Chile’s Financial Market Updates: Liquidity Requirements, Bank Resolution, and Fintech Law
Introduction to CMF Regulations
The Chilean Financial Market Commission (CMF) has recently released pivotal updates regarding liquidity requirements as well as bank resolution frameworks. These changes align with the Basel III guidelines and mark a significant shift in how financial institutions in Chile manage liquidity risk and ensure their operational resilience.
New Liquidity Requirements under Basel III
In accordance with Basel III principles, the CMF has introduced additional liquidity requirements encapsulated within a new regulation. This regulation features Chapter 21-14 of the CMF Updated Collection of Standards (RAN), spotlighting two crucial processes: the Internal Liquidity Adequacy Assessment Process (ILAAP) and the CMF’s evaluation of banks’ liquidity adequacy.
Internal Liquidity Adequacy Assessment Process (ILAAP)
The ILAAP mandates banks to ascertain their own liquidity adequacy, ensuring they are well-equipped to address liquidity risk over a one-year horizon. This internal assessment is part of a broader strategy to fortify the liquidity risk profile of banks, which will be duly assessed through the annual supervisory review process conducted by the CMF.
Key Dates for Compliance
The new liquidity regulations will take effect in April 2023. Banks are expected to submit their first Liquidity Self-Assessment (IAL) report in a simplified format by this date, with a comprehensive report required by April 2025. Prior to this, the IAL will focus on the financing plans constructed by banks for various short-term liquidity scenarios.
Bank Resolution and Deposit Insurance Framework
The CMF is also soliciting feedback until July 31, 2023, on a discussion document that outlines existing legal and regulatory gaps within the bank resolution framework and broader banking regulations. This initiative aims to enhance the financial safety net, encompassing critical components like deposit insurance and the powers of resolution authorities.
Introduction of the Fintech Law
Effective from February 3, 2023, the newly enacted Fintech Law (Law No. 21,521) seeks to modernize the regulatory landscape by overseeing new financial services linked to technological advancements. This includes regulation of crowdfunding platforms, alternative transaction systems, and the trading of emerging assets like cryptocurrencies and tokens.
Impact of the Fintech Law on the Financial Sector
The Fintech Law not only amends existing financial regulations like the General Banking Law but also fosters competition and improves customer service across the financial sector. It establishes an open financial system that enables service providers to share customer information with consent, enhancing access to better financial offerings while ensuring stringent protections for personal data.