This country-specific Q&A provides an overview of the legal framework and key issues surrounding banking and finance law in Colombia including national authorities, regulation, licenses, organisational requirements, supervision and assets.
This Q&A is part of the global guide to Banking & Finance.
For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance/
What are the national authorities for banking regulation, supervision and resolution in the jurisdiction?
The Colombian Constitution states that the government must previously authorize any financial, capital markets and insurance activities, as well as any activity regarding resources collected from the public. Congress has the power to enact the legal framework within which the government and other financial authorities regulate and intervene the financial market.
Having said this, there are four main national authorities for banking regulation, supervision and resolution in Colombia that are: The Central Bank, the Ministry of Finance and Public Credit, the Superintendence of Finance and the Guarantee Fund for Financial Institutions (Fondo de Garantías de Instituciones Financieras - FOGAFIN).
The customary functions of a central bank are carried out by the Colombian Central Bank, this being, activities involving monetary policy, financial policy, foreign exchange regulation, price stabilization, legal currency issuance, regulation of currency circulation, credit and exchange rate monitoring, management of international reserves, and acting as a last resort lender to financial institutions.
The Ministry of Finance and Public Credit, delegated by the President of the Republic, oversees the design, coordination, regulation and execution of economic policy in the country. The Ministry of Finance and Public Credit regulates all aspects of finance, securities and insurance activities by issuing decrees related mainly to finance, taxation, customs, public credit and budgetary matters in order to generate economic and social growth. It regulates financial institutions’ capital adequacy, risk limitations, authorized transactions, disclosure of information and accounting.
The Superintendence of Finance is a technical entity responsible for inspecting, supervising and controlling any persons involved in operations related to the management, use or investment of resources collected from the public, including financial, insurance and securities exchange activities. The main purpose of the Superintendence of Finance is preserving the stability and trustworthiness of the Colombian financial market, as well as promoting, organizing and developing securities market and protecting the users of financial and insurance services. With this, any financial institutions must obtain previous and express authorization of the Superintendence of Finance in order to be incorporated and to carry out financial activities.
Finally, the Guarantee Fund for Financial Institutions (Fondo de Garantías de Instituciones Financieras FOGAFIN) is a financial authority, essential to the financial system’s security network. It is responsible for protecting the financial consumer’s savings accounts, helping to minimize the impacts of a financial crisis by managing a reserve, managing security deposits and monitoring financial institutions in liquidation processes.
Which type of activities trigger the requirement of a banking licence?
Under Colombian law, any financial, insurance and securities exchange activities trigger the requirement for authorization from the Superintendence of Finance. Specifically, any person, national or foreign, that collects resources from the public is engaging in an activity that is of public interest and therefore, is regulated by the Colombian government.
Under Colombian law, financial institutions are classified into credit institutions, financial services entities, capitalization corporations, insurance companies and insurance intermediaries. Specifically, credit institutions are further categorized into (i) banks, (ii) finance corporations, (iii) financing companies and (iv) finance cooperatives. Moreover, banks are cataloged in commercial banks and mortgage banks. As stated in the Organic Statute of the Financial System, banks are authorized, in general terms, to receive on-demand and savings deposits, negotiate bills of exchange, promissory notes and other securities, and perform other customary banking services.
Does the regulatory regime know different licenses for different banking services?
Under Colombian law, different services and activities require different types of authorizations by the Superintendence of Finance, determining also the kind of services provided and the type of company that must be incorporated. As stated in question one, the authorization must be express and prior for each financial entity.
Regarding banking activities, Colombian law does distinguish between commercial banks and mortgage banks authorization. According to Colombian regulation, commercial banks may receive general deposits, savings deposits, grant loans and exchange securities, whereas mortgage banks can grant loans in exchange for real estate collateral.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
When a company is authorized by the Superintendence of Finance to be incorporated and to perform certain financial activities, companies are required to adhere their activity to those specifically authorized in the resolution issued by the authority. When applying for the authorization, the petitionary must include a draft of the future company’s bylaws and business plan, where they can state the different activities they intend to perform.
However, it is important to note that even with prior and express authorization from the Superintendence of Finance, restrictions or limitations imposed by the authorities described in question one, are applicable for financial institutions. Such restrictions may involve credit extensions, investments, conditional operations, lending activities, acquiring certain goods when they are not received as collaterals, foreign currency loans and negotiations, and managing a third-party’s funds.
What is the general application process for bank licenses and what is the average timing?
