Financial Crime World

Chile’s Financial Watchdog Declares Systemic Importance on Certain Banks

======================================================

Santiago, Chile - In a move aimed at ensuring financial stability and preventing systemic risk, Chile’s financial regulator, the CMF (Comisión para el Mercado Financiero), has been granted the authority to declare certain banks as Systemically Important Financial Institutions (SIFIs). This new power allows the CMF to impose additional capital requirements on these institutions, among other measures.

Declaring Systemic Importance

According to Article 66 quáter of Chile’s General Banking Act, the CMF can identify SIFIs and impose stricter regulations to ensure their stability. Additionally, banks that pose risks not adequately covered by existing rules may be subject to further capital requirements, including a minimum additional basic capital of up to 4% of their risk-weighted assets.

Shareholdings and Control

The CMF plays a crucial role in the acquisition of shareholdings and control of banks. Any entity seeking to acquire more than 10% of a bank’s equity must obtain CMF authorisation, which is granted or denied based on compliance with Article 28 of the General Banking Act.

  • Foreign investors wishing to acquire significant shareholdings in Chilean banks are subject to similar requirements.
  • The CMF does not differentiate between foreign and domestic investors when it comes to shareholding acquisitions.

Liquidation and Resolution

The General Banking Act provides a framework for the liquidation of banks in financial distress. In the event of a bank’s insolvency, the CMF is empowered to:

  • Revolve its banking licence
  • Declare it in compulsory liquidation
  • Appoint one or more liquidators

The regulator can also instruct the bank to submit a stabilisation plan, which outlines measures to address financial instability and ensure the bank’s continued operation. If the plan is rejected or not filed, the CMF may appoint a delegate inspector or provisional manager to oversee the bank’s activities.

Powers of the Regulator

In cases where a bank’s solvency is deemed insufficient or its depositors’ safety is at risk, the CMF can take various measures, including:

  • Revoking the bank’s licence
  • Declaring it in liquidation
  • Appointing a liquidator
  • Transferring part of the bank’s operations to another financial institution

Transfers of Business

In a liquidation scenario, the CMF-appointed liquidator is empowered to transfer part of the bank’s operations to another financial institution. Article 138 of the General Banking Act sets out a simplified regime for such transfers, which do not require prior notification to the regulator.

These measures are aimed at ensuring the stability and resilience of Chile’s banking system, while also promoting financial inclusion and consumer protection.