Financial Markets Commission

September 7th, 2018

Joaquín Cortez

1

Chilean securities and insurance landscape and regulatory roadmap

Chilean Financial Market

Chilean Financial MarketParticipants and Regulatory Framework

Financial infrastructureStock and Commodities Exchanges DCVCCLV Combanc SAG Comder LBTR

Credit Suppliers• Banks• Cooperatives• Credit Card

Issuers• Leasing and

Factoring

Other credit suppliers not supervised by the SBIF

Financial System

Securities and Commodities Intermediaries• Banks• Securities

Brokers• Securities

Agents

Securities Issuers• Chilean or Foreign

entities• Corporations• Mutual and

Investment Funds• Insurance

Companies

Institutional Investors• General Fund

Managers• Portfolio Managers• Insurance Companies• Pension Funds

Managers• AFC

Gatekeepers:• External Audit Providers• Credit risk rating providers

Portfolio Managers not supervised by the CMF

Regulators

Central BankBanks and Financial

Inst. SuperintendenceFinancial Market

CommissionPension Funds

SuperintendenceCEF

Chilean Financial Market

Assets under management

33 38 42 48 55 62 77 90 76 97 113 114 126 139 163 178 189 211 214

12 14 15 18 20 22 23 27 31 32 35 38 44 47

53 60 66 71 74

20 18 29 29 28 30 34

44 47 51

55 62 25 27

64 70 73 77 87 100 115

140 168 175

196 227 255

287 294

331 375

359 381

-

100

200

300

400

500

600

700

800

Financial System Assets(USD Bn)

Pension Funds Insurance Companies Mutual Funds Investment Funds Banks

Source: Financial Markets Commission (CMF), SBIF, Central Bank of Chile

Chilean Financial Market

Assets under management

Source: Financial Markets Commission (CMF), SBIF, Central Bank of Chile

49% 52% 53% 56% 56% 56% 57% 61%

50%

62% 62%58% 60% 62%

68% 69% 69% 72% 71%

17% 19% 20% 21% 20% 19% 18% 18% 20% 20% 19% 19% 21% 21% 22% 23% 24% 24% 24%

6% 8% 10% 10% 11% 10%

12% 13% 12%18% 16% 14% 14% 15% 18% 18% 18% 19% 20%

2% 2% 2% 2% 2% 2% 3% 4% 3% 4% 4% 4% 4% 4% 4% 5% 7% 9% 9%

94% 96% 94% 90% 89% 89% 86%95%

110% 112% 108%114%

120%128%

122%128%

136%

123% 126%

0%

20%

40%

60%

80%

100%

120%

140%

160%

Financial System Assets(% of GDP)

Pension Funds Insurance Companies Mutual Funds Investment Funds Banks

¿What is the Financial Markets Commission?

The Financial Market Commission (CMF) is the public organism in charge of regulating and supervising the entities participating

and the activities developed in the securities and insurance markets in Chile

Mandate

Ensure the sound functioning of the financial system

Financial stability and systemic risk supervision

Capital market development

Strategic Goals

Reduce the information

asymmetry for the decision

making process

Raise the market conduct

standards

Promote the effective risk management by supervised

entities

Develop conditions to

enhance financial inclusion

Strengthen the institutional

management

10

¿What is the Financial Markets Commission?

The board of the CMF is an independent and collegiate body

Supervision

• Supervision of compliance with laws, regulation and administrative rulings.

Regulation

• Issue regulatory norms or rulings

• Regulatory modeling

• Regulatory impact analysis

• Public consultation

Enforcement

• Independent prosecutor office

• The prosecutor has additional enforcement tools

• Informant and leniency program

• After a due process, the board can impose sanctions

Capital Markets Development

• Promote initiatives for markets development

• Support initiatives for product development, instruments and their promotion

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Financial Market Comission (CMF)

Securities

Mar

ket

Infr

astr

uct

ure

Inte

rmed

iari

es

Secu

riti

es Is

suer

s

Fun

ds

& A

sset

M

anag

ers

Rat

ing

agen

cies

&

aud

ito

rs

Insurance

Life

insu

ran

ce

Gen

era

l in

sura

nce

Bro

kera

ge a

nd

A

dju

ster

Supervisory Perimeter

12

Our focus so far…

Transition from the SVS to the

CMF

Simplified sanction process &

informant leniency programs

Formalize IOSCO principles for

financial market infrastructure

Widening of investment limits

for insurance companies

Regional integration and

“funds passport”

Increase asset eligibility for

voluntary pension savings

13

Roadmap

14

Risk Based Supervision

for Insurance Companies

Fintech Law and

Regulation

Capital Markets

Development and

Modernization

Risk-Based Supervision for Insurance Companies

15

Strengthening Insurance Companies’ Risk Management Processes

Greater flexibility for insurance companies to

determine their own business

model

Capital requirements

based on insurer’s risks under total

balance approach (CBR)

Increase competitiveness of

local industry by the convergence to

international standards (IAIS,

OCDE, FSB)

Enhance regulator’s supervisory attributions

Additional tools to adopt preventive supervision and early corrective

measures

Supervision based on an enhanced

system of solvency assessments

(capital adequacy & net risk)

Implementation and regulation is

handed to the Supervisory

Authority (CMF)

More flexible investment regime,

removing most limits on

investment assets due to CBR

FintechWhat are we thinking?

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How to Foster Growth and Innovation in the Financial Sector

Technological Neutrality

Equivalent regulation to traditional services that are technology intensive

Increase competition by imposing similar standards to similar services and products

Modernization of current regulatory requirements

Platforms

Securities Exchanges

Alternative trading systems

Crowdfunding platforms

Proportionality

Requirements proportional to risks involved

Regulatory sandbox for newly developed business models

Regulations by function not by entity

Custody

Crypto-currencies

Tokens

Securities

Others

Robo-advisors

Scoring

Capital Markets Development and Modernization

17

Modernizing Regulation and Supervision

Corporate Governance

Improve the “Best Practices Code” (NCG 385) to include international standards and ESG considerations

Enhance information on companies’ sustainability practices (NCG 386)

Market Depth and Liquidity

Modernization of Market Maker requirements (NCG 327) for a security to be determined as “liquid”

Reviewing standards of minimum offer, contract duration, amount traded and number of days with trades

Strengthening Supervision

Enhance risk-based supervision methodologies for insurance, intermediaries and market infrastructure

Reinforce supervision teams with an emphasis on operational risk

Regional Integration

Making the “Funds Passport Initiative” work to facilitate the commercialization of funds in Latam

Joint work with Colombia, Mexico and Peru

Conversations with Argentina regarding securities

Financial Markets Commission

September 7th, 2018

Joaquín Cortez

18

Chilean securities and insurance landscape and regulatory roadmap