Innovation and the financial sector in Guatemala
Rodrigo Callejas A and Emanuel Callejas A
Carrillo & Asociados
Guatemala City
Rodrigo Callejas A (Bio)
Emanuel Callejas A (Bio)
The financial market in Guatemala offers a widening variety of business opportunities, which have been suited to meet needs across the world. Today, globalisation of commerce, transactions, and risk is on a course of constant standardisation of best practices to meet all the major actors in the financial markets globally. Competition has increased the pressure of performance, resulting in the need for specialised legal counsel in specific areas of the financial sector.
Local financial regulation is undergoing a period of renewal, through which certain innovative laws have been adopted, and others, proposed by monetary, banking, supervision, and financial authorities are in the process of being approved by Congress.
Law of Insurance Activity
Recent legislation adopted, includes the Law of the Insurance Activity (Decree 25 2010), which came into effect partially on August 2010, and completely in January 2011, and had an important effect on the financial market in Guatemala.
Some of the law's innovations include the possibility for foreign insurance and reassurance companies to operate in Guatemala through branch offices, and a specific insolvency regime for insurance and reassurance companies among others. The new law was derived in the creation of several rules for operations issued by the Monetary Board – Guatemala's highest ranked authority in monetary, banking and financial activity – and a specific framework provided by the banking regulating authority, the Superintendence of Banks.
Amendments to Securities Markets Law
In April 2011, bill 4299 was introduced to Congress by the Commission of Economy and International Commerce, proposing amendments to the current 1996 Securities Market Law, which underwent major reforms on 2008. This bill seeks to regulate operations known as account or book entries and also the subscription of contracts by means of asset securitisation. This new regulation aims to achieve new mechanisms for the issuance of securities, and provide the public in general with access to investments in non-traditional instruments.
Credit Card Law
On 2011 Congress' Commission of Economy and International Commerce proposed bill 4330, which intends to approve the Credit Card Law. In response to a more developed and competitive market established in Guatemala, this law introduces specific regulation in regard to credit cards, originally recognised by the Commerce Code in 1970, and regulated by the Monetary Board in 1993, and by the Law of Banks and Financial Groups in 2002. The proposed law aims to regulate credit card service operation, defining basic concepts, contract regulation, rights and obligations of issuers and affiliates, financial supervision, and crimes related with such practice.
Bank information disclosure
The Bank Superintendent announced in early 2011 that there were important upcoming amendments regarding bank information disclosure. Such modifications were presented in April 2011, and are contained in bill number 4326. These provisions intend to modify the Law of Banks and Financial Groups, and the Tax Code.
The objective of the proposed amendment is to allow the Tax Administration to request information of bank account holders when performing tax audits, without the limitation of obtaining a Court Order (Bank Secrecy provisions). This effort has been supported by the Central Bank, and some legislators from the Economic Commission in Congress. The approval of the abovementioned bill would mean a considerable advance towards Guatemala's removal from the Organisation for Economic Cooperation's and Development's (OECD) grey-list of financial centers which do not meet standards of transparency.
Amendment of the Law of Banks and Financial Groups
Since 2009, Congress is pending approval of a bill which intends to modify the Law of Banks and Financial Groups, and the Organic Law of the Bank of Guatemala (Central Bank), to produce a more efficient regulatory framework, as approved in 2002, for the protection of the formation of capital, national savings, and investment. Its objectives are aimed towards reinforcing the authorisation and operation regime of banking entities by:
- allowing the participation of juridical persons who quote on regulated and supervised markets in national banks;
- providing a mechanism to support banks when facing cash flow solvency incidents;
- reinforcing the regulatory framework for offshore entities;
- promoting the diversity of risk in granting credit; providing attributions to the Regulator to limit the distributions of dividends;
- promoting the discipline in the financial market; and
- reinforcing the mechanisms of resolution of failing banking entities, such as reinforcing the Fund for Protection of Savings (FOPA) as a key element in the banking security network.
Competition Law
In 2011, the United Nations Conference on Trade and Development stated that Guatemala can aspire to become a hub for foreign direct investment, but should take steps to reach that potential, including the development of a defined competition policy. In addition to, and arising as a compromise under the Dominican Republic-Central America Free Trade Agreement under its objective to promote fair and loyal competition among its signatories, an important upcoming legislation is the Competition Law. The bill was originally drafted in 2005 by the National Competition Programme, and aims to define commercial activities in the field of "antitrust practices", and ensure a free market with anti-monopoly provisions, such as M&A regulations. The projects concepts, authorities and sanctions to impose are in debate. This compromise also responds to the EU-Central America Association Agreement, initiated in March 2011, to which the Republics of Central America, parties, agree and commit to act collectively in the implementation of the obligation of establishing a Central American competition regulation and competition authority.