess the performance of the governing body as a whole, of its individual directors, its committees (if any) and of the members of the senior management.

This policy must be approved by the board of directors and updated each year. At the very least, it must contain the following information:

  • Who conducts the assessment
  • Bodies, people and positions assessed
  • Aspects to assess and frequency of the assessment
  • Methodology and procedures used for conducting the assessment
  • Mechanisms to correct any deficiencies detected, which must be proportional to the seriousness of the weakness identified. The governing body shall be responsible for monitoring the appropriate implementation of corrective measures
  • Fulfilment of training programmes aimed at correcting deficiencies detected

The assessment process shall be subject to an annual independent review carried out by the entity’s external auditor. The audit report with the results of this review must be presented to the governing body and filed with the SUGEF within 40 working days of the close of the financial year.

Application

The Regulation is applicable to financial institutions (commercial Banks of the State, Banks created by special legislation, private Banks, non-bank financial companies, savings and loan cooperatives, savings and loan institutions, savings banks of the National Association of Educators and bureau de change) and to entities controlling financial groups and conglomerates supervised by the Directorate General of Financial Institutions (SUGEF).

The provisions contained therein are of mandatory compliance for all appointments made after it comes into effect, but not for those made prior to such date.