Overview (September 2001)

Legal Framework

Banking activities in Argentina are regulated primarily by the Financial Entities Law 21,526, as amended. This law empowers the Central Bank to do the following:

• regulate and supervise the Argentine banking system;
  
  
• issue regulations;
  
  
• grant and revoke bank licences;
  
  
• authorize local financial institutions to establish branches outside Argentina;
  
  
• approve bank mergers and acquisitions, capital increases and certain transfers of stock;
  
  
• fix minimum capital, liquidity and solvency requirements;
  
  
• grant financial facilities to certain financial institutions in case of temporary liquidity problems; and
  
  
• authorize branches and representative offices of foreign banks in Argentina.

In addition, the Central Bank has the power to establish the scope of permitted and prohibited activities and to place limits on credit, indebtedness, minimum capital, reserves, net worth requirements and concentration of risks.

Establishing a Bank in Argentina

The Central Bank regulates the requirements that must be met in order to file an application to establish a financial entity in Argentina.

Generally, private financial institutions must be organized as a sociedad anónima (similar to a corporation or a public limited company), and their capital must be represented by nominative and non-endorsable shares.

The minimum initial capital required for wholesale commercial banks is Ps10 million and for all other financial entities Ps15 million. However, capital requirements follow the risk-weighted asset criteria set forth in the directives of the Basel Committee for the Supervision of Bank Practices.

When reviewing the petition for a banking licence the Central Bank evaluates the following:

• the convenience of the proposal;
  
  
• the characteristics of the project;
  
  
• the general and specific market conditions; and
  
  
• the background and responsibility of the applicants, and their experience in financial activities.

Alternatively, a foreign bank may choose to establish only a representative office. The registration procedure for a representative office includes the provision of information about the entity (eg, charter and bylaws, copy of licence and financial statements) and about the representative itself. A local entity may be appointed as a representative.

While there are no specific guidelines in the Central Bank regulations as to the exact scope of activities, representative offices are generally involved in advising on and promoting the activities of the entity they represent in connection with lines of credit, project financing, trade finance, investment opportunities and structuring securities transactions. However, the representative must not act as a party to any transaction. Any transaction on which the representative may have advised must be entered into directly by the head office (or the relevant entity) and the local party.

Legislation on Consumer Credit

The Credit Card Law 25,065, enacted on December 7 1997, regulates credit card operations in Argentina.

Regulatory authorities under the Credit Card Law are the secretary of commerce, industry and mines for commercial matters, and the Central Bank for financial matters.

The Credit Card Law provides for certain information that must be included in the credit card contract in order to ensure such information is known to the user (ie, the terms of the contract, expiry date, credit limit, interest rate, fixed charges, proceedings in case of loss or theft, consequences of payment delays and causes of contractual breach).

In addition, it imposes a maximum limit on the interest rate that the card issuer can apply.

In general, the Credit Card Law does not restrict the fees that the card issuer can charge to the cardholder, but it does require that those charges be adequately disclosed in the credit card contract.

Section 13 of the law provides for the nullity of contracts that do not comply with the law.

Loan Agreements

Loan agreements are governed by the Commercial and Civil Codes, which provide the freedom to contract to the extent that the contract does not violate principles of public policy.

The Central Bank, as the application authority, also issues regulations on this subject. These are mostly contained in the Operaciones Activas regulations, which are related to deposit taking operations.

Failure to observe these regulations may result in sanctions being imposed on the entities and/or their directors, ranging from fines to bars from doing business in Argentina.

The Consumer Protection Law 24,240, enacted in 1993, sets forth certain requirements that must be complied with by entities engaged in credit operations when the credit is destined for the borrower's own use (eg, consumer credits).

Likewise, the Consumer Protection Law provides for the previous supervision by the Central Bank of joinder contracts.

Security issues arising from certain loans
Under Argentine law banks may obtain security interests through mortgages, pledges (including registered fixed and floating pledges), security assignments and security trusts.

Mortgages
Under Argentine law a mortgage secures repayment of a debt by creating an interest in the real estate property in favor of the bank supplying the mortgage, although the title to and possession of the property remain with the mortgagor.

The perfection of a mortgage involves submitting a petition for its registration within a limited time period from its creation.

Once registered the mortgage is opposable with regard to third parties, although until such time it is legally binding between the contracting parties only. Thus, the proper registration of a mortgage by a subsequent creditor with respect to certain property would give that subsequent mortgagee preference over any prior, unregistered mortgage created on that same property.

Law 24,441, the Trust Law attempts to facilitate the transfer of mortgage loans by providing that a debtor under a mortgage loan may issue mortgage bonds that, under certain conditions, need not comply with the requirements of notification by public means to the debtor of assignment of the mortgage.

Trusts
Until 1995 Argentina had no specific laws or regulations applicable to trusts and securitization in general, other than a mention of the basic trust structure in a single section of the Civil Code. However, this framework changed with the enactment by the Argentine Congress of the Trust Law and other subsequent regulations.

The Trust Law was originally intended to encourage the financing in the housing sector. However, the Trust Law governs broad aspects of asset-backed transactions, including banks forming trusts and issuing securities.

