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Chilean Banking Act: Corporate Governance and Supervision Regime

In a move to strengthen financial stability and transparency, the Chilean government has introduced new regulations governing corporate governance and supervision of banks in the country.

Overview

The General Banking Act (Article 27) requires every bank in Chile to be a special corporation (sociedad anónima especial) with specific requirements. The Corporations Act and its regulations also apply to Chilean banks, with some exceptions.

Corporate Governance

The main body of the bank is the board of directors, responsible for directing the bank and ensuring proper risk management. Directors cannot be both directors and employees of the bank.

  • The internal organization of the bank is carried out by the board of directors, which must adopt necessary measures to remain informed of the bank’s management and general situation.
  • The board must have at least five members and a maximum of 11, with an odd number of directors. Directors serve for three years and can be re-elected.

Organisational Requirements

According to Article 49 of the General Banking Act, banks must adhere to the following rules regarding organization:

  • Contributions by shareholders can only consist of cash in Chilean pesos.
  • There is no limit on the number of shares for which each shareholder can vote in shareholder meetings, except those set by law.
  • Certain public entities are prohibited from being shareholders of a bank.

Auditor Appointment

Banks must appoint external auditing firms to review their accounting and financial statements. 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.

Supervisory Regime

The supervisory regime for management of banks is designed to ensure proper risk management and corporate governance. Directors must meet certain honorability and solvency requirements, including not being convicted of serious crimes or sanctioned by market regulations.

  • The Chilean banking regulator, CMF, uses a Supervision Based on Risks (SBR) approach to assess the quality of risk management used by banks.
  • This approach reflects the maturity of the banking industry in Chile.

Conclusion

In conclusion, the Chilean Banking Act and Corporations Act provide a comprehensive framework for corporate governance and supervision of banks in the country. The regulations aim to promote financial stability, transparency, and good governance practices among bank directors and employees.