Extended oversight


In recent years, there have been an increasing number of mergers and acquisitions involving Panamanian bank branches and subsidiaries. This M&A activity has resulted in an increase of regional conglomerates consolidated in Panama that include banks as part of their business holdings. As a result, and in an effort to safeguard the Panamanian financial system from extraneous risk, and beyond its regulatory purview, the Panamanian Superintendence of Banks recently issued Resolution 007- 2014 (Resolution 007), which will enter into force on January 1 2015.

This extends regulatory oversight to all entities of a single corporate group that includes banks and that are consolidated in Panama, even beyond Panama’s borders. Resolution 007  extends oversight in three important areas.

First, it provides for corporate governance guidelines at the group level, which entail a corporate governance structure that guarantees the group’s strategic functionality. Specific measures include requiring the formation of an internal audit committee with the responsibility of assessing, reviewing and revising the group’s internal controls and auditing practices. Second, Resolution 007 focuses on risk management by, inter alia, imposing significant limitations on intra-group transactions, both in their terms (for example, they must be arm’s-length transactions) and in the percentage of the banks’ exposure which they represent. Such measures are complemented by modern risk controls at the group level, including proper risk management, risk analysis systems, and the creation of risk simulations. Interestingly, the responsibility for compliance with such requirements is assigned to the board of directors, who must file an annual certification with the Superintendence of Banks to that end. Third, Resolution 007 requires the regulator’s approval prior to the acquisition of financial subsidiaries or branches. In sum, although potentially burdensome in the short term, Resolution 007 is another step towards ensuring the stability of Panama’s position as a regional financial centre, thus strengthening the foundation for Panama’s future economic growth.