Trusts may also be structured as a security for financing. Unless the services of the trustee or the trust property are offered to the public generally, there is no need for the trustee in a security trust to obtain the authorization of the Argentine Securities Commission or the Central Bank, nor is a specific capitalization necessary (although a minimum capitalization that permits the trustee to carry on its corporate purpose will be required).

Unlike foreclosure procedures in mortgages, foreclosure procedures in trusts are not governed by any procedural codes or other laws. Accordingly, all foreclosure procedures in a trust arrangement are out-of-court procedures agreed upon in advance between the creditor and debtor in the relevant trust deed.

With respect to the bankruptcy of the trustor (generally the borrower), since the trust property forms an estate separate from that of either the trustee or the trustor, the trust property cannot be reached by actions brought by the trustor´s or the trustee's creditors except in the case of fraud.

Pledges
The Commercial Code governs 'commercial pledges', which are defined as pledges of chattels to be used as collateral for commercial obligations such as the repayment of bank loans. The main difference between a civil and a commercial pledge is that in a commercial pledge the creditor is entitled to a private sale (ie, an out-of-court foreclosure).

The Commercial Code states that unless the debtor and creditor agree upon a special sale proceeding, the pledged asset must be sold by public auction, duly announced in the Official Gazette 10 days before such auction takes place. However, if the secured assets are stocks, bonds, or other listed securities their sale may be effected directly through a broker without the necessity of a public auction.

Privacy and Data Protection

Personal Data Protection Law
The Argentine Constitution protects the right of every person to have access to any information related to them and stored in a database. Specifically, the Argentine Constitution provides for a special summary judicial proceeding through which the affected person may obtain access to the information contained in public or private databases set up for the purpose of providing information, and, if the information is inaccurate or discriminatory, seek its correction, deletion or confidentiality.

In November 2000 Argentina enacted the Personal Data Protection Law 25,326. The law aims to protect personal data kept in archives, files, databases and other technical means of data storage in order to guarantee the reputation and privacy of persons. This safeguard extends to information regarding both companies and individuals.

The data collected must be accurate and not excessive, taking into account the purpose for which it has been gathered. It must not be collected through fraudulent means or in breach of the provisions of the law. Likewise, it must not be used for any purpose other than that for which it was obtained, and must be destroyed when it is no longer necessary or relevant to the purpose for which it was collected.

Anyone seeking protected data from a person must tell that person the purpose for which the data is being sought, and the consequences of failing to provide the data (or of providing inaccurate data).

Credit information databases
Databases aimed at providing credit information may only include economic information regarding the financial and credit status of a person, or information regarding compliance with financial obligations. This type of information may only be stored or assigned for five years, or two years in the case of information concerning obligations that have been cancelled or defaults that have been remedied.

Bank Secrecy

Pursuant to Section 39 of the Financial Entities Law and several Central Bank regulations on this subject, financial entities falling within the scope of the law may not disclose deposit-taking operations that they may perform. Bank secrecy does not extend to lending and other credit transactions and financial services.

This non-disclosure obligation does not apply to information required by the following:

• judges in legal proceedings;
  
  
• the Central Bank, exerting the powers conferred thereto; and
  
  
• tax authorities, as long as the information concerns an ongoing tax assessment on a determined tax payer , and such report is formally and previously required.

Anti-Money Laundering Regulations

In May 2000 the Argentine government enacted Law 25,246, as implemented through Decree 169/2001, which is aimed at preventing and detecting money laundering activities in Argentina and punishing the perpetrators. In addition, the Central Bank, the Argentine Securities Commission and the Electronic Open Market have issued their own regulations addressing money laundering prevention within their respective jurisdictions.

The Anti-Money Laundering Law broadened the existing definitions of money laundering and concealment in the Argentine Criminal Code. 'Money laundering' is now defined as the exchange, transfer, administration, sale or any other use of money or other assets with an aggregate value of more than $50,000, obtained through crime, by a person who did not take part in such crime, if the possible consequence of the conduct of such person is to grant the money or assets the appearance of having been obtained through legitimate means.

Criminal Code penalties for money laundering range from two to 10 years' imprisonment and fines worth from two to 10 times the value of the assets laundered. In the case of concealment Criminal Code penalties range from six months to six years. Persons who are found guilty of money laundering or concealment while performing an activity that requires a special licence may have that licence revoked for a period of three to 10 years. The courts may seize any laundered assets.

The Anti-Money Laundering Law created the Financial Information Unit, a special agency responsible for monitoring compliance with the law.

Financial entities and broker dealers are required to report suspicious activities and provide information on a regular basis to the unit. Companies will not be able to waive their reporting obligations imposed by the Anti-Money Laundering Law on grounds of legal or contractual confidentiality commitments.

For further information on this topic please contact Gabriel Matarasso at Marval, O'Farrell & Mairal by telephone (+54 11 4310 0100) or by fax (+54 11 4310 0200) or by email ([email protected]). The Marval, O'Farrell & Mairal website can be accessed at www.marval.com.ar.

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.