Scope of Regulation
Institutions and their Regulations
Superintendency of Banks
This overview highlights the provisions of the General Banks and Other Financial Institutions Law 1961 (as amended in November 1993). This comprehensive law now covers the main aspects of domestic banking activities.
Article 1 contains a double standard regulation based on both the nature of the activity and the person performing it. The provision states that:
"The activity of financial intermediation consisting of the receipt of funds with the purpose of granting credits or financings, including money desk, as well as the other transactions contemplated or regulated by this law may only be performed by banks and other financial institutions regulated in this law.
For purposes of this law, financial intermediation also encompasses the regular receipt of funds with the purpose of making investments, except when such receipt is subject to authorization in accordance with other laws.
Universal banks and the following specialized financial institutions shall be subject to the provisions of this law: commercial banks, mortgage banks, investment banks, capitalization societies, financial lessors and money market funds."
Article 3 expressly contemplates that the activities covered by the law must also be undertaken in accordance with:
- the Commercial Code;
- the Central Bank Law and any other applicable law;
- rulings issued by the executive power (the president of the republic); and
- any other resolution issued by the Central Bank and the Banking Superintendency.
Institutions and their Regulations
The law deals with requirements for the promotion and incorporation of a bank or other financial institution, including:
- the proposed method of advertising;
- information that must be contained in application forms, attachments and any other documentation to be presented to the competent authority; and
- timeframes for the acceptance or rejection of the presented applications.
Regarding the acquisitions of existing banks, Articles 16 and 17 establish that:
" Any acquisition, either directly or indirectly, of a bank or financial institution by which the buyer or persons related to the buyer, acquires, individually or jointly, 10% or more of its social capital or of the voting power in its shareholders assembly must be previously approved by the Banking Superintendency, except as provided in the next article. The acquisition of shares effected through a stock exchange shall not require prior authorization, but must be notified to the Banking Superintendency by the bank or financial institution within five days following the inscription in the shareholders registry."
After the Banking Superintendency has been informed of the acquisition of 10% or more of a bank or financial institution's capital, it will have 45 days to object, after which the sale will be considered final.
The law also contains various provisions dealing with the specific activities encompassed in financial intermediation, including receipt of:
- deposits; and
- savings accounts.
The commercial banks section of the law includes:
- purpose requirements;
- limitations; and
- regulations on the activity of Venezuelan commercial banks in foreign countries.
Mortgage banks are dedicated to the granting of credits guaranteed with mortgages. The law requires for their capitalization and the type of credits that may be granted to third parties. The limitations and prohibitions on the activities in which these types of bank may engage are also listed.
Regarding investment banks, the law describes their minimum capital requirement and the activities in which they may and may not engage.
Alongside capital and object requirements, the law also regulates capitalization operations, agreements and plans, and investments.
Regarding leasing entities, the law sets forth capital and object requirements with a corresponding list of prohibited activities. The law excludes assets that are subject to financial leases from the regulations regarding non-financial leases. Financial leasing may only be performed by financial entities. Thus, any financial lease on property performed by a non-authorized financial entity will be considered as a sale on an installment plan for tax purposes.
The law expressly states that exchange entities are not to be regarded as financial institutions. However, given the nature of their activity (ie, the purchase and sale of foreign currency), their incorporation must be approved by the Banking Superintendency.
The law provides definitions and limitations on the activities of financial groups and on the participation of foreign investment in banking activities, either (i) directly through the establishment of local branches or representative offices or (ii) through the acquisition of local banks.
Accounting and financial statements
The law has a section dedicated to the accounting and financial statements of banks and other financial institutions, including:
- reporting timeframes;
- access to corporate accounting books;
- consolidation principles for financial groups; and
- formal duties.
There is a minimum patrimony requirement for banks and financial entities of at least 8% of their assets. Their risk factor is to be assessed on a case-by-case basis and on various risk assessment criteria.
The second part of the act is dedicated to the Superintendency of Banks and other financial institutions. The law deals specifically with the superintendency's:
- relationship with banks and other financial institutions; and
- financial system.
Part of the law is dedicated to the Deposit Guarantee and Banking Protection Fund, whose purposes are:
- to guarantee deposits made by the public in banks and financial institutions;
- to provide financial assistance in order to re-establish the liquidity and solvency of banks and financial institutions; and
- to serve as liquidator in proceedings for the liquidation of banks and financial institutions.
The act also deals in detail with the fund's:
- internal organization;
- financial aid;
- reports; and
- earnings and profits.
A special section is dedicated to intervention, and administrative liquidation of banks and other financial institutions. This section was originally incorporated in the 1993 amendment as a response to the banking crisis of that year.
The section concerns:
- the mechanisms for the intervention of banks and other financial entities;
- timeframes; and
- the possibility of selling the intervened financial institution to third parties.
Sales are effected through the Deposit Guarantee and Banking Protection Fund, which becomes liquidator and shareholder as a consequence of the intervention.
The final section of the act is dedicated to administrative and criminal sanctions to which banks, their administrators and private persons may be subject. Administrative fines can be as high as 1% of the bank's capital. Criminal sanctions include imprisonment from two to six years.
For further information on this topic please contact Reinaldo Hellmund at Rodriguez & Mendoza by telephone (+58 212 285 4944) or by fax (+58 212 285 1379) or by e-mail ([email protected]).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.