Consolidation process of supervisory and controlling powers of the Financial Superintendence of Colombia, SFC, the Colombian Congress issued Law 1870 of September 21, 2017 by means of which rules are issued to strengthen the regulation and supervision of conglomerates financial institutions and resolution mechanisms.

By virtue of this law, the SFC has comprehensive and consolidated supervisory powers vis- à-vis financial conglomerates consisting in:

- Issue instructions of mandatory compliance in terms of financial risks, internal control system, disclosure of information, management of conflicts of interest and corporate governance that Financial Holdings of such conglomerates must meet.

- Require changes in the structure of the financial conglomerate if adequate disclosure of information is not in place.

- Authorize capital investments that the Financial Holding Company intends to carry out in entities supervised by that Superintendence.

- Require information and make inspection visits to the conglomerate.

- Revoke the operating authorization of the entities under its supervision in Colombia in case the Financial Holding does not comply with the requirements of the Law.

Specifically, this Law defines financial conglomerates as groups of companies that belong to the same owner or group of owners, within which, at least one entity exercises activities supervised by the SFC, in the country. Thus, the Law requires the conglomerates to identify in their structure, which entity plays the role of Financial Holding or controlling company, so that they comply with the capital, corporate governance and information disclosure requirements that financial institutions authorized by the SFC in this country, must meet. The fulfilment of these requirements is verified through the entity located in Colombia and, in case of non-compliance of the same by the Financial Holding, the SFC can take measures on the entity located in Colombia, which go, even, up to the order of suspension of activities. In any case, the Law establishes that if the Financial Holding is supervised and regulated abroad under a comprehensive and consolidated prudential scheme, compliance with these requirements must not be demonstrated to the SFC.

This law was issued upon the call of the OECD and the International Monetary Fund, IMF, in terms of international standards that regulate and supervise financial conglomerates and meets the criteria of nature, size, presence, and other factors that are of great interest to the Colombian state in order to keep significant economic stability.

The provisions contained in this Law, came into effect in the month of April 2018, after expiration of its transition period, within which, the Ministry of Finance issued some of the regulatory decrees.

The first of these decrees entitled the SFC with the power to determine in which cases certain financial conglomerates, including the Financial Holding, may be not be subject to the application of Law 1870 of 17. This decree is Decree 246 of the February 2, 2018 and it precisely stipulates the conditions for a legal entity to be excluded from the control of the SFC:

Article 2.39.1.1.2. Exclusion criteria. In a motivated manner, the Financial Superintendence of Colombia may exclude from the scope of comprehensive and consolidated supervision those legal entities or investment vehicles belonging to a financial conglomerate that, given the nature and amount of their activities, do not represent significant interest for the purposes of supervision of financial conglomerates and also present one of the following situations:

a. When the size of the entity is not significant in relation to the financial conglomerate to which it belongs.

b. When the entity's level of interconnection and risk exposure does not have a significant impact on the financial conglomerate.

Following the provisions of article 12 of the law, in the section on validity, on March 15, 2018, Decree 521 was published in relation to the regulation of the Purchase of Assets and Assumption of Liabilities and “Bridge Bank”. The decree has the following scope: 

Article 9.1.4.1.1. Scope. In accordance with article 295A of the Organic Statute of the Financial System, in the event that the Financial Superintendence of Colombia orders the compulsory administrative liquidation of a credit establishment the Board of Directors of the Guarantee Fund for Financial Institutions, Fogafin, may order as an alternative to the payment of deposit insurance, the purchase of assets and the assumption of liabilities. The purpose of this resolution mechanism is the transfer of assets and liabilities from the establishment of credit in liquidation, to one or more credit institutions and/or bridge banks.

For the adoption of the purchase of assets and assumption of liabilities, Fogafin will take into account its cost against to the value of the deposit insurance payment, preferring that operation that, according to the study carried out, allows it to adequately fulfill its purpose at the lowest cost, subject to the provisions of subparagraph b) of numeral 6 of article 320 of the Organic Statute of the Financial System. 

Finally, the Ministry of Finance issued Decree 774 of May 8, 2018, through which rules for the appropriate level of capital and technical assets of financial conglomerates are established. This Decree establishes, in other words, that in those cases in which the Financial Holding of the Conglomerate is abroad, this entity must comply with the same requirements that are required in Colombia for the operation of the same type of activities carried out by financial institutions located in Colombia. 

To conclude, with this new regulation, financial multinational groups operating in the country should be alert to future regulatory developments on the matter to avoid supervisory processes.