Published legislation and draft legislation - Colombia

Financial conglomerates law

Act 1870

The Government passed Act 1870 on 21st September 2017, laying out rules for strengthening regulation and supervision over financial conglomerates. This text has not been altered from the version that was agreed prior to the president’s sanction, and was reviewed in issue 12 of Progreso.

The following are some of its most salient points:

1. A financial conglomerate is defined as a group of institutions with a single controlling body that includes two or more domestic or foreign institutions carrying out an activity that is regulated by the Colombian Financial Authority (SFC), provided that at least one of these institutions carries out these activities in Colombia.

Only those subsidiaries that are financial institutions will form part of the conglomerate.

2. A financial holding is defined as any legal person or investment vehicle exercising control over the institutions making up the financial conglomerate. These institutions will be subject to inspection and oversight from the SFC unless they demonstrate to the SFC that in their home jurisdiction they are subject to a regulatory and supervisory regime similar to that of Colombia.

3. The SFC will have the power to determine:

  • The capital adequacy required of conglomerates,
  • Corporate governance standards;
  • Framework for financial risk management and internal control;
  • Exemptions of legal persons or investment vehicles from supervision, depending on the scope of that supervision;
  • Criteria for defining the nature of linked parties to the conglomerate and to the holding;
  • Criteria for identifying, managing, monitoring and disclosing conflicts of interest;
  • Changes needed in the structure of the conglomerate (when the existing structure does not enable information to be disclosed appropriately, comprehensive and consolidated supervision and/nor identification of the real beneficiary and the institutions comprising it;
  • Information requirements and visits to be made to the entities in the conglomerate;
  • To revoke the regulated entity’s operating license when the information supplied by the foreign parent company is insufficient to carry out the supervision.

4. The law clarifies that holdings will not have to contribute to operating and investment costs that Colombia’s Financial Authority, the SFC, may incur.

5. It extends the SFC’s powers of supervision and sanction, to cover giving instructions to holdings on how to comply with the regulation, particularly in the areas of financial conglomerates’ risk management, internal monitoring, information disclosure and corporate governance.

6. Oversight of financial holdings set up outside Colombia.

7. The concept of "significant influence", as a criterion for determining the existence of a financial conglomerate.

8. Three scenarios are described in which control and subordination are understood to exist, namely, i) when there is a majority shareholding, ii) when there is a decision-making majority on the company’s board of directors, and iii) when a shareholder pact exerts an overriding influence on the decisions taken in the company.

9. The regulations covering purchasing the assets and taking over the liabilities of a credit institution in compulsory liquidation are laid down; the Financial Institutions Guarantee Fund (FOGAFIN) is given the authority to transfer these assets and liabilities to other credit establishment(s) or to a bridge bank.

Furthermore, the Government will have six (6) months, from when the bill comes into law, to regulate for supervisory powers over conglomerates, to cover the structure, complexity and specific characteristics of financial conglomerates. Heading I of the law will come into effect six (6) months after these regulations are published.