Last Saturday, January 12, and after a year and a half of legislative discussion, the law that modernizes the banking legislation contained in the General Banking Law ("LGB"), was enacted as Law of the Republic, after the control of the Constitutional Court was fulfilled.
The Law incorporates new banking capital and reserves requirements, in accordance with the Basel III guidelines, in addition to modernizing the corporate governance and the powers of the banking regulator and the bank resolution mechanisms.
In this way, the Law consists of the following main axes:
Transfer of all faculties from the Superintendence of Banks and Financial Institutions ("SBIF") to the Commission for the Financial Market ("CMF")
All institutions currently supervised by the SBIF, namely, banks, issuers and operators of credit or payment cards with provision of funds, among others, will be subject to the supervision of the CMF, created in 2017 by Law 21,000. However, in order to avoid regulatory duplication, all the rules that enshrine the powers of SBIF will be repealed from LGB and contained in Law 21,000, as amended. With the incorporation of the CMF, the figure of a Superintendent is eliminated, being replaced by a Council, composed of 4 commissioners and a president.
New capital requirements
Following the recommendations of Basel III, the current regulations on capital requirements and risk management are updated, increasing the capital requirements from a quantitative and qualitative point of view, in order to be consistent with the risks currently associated with banking activity.
Minimum capital requirements: First, the minimum required level of effective equity is maintained at 8% of risk-weighted assets. The Tier 1 minimum capital requirement, corresponding to the composition of assets with the best loss-absorbency capacity, increases from 4.5% to 6% of risk-weighted assets. This increase is achieved by incorporating an additional Tier 1 capital requirement equivalent to 1.5% of risk-weighted assets. As for the additional Tier 1 capital, it is established that it may be made up of preferred shares or bonds with no maturity ("perpetual"). Second, the bill fills an important gap in current legislation, incorporating a conservation buffer of 2.5% of risk-weighted assets above the established minimum, which must be made up of basic capital. Likewise, progressive restrictions are established on the bank's profit distribution when this requirement is not...