Paraguayan Government Implements Stringent Regulations to Combat Financial Crimes

Strengthening the Country’s Financial System

The Paraguayan government has recently implemented a series of reforms aimed at strengthening the country’s financial system and combating financial crimes. The Law on Modernization and Strengthening of Paraguayan Financial System Regulations (Law 5,787/16) introduces significant changes to the previous banking law.

Initial Vetting for Establishment of Financial Entities

• One of the key provisions of the new law is the introduction of an initial vetting process for the establishment of financial entities.
• The Paraguayan Central Bank (BCP) now has the authority to reject applications to establish banks and other financial institutions if it is not satisfied with the suitability of the project or the profile of the directors, administrators, or auditors.
• This includes taking into account the profile of shareholders and the origin of their capital funding.

Transparency Regarding Final Beneficiaries

• The law also requires financial entities to provide transparency regarding their final beneficiaries.
• The BCP may request information about any shareholder, up to the final beneficiary of a corporate entity shareholder.
• This is intended to prevent money laundering and other financial crimes.

Prohibition on Serving as President or Director for those with a History of Financial Misconduct

• The new law prohibits individuals who have been convicted of intentional crimes, sanctioned by local or international financial regulators for poor professional performance, or have a conflict of interest that could affect the entity’s proper functioning from serving as president, director, manager, accountant, or auditor of a financial entity.
• The BCP’s Superintendent of Banking (SB) may also demand that individuals who incur any of these infractions step down from their position.

Liability for Non-Compliance

• The law makes the president and board of directors of financial entities liable for non-compliance with applicable laws, failure to implement efficient policies and procedures for risk management and corporate governance, non-compliance with BCP instructions, failure to provide timely information to the SB in the correct format, failure to respond to communications from the SB or BC, failure to adopt measures needed to guarantee adequate supervision by an external auditor, and failure to comply with applicable laws or regulations.
• The BCP may issue sanctions for such conduct.

Lifting of Bank Secrecy

• The law also lifts bank secrecy in certain circumstances, including when information is requested by the BCP and its supervisory authorities, judicial authorities through rulings issued in processes where the affected person is a party, the Republic’s General Comptroller in the exercise of his or her functions, as long as it is in reference to a specific person, in the course of an inspection or audit of same, and it is formally requested.
• The new regulations are expected to have a significant impact on the Paraguayan financial sector, and will likely be closely monitored by the BCP and other regulatory authorities.