Chile’s Banking Sector Must Comply with Special Corporate Governance Rules

In an effort to ensure stability and transparency in the financial sector, all banks operating in Chile must be incorporated as special corporations (sociedad anónima especial) under the General Banking Act. This requires compliance with specific corporate governance rules outlined in Article 40 et seq of the General Banking Act and regulations issued by the Chilean Financial Market Commission (CMF).

Key Corporate Governance Requirements

• Board of Directors: Banks must have a board of directors responsible for directing the bank and managing risk. Directors cannot be both directors and employees of the bank.
  • The board must have at least five members, with an odd number of directors.
  • Meetings must be held at least once a month.
• Shareholders’ Contributions: Shareholders’ contributions can only consist of cash in Chilean pesos, unless otherwise specified by law.
• Ownership Restrictions: There are restrictions on the ownership of banks by public entities such as treasury departments, public services, fiscal institutions, and state-owned companies.

Auditor Appointment

• Banks must appoint external auditing firms to review their accounting, inventory, and financial statements, and report on their findings to shareholders and the CMF.
• External auditors must be appointed by the bank’s shareholders at a regular meeting held within the first quarter of each year.

Supervisory Regime

• The supervisory regime for banks in Chile is based on the Supervision Based on Risks (SBR) approach, which assesses the quality of risk management used by banks.
• This approach reflects the maturity of the banking industry in Chile and ensures that banks are held to high standards of governance and risk management.
• Under this regime, bank directors must meet specific requirements, including:
  • Not being convicted of serious crimes
  • Not being sanctioned for market regulations infringements
  • Not having a history of conduct that may risk the bank’s stability or safety of depositors

Conclusion

The corporate governance rules outlined in the General Banking Act and regulations issued by the CMF play a crucial role in ensuring the stability and transparency of the banking sector in Chile. By understanding these requirements, banks operating in the country can ensure compliance with regulatory standards and maintain public trust in the financial system.