Colombia issues three decrees that modify the requirements of equity of some financial institutions
Banking & Finance Colombia Alert
The Colombian government issued Decrees 1420 of 2019, 1421 of 2019 and 1349 of 2019, modifying the equity requirements for asset managers of third parties, credit establishments and insurance entities, in order to adapt them to international standards.
Decree 1420 of 2019 adjusted the formula for calculating the solvency ratio for authorized trust companies to carry out securities custody activities. Likewise, in the case of stock brokers firms and investment administrators, the deduction on fixed assets such as property, plant and equipment was eliminated from the calculation of technical equity and it is determined that for these a weighting of 100% will be used. This Decree is effective from its issuance, that is, on August 6, 2019.
Additionally, Decree 1421 of 2019 implements capital requirements for operational risk, in accordance with Basel III methodology. In this regard, it is established that within the calculation of the total and basic solvency ratio, the value of assets weighted by operational risk level must be included. Also, the methodology for calculating the value of exposure to operational risks is included, and it is determined that within the capital conservation cushion, as well as in that of entities with systemic importance, the value of assets weighted by operational risk level must be included. Decree 1421 of 2019 includes a transition regime according to which credit institutions must comply with the provisions contained as of January 1, 2021.
Finally, Decree 1349 of 2019 establishes the obligation for insurance entities to credit a technical equity that is greater than or equal to the adequate equity, in order to reduce the probability and severity of losses that may affect the fulfillment of obligations derived from the insurance contract, and additionally, pertinence criteria are introduced for all equity levels. The provisions contained in Decree 1349 of 2019 may be applied as of the publication of the instructions issued by the Superintendence of Finance of Colombia, however, its mandatory application will be made gradually, as of July 26, 2020.
The text of these Decrees may be consulted at the following link.