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Chile’s Corporate Governance Framework for Banks: A Comprehensive Overview

In a bid to ensure stability and transparency in the country’s financial sector, Chile has put in place a robust corporate governance framework for banks.

Board of Directors: The Backbone of Corporate Governance

The board of directors is the main governing body of Chilean banks, responsible for directing the institution and ensuring proper risk management. According to Article 40 et seq of the General Banking Act and regulations issued by the CMF (Superintendency of Banks and Financial Institutions), the board must have at least five members and a maximum of 11, with an odd number of directors.

  • The board is responsible for adopting necessary measures to remain informed about the management and general situation of the bank.
  • It must meet at least once a month and has a tenure of three years, with directors eligible for re-election.

Organizational Requirements

Article 49 of the General Banking Act sets out specific rules regarding the organization of banks, including:

  • Contributions by shareholders can only consist of cash in Chilean pesos, except in cases of merger or acquisition.
  • There is no limit on the number of shares that can be voted on by each shareholder, except as set by law.
  • Public services and state-owned companies are prohibited from being shareholders of a bank.

Auditor Appointment and Supervision

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 are appointed by the bank’s shareholders at the regular shareholders meeting held within the first quarter of each year.

  • The supervisory regime for management of banks is designed to ensure that directors are independent and qualified.
  • Directors must meet specific requirements, including not being convicted of serious crimes or sanctioned for market regulation infringements.

Supervision Based on Risks (SBR) Approach

The CMF’s Guide to the Banking Supervision Process outlines a Supervision Based on Risks (SBR) approach, which assesses the quality of risk management used by banks. This approach reflects the maturity of Chile’s banking industry and is aimed at ensuring stability and transparency in the sector.

Conclusion

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In conclusion, Chile’s corporate governance framework for banks provides a robust structure for ensuring the stability and transparency of the financial sector. The board of directors plays a critical role in governing the bank, while the CMF’s supervisory regime ensures that directors are independent and qualified.