The general application process for a bank license is mainly the one stated in article 53 of the Organic Statute of the Financial System, as explained below. As stated in previous answers, in order to conduct banking activities, banks must be previously authorized by the Superintendence of Finance to be incorporated and to carry out specific financial activities.
Such process is around four (4) months, which can be suspended if the Superintendence of Finance requires further information from the petitionary. The main documents and requirements for the application are:
- A draft of the future company’s bylaws.
- Capital information regarding investment and the amount with which the company will be incorporated.
- Information stating the origin and nature of the future institution’s funds.
- Information of the persons that intend to be shareholders, members of the board of directors, legal representatives, or agents of the future company.
- A feasibility study, stating the intended activities that the future institution will perform in the financial market, technological and management infrastructure, internal control policies, a risk management plan, corporate governance structure and any other relevant information of the business plan.
- Documents authorizing the Superintendence of Finance to perform background checks on the intended future shareholders.
- Income tax returns and financial statements on the intended future shareholders from the last three (3) fiscal years.
A foreign bank may operate in Colombia through a subsidiary or a branch incorporated in Colombia, with prior authorization from the Superintendence of Finance.
The Superintendence of Finance will then authorize the requested incorporation of the company through a resolution. After which, the company must notify the Superintendence of Finance that it has been duly established and that the capital has been paid. The authority will then proceed to publish the notification as required by law, and it will issue a final resolution approving the operation of determined financial activities.
Is mere cross-border activity permissible? If yes, what are the requirements?
Financial institutions can perform cross-border activities with prior authorization of the Superintendence of Finance. When applying for the authorization, banks and other financial institutions must fulfill the requirements established in the checklist code M-LC-AUT-048 of the Superintendence of Finance. These requirements are:
- A technical document explaining the reasons for the cross-border activity, information regarding the nature, origin of the resources and the way in which such resources will enter and leave the country, a feasibility study and business plan, a financial study, the corporate structure, risk management plan, description of the technological platform and other corporate documents.
- The type of license that the local bank applied for in the jurisdiction intended for the cross-border activity.
- A copy of the authorization granted by the foreign authority.
- A copy of the Board of Directors or Shareholders Assembly Minutes where the operation is authorized.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
Although there are several types of financial institutions as stated in question two above, the only ones allowed to operate as banks in Colombia are banks, including commercial banks and mortgage banks. Such entities must be incorporated under the form of Corporations (Sociedad Anónima) or Cooperative Associations (Asociaciones Cooperativas) and properly authorized by the Superintendence of Finance. Foreign entities can carry out bank nature activities as a branch of the foreign financial institution.
What are the organisational requirements for banks, including with respect to corporate governance?
As stated in question 7 above, banks must be incorporated under the form of Corporations (Sociedad Anónima), Cooperative Associations (Asociaciones Cooperativas) or as a branch of a foreign financial institution in order to operate in Colombia. The main corporate body of the bank must be: a Shareholders General Assembly, a Board of Directors with a minimum of five (5) members and a maximum of ten (10) members, an auditor and a manager who needs to be previously authorized by the Superintendence of Finance to hold such position.
Also, a financial institution under surveillance of the Superintendence of Finance operating in Colombia must have a Compliance Officer designated by the Board of Directors, in accordance with Circular Letters 29 of 2014 and 55 of 2016. This means that regardless of the form under which a bank is incorporated (Corporation, Cooperative Association or branch), the institution must have a Compliance Officer. In addition to the above, when operating as a branch, the bank must appoint an authorized officer as the legal representative.
In accordance with article 18.104.22.168.1 of Decree 2555 of 2010, credit institutions under which banks are categorized, must have a Financial Consumer Defender. The Financial Consumer Defender is responsible of mediating any controversies between the institution and a financial consumer.
It is relevant to note that with the purpose of implemented good governance policies, designating an audit committee is viewed as a good practice. Financial institutions are invited to implement internal control mechanisms and good governance codes.
Do any restrictions on remuneration policies apply?
There are no restrictions on remuneration policies applicable under Colombian law.
Has the jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
Along with many other countries in Latin America, Colombia has adopted Basel I, Basel II and Basel III recommendations in order to prevent a financial crisis and ensure a better risk management.
Specifically, Basel III framework was first enacted through Decree 1771 of 2012, which established equity adequacy requirements with a minimum of total solvency ratio of 9%, which is 1% above the recommended by the Basel Committee on Banking Supervision, and a minimum of core solvency ratio of 4.5%. The Decree also introduced new criteria for including basic ordinary equity, basic ordinary additional equity and additional equity, definitions for credit risk, market risk and operational risk in relation with credit institutions, standards for asset, risk and operation classification, as well as surveillance measures and possible sanctions that can be imposed by the Superintendence of Finance.
