Actualidad Colombia

Regulation about Financial Conglomerates

Bill 215-2016-C / Bill 119-2016-S

The House of Representatives has approved the bill to create the legal framework for regulating and supervising financial holdings on its fourth reading.

Because of the differences between the text passed in the Senate and that passed in the Chamber, the bill will be reviewed by an arbitration committee to define the definitive text, which will be submitted for presidential sanction.  

The fourth version, which consolidates the three earlier versions passed of this bill, includes the following areas:

Financial conglomerates

The bill defines a financial conglomerate as a group of institutions with a shared controlling body that includes two or more domestic or foreign institutions carrying out an activity among those regulated by the Colombian Financial Authority, the SFC, provided that at least one of these carries out these activities in Colombia.

The bill also makes it clear that, with regard to financial conglomerates, for the purposes of this regulation only those subsidiaries that are financial institutions will form part of the conglomerate.

Financial holding

It defines “financial holding” as any legal person or investment vehicle exercising primary control over the institutions making up the financial conglomerate, defining primary control as that exercised by the legal person or investment vehicle closest to those institutions which are engaged in an activity overseen by the SFC and which has shared control over all the institutions of this nature that make up the conglomerate.

The three types of scenario in which control and subordination will be deemed to be present are:

  1. When there is a shareholding majority,
  2. When there is a decision-making majority in the company’s board of directors, and
  3. When there is an overriding influence over the decisions made in the company resulting from a shareholder pact.

The regulation lays down that financial holdings, including those set up abroad 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 regulation and supervisory regime similar to that of Colombia.

However, it also makes clear that holdings will not be required to make contributions to the SFC’s running and investment expenses.

Supervisory powers

The bill will give the SFC the power to decide:

  1. The capital adequacy required of conglomerates
  2. Corporate governance standards
  3. Financial risk and internal control management framework
  4. Exemptions of legal persons or investment vehicles from supervision, depending on the scope of that supervision
  5. Criteria for defining the nature of related-party links to the conglomerate and the holding
  6. Criteria for identifying, managing, monitoring and disclosing conflicts of interest
  7. Changes required in the structure of the conglomerate (when the existing structure does not enable information to be disclosed appropriately, comprehensive and consolidated supervision and/or identification of the real beneficiary of the institutions comprising it)
  8. Information requirements and visits that are to be made to the entities forming part of the conglomerate
  9. To revoke the regulated entity’s operating licence when the information supplied by the foreign parent company is insufficient to carry out supervision.

It also establishes instruments for capital adequacy intervention, only in the case of those financial institutions, insurance companies and securities market firms that form part of the financial conglomerate, and not applicable to other institutions forming part of this conglomerate with different activities.

In this ambit of the SFC’s supervision, the draft law clarifies that the instruments for intervention will only be directly applicable to the financial holding and to those institutions whose business activities entail being regulated by this Authority. For these purposes, the SFC will identify the institution that is to act as a holding in each financial conglomerate, although they may not set up sub-conglomerates for supervisory purposes inside a financial conglomerate.

Furthermore, the SFC may instruct holdings how to comply with regulation, particularly in the areas of risk management, internal control, information disclosure and corporate governance of the financial conglomerate.

National government

Lastly, the Bill stipulates that the national government will have six (6) months, from when the bill comes into law, to regulate the powers of oversight over conglomerates.