FINANCIAL CONGLOMERATES: CONDITIONS FOR AUTHORIZATION OF EQUITY INVESTMENTS BY FINANCIAL HOLDING COMPANIES

The structure and regulation of the financial system is a matter subject to constant development. Prior to the enactment of Law 45 of 1990, the Colombian financial system was characterized by being organized under a closed and technical banking scheme. After the enactment of the aforementioned Law, a multi-bank scheme was adopted, made up of parent and subsidiary companies, which sought to take advantage of economies of scope and scale and to adjust to the phenomenon of banking internalization. Since then, the Colombian financial system has been expanding abroad, evidencing the need to allow consolidated supervision of the risks to which the entities are exposed. 

Under this framework, legal and regulatory developments have arisen. The most important ones are Law 1870 of 2017 and Decree 1486 of 2018. Regarding the first one, it is worth mentioning that it was the Law through which the scope of supervision and regulation of financial conglomerates in Colombia was defined. Regarding the second one, it is worth mentioning that it developed the criteria to determine the quality of related parties, exposure limits, risk concentration and conflicts of interest of financial conglomerates. 

Recently, the Superintendence of Finance of Colombia (the “SFC”), in exercise of the powers granted to it by Article 326, paragraph c, 9th numeral of the Financial System Organic Statute and with the objective of continuing to strengthen the surveillance scheme of financial conglomerates, it established the conditions to ease the authorization of capital investments of financial holding companies in local or foreign financial, insurance and stock market entities. The most relevant aspects in this regard are presented below: 

Chapter III was added to Title V of Part I of the Basic Legal Circular of the SFC, by means of this addition: 

• The general and individual authorization regimes were established for the authorization process of direct or indirect capital investments intended to be made by the holdings to financial, insurance and local or foreign stock market entities. 

•  In order to process the authorization under the general regime, it is required: (i) that the investment is less than 10% of the technical equity of the financial conglomerate, (ii) that as a consequence of the investment the direct or indirect participation of the holding company in the receiving entity is not increased by 50% or more of the capital participation with voting rights, (iii) that the financial holding is not in dissolution grounds, (iv) that neither the financial holding company nor its managers have been subject to sanctions for violations related to the capital investment regime, (v) that the entities comprising the financial conglomerate that are required to comply individually with the capital levels and solvency margins do so, and (vi) that the conglomerate complies with the adequate capital levels. 

• In addition to the above conditions, these will also be subject to the general authorization regime: 

1. Direct capital investments intended to be made by the financial holding in financial, insurance and local or foreign securities market entities, through a surveilled entity, provided that the entity through which the investment is intended to be made carries out the procedure. 
2. The reinvestment of capital intended to be made by the financial holding with investments in financial, insurance and stock market entities abroad for the concept of profits.
3. All those capital investments, direct or indirect, that the financial holding intends to make in financial, insurance and local or foreign securities market entities that do not meet the conditions to be processed under the general authorization regime, will be subject to the individual authorization regime of the Superintendence of Finance of Colombia.

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