New Provisions to Banking Groups

New provisions applicable in relation to the consolidated supervision to the banking groups by the Superintendence of Banks of the Republic of Panama.

Recently, the Banking Authority issued Agreement 7 of 2014, whereby a number of parameters is established for the consolidated supervision of what the law calls Banking Groups, defined by the Banking Law as those “… constituted by bank holding company and its subsidiaries at any level whose predominant activities consist of providing services in the banking or financial sector; including nonbanking subsidiaries of the latter, which, in the opinion of the Superintendency, are operating under common management, either through a bank holding company or by different participations or agreements.”

The new regulations have as scope of application the Banking Groups upon which the Banking Authority exercises exclusively the consolidated supervision of origin, this being understood as the one applicable to Panamanian Banks and banking groups consolidated in our country.

Within the main parameters developed by the Agreement, we outline the following:

• Requirement to maintain a functional structure of Corporate Governance, which secures a strategic orientation, describing the main elements of good corporate governance, in accordance to the Superintendence of Banks standards.
• Establishes the sixteen (16) responsibilities applicable to the members of the board of directors of bank holding company, subject to Agreement 7 of 2014.
• Application of appropriate internal control systems.
• To create an Audit Committee, responsible for the permanent evaluation and follow-up of the group audit. The Agreement details the duties of the abovementioned Committee, that is, very important duties are assigned to it in an imperative way which starts with the verification of Internal Control.
• To develop parameters which secure professional and suitable execution of internal audits pursuant to international standards and best practices.

In addition to the aforementioned, it is specifically developed the profile of the directors and officers of a Banking Group: recognized moral and economic solvency and, in our view the most relevant, incompatibilities applicable to them to be appointed in those offices. For example, it is noted that the Superintendent shall obtain the necessary information about the directors, officers and executives nominated for the administration of the Banking Group, in order to assess individually each of them regarding their experience in financial business, professional competence, moral integrity and relevant background.

We deem necessary to note that the regulatory standards set forth in this Agreement is intended to strengthen the areas of concentration of risk, definition of related parties and its limits of concentration consolidated with these, as well as its exceptions.

Due to the extent of the provisions, it is not feasible to expose a comprehensive analysis of the Agreement. However, we remain at your disposal to answer inquiries about its scope, authority queries regarding the construction and drafting of Handbook of Corporate Governance, review of Handbook of Risks, among other.