Actualidad legal


Javier Edwards R.

The referenced draft law amends different laws in order to safeguard the proper functioning of the financial market. It originates from the initiative of the Executive (Bulletin No. 13.564-05, Message 073-368), currently in the Senate, in the first constitutional procedure.

This initiative, as its name states, seeks to prevent or protect the proper functioning of the financial market, through the amendment of five legal bodies, that are, the D.L. Nº 3.500 about the Pension System; the D.F.L: Nº 251 of the Treasury from 1931, about the Insurance Company, Public Corporations and Stock Exchanges; the Law No. 18.045 about the Stock Market; and the Law No. 18.046 on Limited Liability Companies.

The idea of ​​safeguarding the financial market consists in creating conditions of stability and liquidity for it that allow large companies to access financial resources in more expeditious conditions than usual, given the difficulties they face, as well as the rest of the natural and legal persons, are also suffering as a result of the Covid-19 pandemic.

In this sense, the project declares, and is right about it, that the contingency has given rise to different “legal and regulatory initiatives that seek to protect employment, support micro, small and medium-sized entrepreneurs, and lessen the effects of the health crisis on the economy.”Being that essential, it is also important to protect larger companies and key financial market agents, since they are indispensable parts of the economy’s functioning.

Regarding the AFPs, the project contemplates norms that allow the Pension Funds to widen the spectrum of financial instruments in which they can invest, including unregistered debt securities, which is not possible until now and leaves out this source of financing to a significant number of companies that today face serious difficulties. These titles, in any case, must always be traded on a national stock exchange market, their issuer must be registered in the Register of the CMF and also the fulfilment of other conditions established by the Superintendency of Pensions. Likewise, it is contemplated to expand the limits assigned for higher risk instruments, seeking that, through them, the Pension Funds have access to better risk and return alternatives for their investments. This ultimately benefits the recipients of the investments and the owners of the funds, that is, the contributors, through their greater potential return.

In relation to insurance companies, and considering the recommendations given in 2019 by the International Association of Insurance Supervisors (“IAIS”), it seeks to consider measures that mitigate the pro-cyclical behaviour of investments, due to the high volatility of the financial markets conditions may affect the investment limits of insurers. For this, it is considered necessary to give the CMF powers that imply the possibility of acting with greater flexibility to face the crisis generated by this pandemic, in order to safeguard the solvency of insurance companies. Ensuring the solvency of insurers gives stability to their ability to respond to the risks they have assumed through the contracted policies.

Lastly, the aim is to facilitate the mechanisms by which public limited companies may issue debt securities and convert them into shares – when deemed necessary – through faster procedures than the existing ones. The idea is that, when faced with the need to access these resources under the current circumstances, and without prejudice to continue safeguarding market confidence and investor protection, companies can place their debt securities quickly and efficiently.

In a scenario with the seriousness it faces at the moment, the measures contemplated in the project may seem, at first glance, insufficient or still very conservative. However, it is essential to bear in mind that overreacting in these matters can have undesired effects that can only further harm the economic scenario.

To protect the stability of the financial market, without which the rest of the markets would deepen their crisis, it is necessary that the government and the economic authority advance step by step, evaluating the results of the measures adopted and, also, the evolution of the pandemic and its economic consequences.

In short, the project, briefly creates tools to give liquidity to the financial market (new investments by Pension Funds and insurance companies), quicker access to the debt market for companies (without affecting the transparency and good faith of the stock market) and ensure the solvency of insurers by way of mitigating the impact on it of the volatility of investments in this present scenario.

The good intention of this project will face the uncertainty and fear generated by economic agents in the current crisis and, therefore, the confidence and decision to operate under the new rules, trusting in their ability to alleviate its effects. For this to happen, it is necessary that, on the one hand, there is a kind of tacit agreement between all of them as to participate and take the risks of the case and, on the other, that the State give powerful signals in the same direction. The pandemic and the economic recession affect everyone without making distinctions, the solutions can only be effective to the extent that, in the same way, all collaborate responsibly and in solidarity in the titanic task that the country has before it.