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Chile’s Financial Sector: Overview and Regulation

The financial sector in Chile is governed by various laws and regulations, aimed at ensuring the stability and soundness of banks and other financial institutions. In this article, we will explore the regulatory framework governing banking activities in Chile, including the types of banks allowed to operate, organizational requirements, corporate governance, supervisory regime, and more.

Types of Banks

In Chile, private banks are allowed to provide financial services, act as agents for local or foreign international institutions, perform specialized entrusted activities (comisiones de confianza), and offer banking services related to banking. These banks must be incorporated as corporations and comply with the specific requirements set forth in the General Banking Act.

Regulation of Systemically Important Financial Institutions (SIFIs)

The Comisión para el Mercado Financiero (CMF) is responsible for determining which banks or groups of banks can be considered SIFIs. The CMF has published a bill proposing four factors to determine the importance of an institution: size, interconnectivity, replaceability, and complexity. The list of banks to be considered SIFIs will be published in March 2021, with additional capital requirements to be fulfilled over the next three years.

Organizational Requirements

Banks in Chile must be incorporated as corporations and comply with specific requirements set forth in the General Banking Act. Every bank must be a special corporation (sociedad anónima especial) under the specific requirements of the General Banking Act. The main body is the board of directors, responsible for directing the bank and ensuring its sound management.

Corporate Governance

Good corporate governance is essential for banks in Chile. The CMF considers the following as inherent to good corporate governance:

• Establishing strategic objectives
• Promoting transparency
• Verifying senior management performance
• Establishing proper disclosure mechanisms

Supervisory Regime

The supervisory regime for banks in Chile focuses on assessing the quality of risk management used by banks. This approach is based on a Supervision Based on Risks (SBR) approach, which reflects the maturity of the banking industry in Chile.

Appointment of Auditors and Other Experts

Banks in Chile 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 the regular shareholders meeting, which must take place within the first quarter of each year.

Conclusion

Chile’s financial sector is governed by a robust regulatory framework aimed at ensuring the stability and soundness of banks and other financial institutions. The country’s banking industry has undergone significant reforms in recent years, with a focus on improving corporate governance, risk management, and supervisory practices. This article provides an overview of the regulatory environment governing banking activities in Chile, including the types of banks allowed to operate, organizational requirements, corporate governance, supervisory regime, and more.

Sources:

• Comisión para el Mercado Financiero (CMF)
• General Banking Act
• Guide to the Banking Supervision Process
• Various banking regulations and guidelines.