Liability

Liability of undertakings

What are the risk and compliance management obligations of members of governing bodies and senior management of undertakings?

Law No. 27,401 does not distinguish the obligations that fall under members of governing bodies and senior management. For those entities that have risk and compliance management obligations, the members of governing bodies and senior management have to approve the relevant code of ethics or code of conduct or the integrity policies. The governing bodies and senior management also have to comply with the general fiduciary standards set forth in section 59 of the General Corporate Law.

Pursuant to Regulation ‘A’ 5398 of the Central Bank, there are different obligations for members of governing bodies and senior management.

In this regard, the board of directors of financial entities are accountable for the adequateness of the risk management policies, for the credit risks assumed by the entity and for its management. The board of directors must:

  • approve and review credit policies and strategies;
  • approve the threshold of risk tolerance of the entity;
  • approve the staff for the management of the credit risk;
  • ensure senior management capacities for managing the credit transactions of the entity pursuant to its strategy and policies;
  • guarantee the alignment of the economic incentives granted to its personnel with its risk strategy;
  • assess whether the entity’s capital is appropriate according to the risks assumed;
  • approve new products and activities of the entity;
  • follow up the entity’s exposure with regard to related companies or individuals;
  • approve exceptions to the policies and limits to them;
  • receive reports regarding the risks related with the credits granted by the entity and regarding the fulfilment of risk limits; and
  • receive reports with timely information in case of adverse risk events and ensure that senior management adopt the appropriate measures to cope with such adverse situations.

Additionally, financial entities’ senior management must implement risk management policies, strategies and practices as approved by the board of directors, and must develop written procedures to identify, assess, evaluate, follow-up, control and mitigate credit risks. Senior management must:

  • ensure the existence of internal controls and audits;
  • regularly follow up market trends that may entail significant challenges for risk management;
  • ensure stress tests and contingency plans; and
  • ensure that costs, earnings and risks are properly assessed in the process of approving new products.

The Corporate Governance Code provided in Resolution 606/2012 of the Argentine Securities Commission does not distinguish which responsibilities belong to the board of directors and which ones belong to senior management. However, since it refers to the management body of listed companies, it is reasonable to conclude that such obligations mainly belong to the board of directors if it is not provided otherwise in the relevant corporate governance codes that may be adopted by each listed company.

Do undertakings face civil liability for risk and compliance management deficiencies?

No, undertakings do not face civil liability for risk management and compliance management deficiencies as such, as there are no civil obligations for them to establish such risk and compliance management. However, if any actions related to risk and compliance management deficiencies involve tort or breach of contract, civil liability may arise in that regard.

Do undertakings face administrative or regulatory consequences for risk and compliance management deficiencies?

Undertakings do not face administrative or regulatory consequences for risk and compliance management deficiencies under Law No. 27,401.

Undertakings face administrative or regulatory consequences for risk and compliance management deficiencies only if regulations issued by administrative regulatory authorities set forth risk and compliance management obligations for those individuals or entities of particular industries subject to its powers.

For example, non-compliance with resolutions issued by the Argentine Central Bank and the Argentine Securities Commission may cause financial entities and listed companies to face regulatory sanctions for risk and compliance management deficiencies, as these regulatory entities have the power to impose over them administrative sanctions, such as fines, suspensions and disqualifications to operate.

In a similar way, the National Superintendence of Insurance has the power to establish administrative sanctions on insurance and reinsurance entities in case of breach of regulations enacted by such regulatory agency regarding, for example, risk and compliance management. Such administrative sanctions include fines, warnings and suspensions to operate.

Additionally, the anti-money laundering and anti-financing terrorism regulations provide for administrative fines in case of breach of regulations that set forth risk and compliance management obligations.

Do undertakings face criminal liability for risk and compliance management deficiencies?

Undertakings do not face criminal liability for risk and compliance management deficiencies under Law No. 27,401. Nevertheless, legal entities may have indirect criminal consequences as they can lose access to the benefits of ‘exception from penalties’ and ‘reduction in penalties’ if the risk and compliance management carried out in connection with the integrity programme is deficient.

Additionally, the other relevant laws and regulations mentioned above do not establish criminal liability specifically owing to these deficiencies. However, depending on the facts involved, actions or omissions related to or arising as a consequence of deficient risk management may trigger breaches of administrative, civil, criminal and other regulations.

Liability of governing bodies and senior management

Do members of governing bodies and senior management face civil liability for breach of risk and compliance management obligations?

Members of governing bodies and senior management may face civil liability for the breach of risk and compliance management obligations if they do not establish the proper risk and compliance management that is required according to the relevant entity’s area of practice and to their fiduciary duties of loyalty and care, set forth in section 59 of the General Corporate Law. As a consequence of this breach, the legal entity, the shareholders or the relevant stakeholders may initiate proceedings against the members of governing bodies and senior management.

Additionally, depending on the facts involved, actions or omissions related to or arising as a consequence of deficient risk management may trigger breaches of administrative, civil, criminal and other regulations.

Do members of governing bodies and senior management face administrative or regulatory consequences for breach of risk and compliance management obligations?

Members of governing bodies and senior management may face administrative or regulatory consequences for breach of risk and compliance management obligations only if those obligations are established in the regulations issued by the relevant administrative regulatory agencies. To illustrate this, the Argentine Central Bank, the Argentine Securities Commission and the Financial Information Unit have the power to impose administrative sanctions on members of governing bodies and senior management of financial entities, listed companies or foreign exchange agencies for breach of certain regulations that set risk and compliance management obligations. Such administrative sanctions generally include fines, suspensions and disqualifications.

Additionally, depending on the facts involved, actions or omissions related to or arising as a consequence of deficient risk management may trigger breaches of administrative, civil, criminal and other regulations.

Do members of governing bodies and senior management face criminal liability for breach of risk and compliance management obligations?

Members of governing bodies and senior management do not face criminal liability as there is no regulation that criminalises them for breach of risk and compliance management obligations.

However, depending on the facts involved, actions or omissions related to or arising as a consequence of deficient risk management may trigger breaches of administrative, civil, criminal and other regulations.