Financial Crime World

Ecuador’s Banking Regulatory Framework

The Central Bank of Ecuador (BCE) is responsible for regulating and overseeing the banking system, ensuring that financial institutions comply with regulatory requirements.

Key Responsibilities of the BCE

  • Issuing regulations: The BCE issues and amends instructions regarding banking activities, including capital adequacy.
  • Examinations: The BCE examines financial institutions to ensure compliance with regulatory requirements.
  • Liquidation: In the event of insolvency or undercapitalization, the BCE orders a bank’s liquidation.

Ecuadorian Financial System Superintendence (SOFIS)

The SOFIS is also responsible for overseeing and regulating the banking system. Its key responsibilities include:

  • Supervision: The SOFIS supervises banks to ensure they comply with regulatory requirements.
  • Corrective measures: The SOFIS takes corrective measures to address any issues that may arise during supervision.
  • Liquidation: In the event of insolvency or undercapitalization, the SOFIS orders a bank’s liquidation.

Bank Insolvency Procedures

In the event of a bank’s insolvency, the following procedures are followed:

  1. The Superintendency of Banks initiates corrective measures prior to issuing a resolution to liquidate the bank.
  2. If the problem cannot be cured, the bank goes into liquidation, and the Superintendency of Banks issues a resolution ordering the liquidation of the bank and appointing a liquidator.
  3. The liquidator is in charge of the entire liquidation process.
  4. Once the bank stops operating, the creditors are notified, and all senior management, including the board of directors, are cancelled.
  5. All procedures to collect credit in favor of the bank begin, which include selling the bank’s assets and collecting all debts owed to the bank.

Capital Adequacy Guidelines

Ecuadorian banks are required to maintain a minimum capital-to-risk-weighted-assets ratio (CAR) of at least 8 per cent. The CAR is calculated as the sum of the bank’s common equity tier 1 (CET1) and additional Tier 2 (AT1) capital divided by the bank’s risk-weighted assets.

Foreign Ownership

Ecuadorian law allows for foreign individuals or legal persons to incorporate financial entities or establish branches or representation offices in Ecuador without any limits on investment. However, foreign financial institutions operating through a branch or representation office are jointly liable for the obligations of the branch or representation office in Ecuador.

Controlling Interest

An individual or company has direct controlling interest when they own 6 per cent or more of subscribed and paid-in capital or capital stock, or even when the 6 per cent condition is not met, they have shares in an amount equal to or greater than 600 times the income tax-exempt base fraction.

Regulating and Oversight Powers

Entities that control banks are subject to strict regulation and oversight to ensure their compliance with regulatory requirements. Non-compliance can result in severe penalties, including fines and even the revocation of their license to operate.