Furthermore, Decree 2392 of 2015 established new surveillance requirements by the Superintendence of Finance regarding credit institution’s basic ordinary equity, basic ordinary additional equity and additional equity classification. However it is not possible to state that the Colombian financial system has fully adopted Basel III recommendations, for the jurisdiction is still in the implementation process.
Are there any requirements with respect to the leverage ratio?
There are no requirements with respect to leverage ratio.
What liquidity requirements apply? Has the jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
Although Colombia has not specifically implemented the LCR standard recommended in Basel III, since the year 2009 the Superintendence of Finance implement the IRL (Indicador Riesgo de Liquidez) that can be calculated in two ways, the IRLm and the IRLr. According to de Superintendence of Finance’s standards, the IRLm must be equal or superior than zero and the IRLr must be equal or superior than 100% in order to represent adequate liquidity.
Do banks have to publish their financial statements?
When a bank is publicly listed in a stock exchange, it must publish through the Superintendence of Finance´s web platforms its relevant information, including its financial, accounting, legal, commercial and labor situation, in accordance with Decree 3139 of 2006. This information must be clear, sufficient, reliable and must also be available through the bank’s web platforms.
In accordance with the Organic Statute of the Financial System, institutions under surveillance of the Superintendence of Finance, such as banks, must provide their clients with sufficient information about their economic situation, by publishing its financial statements and general financial information in its web page, in order to allow clients to be better informed when choosing financial services and providers.
Does consolidated supervision of a bank exist in the jurisdiction? If so, what are the consequences?
As stated in question one above, the Superintendence of Finance is a technical entity responsible for inspecting, supervising and controlling any persons involved in operations related to the management, use or investment of resources collected from the public, including financial, insurance and securities exchange activities.
The consolidated supervision exists under Colombian jurisdiction by the name of Integrated Supervision Framework (Marco Integral de Supervisión). This is a method designed by the Superintendence of Finance in order to evaluate and integrate potential risks that can impact financial institutions and the financial system in general. Because of this, the Superintendence of Finance established different evaluating criteria for financial analysis, compliance, risk management, actuarial information, internal auditing, senior management, board of directors, capital, liquidity, and profitability.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
In accordance with the Organic Statute of the Financial System, if a person intends to purchase more than 10% of the shares of a financial institution, previous and express authorization from the Superintendence of Finance is necessary. The Superintendence will evaluate the suitability and responsibility of the person intended to purchase the shares. Under this context, suitability refers to the need for the person buying the shares to have more than at least 1.3 times the capital the person is intending to invest. If such person fails to obtain the approval, the acquisition of the shares is ineffective.
Also, if any financial institution intends to acquire shares in another financial institution such as banks, the Superintendence of Finance must be duly notified and in a period of two (2) months, it must approve or oppose to the operation.
Does the regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
The Organic Statute of the Financial System states that the Superintendence of Finance will not allow a person to participate as shareholder, member of the board of directors, legal representative, agent or in any other way in a financial institution if such person has:
- Committed crimes against public economic assets, money- laundering or obtained money illegally.
- Been declared under seizing of ownership, in the terms of Law 333 of 1996.
- Been sanctioned for violating individual credit quotas regulation.
- Been responsible for ill managing financial institutions in the past.
If a person who is already shareholder, member of the board of directors, legal representative, agent or participates in the bank in any other way at the moment in which any of the previous circumstances occurs, the person must relinquish his position in the financial institution. If such person is a shareholder, the shares must be sold in a period no longer than six (6) months.
Are there specific restrictions on foreign shareholdings in banks?
A foreigner can own shares in banks with the previous and express authorization of the Superintendence of Finance. Such approval depends on criteria such as solvency, moral and professional, as stated in question 16 above.
Is there a special regime for domestic and/or globally systemically important banks?
The only difference between domestic and global banks is that the first must operate under the form Corporations (Sociedad Anónima) or Cooperative Associations (Asociaciones Cooperativas), and the second can operate as a branch of the foreign bank. Either way, both must compel with the requirements, sanctions, measures and regulation imposed by the authorities described in question one.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
A person that carries out any financial regulated activity or that collects resources from the public without prior authorization from the Superintendence of Finance is liable to imprisonment and economic sanctions for engaging in a criminal offence. Some examples of activities characterized under the Colombian Criminal Code are fraudulent use of resources collected from the public, collecting resources from the public without authorization, fraudulent manipulation of securities and others. The sanctions vary and can be fines of around fifty thousand minimum wages and imprisonment up to 240 months.
