The Venezuelan Bank Superintendency issued a resolution contemplating new specifications for trust agreements to be executed by financial institutions on May 30 2000 (published on June 6 2000 in the Official Gazette 36,966).

This resolution is intended to prevent financial institutions having to assume risks inherent in financial intermediation. This is done by (i) using financial products aimed to 'capture' public resources (perhaps deviating from the purposes of a trust), and (ii) improving the information that the beneficiaries of a trust must be given regarding the administration and investment of the funds transferred to the trust. Trust activity is generally regulated by the Trust Law, which imposes restrictions as to those entities that can act as trustees. The General Law of Banks describes the way in which banks may act as trustees in Venezuela.

The basic rules contained in the new regulations include:

  • The trust must not contain gaps that may impair adequate management. It must be clearly stated that the financial institution, when acting as a trustee, will not be responsible for losses suffered when complying with the instructions received in accordance with the trust agreement.

  • Financial institutions, when acting as trustees, must have qualified personnel and information systems that could help identify the risks existing in the trust negotiations, in order to be able to adopt timely solutions.

  • When a financial institution acts as trustee, and receives assets to administer on a third party's behalf, it must be expressly stated in the trust agreement that the financial institution is not assuming economic or financial risks. Otherwise it will be obliged to register these negotiations as its own direct assets and liabilities.

  • With investment trusts, possible investment options must be included in the trust agreement, so that the beneficiary can choose the option it is interested in (ensuring also that the beneficiary is aware of the risks).

  • A financial institution, acting as a trustee, must give the beneficiary quarterly financial statements and information on the activity it carries out.

A financial institution that has executed trust agreements before the date of the resolution (and the agreements do not comply with the requirements set forth therein), must adapt the agreements to the resolution's requirements before December 31 2000.

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 email ([email protected]).

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