What is the resolution regime for banks?
The resolution regime for banks in Colombia is mainly regulated in the Organic Statute of the Financial System and Decree 2555 of 2010. Initially, the Superintendence of Finance as a part of its main functions and other authorities, can impose measures to prevent resolution situations and protect clients and the financial system in general. Some of these measures include obligating the financial institution to adopt special surveillance, recapitalization, trusteeship, partial or total assignment of assets and liabilities, mergers and acquisitions and administrative takeover as the most aggressive type of intervention and others. Ultimately, it is the Superintendence of Finance who decides when a bank needs to be resolved.
The Guarantee Fund for Financial Institutions (Fondo de Garantías de Instituciones Financieras FOGAFIN) is the institution in charge of monitoring financial institutions in liquidation processes. If the bank fails to recover with the measures adopted by the Superintendence of Finance, then the FOGAFIN will proceed by assigning a liquidator.
How are client’s assets and cash deposits protected?
With the adoption of the General Financial Consumer Protection Framework under Law 1328 of 2009, the Superintendence of Finance establishes the rights and obligations of banks regarding financial consumers. If a bank does not compel with the requirements established in such legal framework, the Superintendence of Finance can impose certain sanctions to the bank or/and the people involved in the operation and carry out an investigation of the financial entity. Some of these consumer rights are receiving secure and quality products and services, receiving clear and trustworthy publicity and information, expecting a due diligence from the bank in its operations, presenting at any time petitions to the bank or the authorities, among others.
On the other hand, as stated in question one, FOGAFIN is responsible for protecting the financial consumer’s savings accounts and generating mechanism to minimize the impacts of a financial crisis. One of these mechanism is a security deposit made by registered entities, such as banks, financial corporations, finance companies, National Savings Funds and companies specialized in deposits and electronic payments, that protects savers depositors for an amount of even COP$50,000,000. This reserve is composed by a premium payment made by the registered entities of 0,3% of the total secured deposits.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?
Colombian jurisdiction has no bail- in tool in bank resolution; the only measures included in our resolution regime are those stated in question 20 above.
Is there a requirement for banks to hold gone concern capital (TLAC)?
In accordance with question 10 above, the minimum of total solvency ratio a bank is required to hold is 9%, while Basel III standards require 8%.
In your view, what are the recent trends in bank regulation?
As evidenced with the issuance of Law 1870 of 2017, one of the main trending topics in bank regulation in Colombia is regulating financial conglomerates. The aforementioned law imposes better internal control mechanisms for information exchange, conflict of interest revelation, capital adequacy and limits to risk exposition between the parent company and the subordinated and affiliated companies, as well as the possibility for the Superintendence of Finance to intervene. Such authority can impart instructions to the parent company or subordinated and affiliated companies, requiring changes in the conglomerate structure or capital adequacy, authorize direct and indirect capital investments, require information and carry out on-site visits, or withdrawing the operation authorization of a company that is part of a conglomerate when and if the Superintendence of Finance considers that the provided information no longer permits adequate supervision.
Law 1870 was issued as a response to the need for the Superintendence of Finance to have better control and faculties, with the purpose of carrying out its functions and responsibilities, as stated in question one above. Also, with this recent law, it is expected for the Ministry of Finance and Public Credit to issue a Decree regulating this Law and further mapping out the supervision situation for conglomerates in Colombia.
Another trending topic in Colombia regarding banking regulation is, as stated in previous questions, the implementation of Basel III and Basel Committee on Banking Supervision recommendations. The importance of such implementations is strengthening the financial system’s ability to prevent and endure a crisis.
What do you believe to be the biggest threat to the success of the financial sector ?
As seen in recent years, Colombian financial system is still very vulnerable to certain entities collecting resources from the public fraudulently. This situation clearly implies a great threat to the success of the financial system, due to the illegal operations carried out by entities not having the legal and proper authorization to operate and therefor, the fact that they are not under the control and supervision of the competent financial authorities. What can generally be seen in such scenarios is promises of great revenues in an unreasonable amount of time and a sudden insolvency of the company. Usually, the managers of such illegal companies tend to disappear with client’s savings and deposits, generating great scandals that affect the image of the Colombian financial system.