Argentina tightens controls over unauthorized representations of foreign financial entities
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Pursuant to Communication A 4981 of the Central Bank of Argentina (BCRA) (hereinafter, the ¨Regulation¨) of last October 1st, the legal framework for representatives of foreign financial institutions not authorized to operate as such in the country has been amended.
In general, the Regulation comes to introduce stricter controls over the operations in the country of such representatives of foreign entities as well as imposing more information duties.
We herein brief on the updated legal framework for such representations of foreign financial entities:
Mandatory prior authorization. Alternate representative.
Although a prior authorization granted by the Central Bank of Argentina –Superintendency of Financial and Exchange Entities- (hereinafter, the ¨Authority of Application¨) was already mandatory in order to act as representative of foreign financial institutions not authorized to act as such, the new Regulation sets forth the obligation of including in such request an alternate representative together with wider information obligations.
The request for authorization must include, among others:
1. Name and complete information of proposed principal and alternate representatives;
2. Complete information of the foreign entity;
3. Reasons for setting a representative office in the country;
4. List of activities to be performed;
5. Details of the organizational structure envisioned for such purposes, and
6. Plan of works and projections of estimated cash flows.
The information and documentation submitted at the time of the application must be kept updated. Likewise, any material changes in the situation of the represented entity in relation to its solvency, corporate name, or corporate domicile must be duly notified.
The evaluation of the Authority of Application shall consider:
1. The convenience of the initiative based on the project characteristics;
2. The general and specific market conditions;
3. The background and responsibility of the foreign entity and of the proposed representatives;
4. The inexistence –in relation to the applicants- of any inhabilitation or incompatibilities mentioned in Section 10 of the Financial Entities Law, and
5. Any stock participation in a local financial entity or local branch by the foreign financial entity or an affiliated company.
No applications to act as representatives of foreign financial entities incorporated in countries considered as of null or low taxation shall be admitted.
Permitted and forbidden operations.
In this sense, no modifications were introduced. The representative is entitled to provide advice and negotiate collaterals and/or financing with the participation of the foreign entity as guarantor, lender or agent in relation to the issuance and placement of debt in foreign institutionalized markets.
The representative must not:
1. Perform any type of financial intermediation in the terms of the Financial Entities Law.
2. Perform any act enabling –directly or indirectly- the attraction of financial resources under any means for its own benefit, for third party´s or for the foreign entity´s benefit.
3. Conduct exchange operations in the terms of Law 18,924 of Exchange Houses, Agencies and Offices.
4. Act on its own behalf while conducting businesses requested by the foreign entity or use denominations that may generate confusion in relation to its nature or capacity.
Registration of the representative office before the Registry of Commerce.
Besides the prior approval to be granted by the Authority of Application, the Regulation provides for the obligation of the representative office to be registered before the Registry of Commerce of the applicable jurisdiction. Such registration shall include the terms and limits of the authorization granted by the Authority of Application.
Informative regime.
A new informative regime is now in force by which the representative of the foreign entity must now file with the Authority of Application the following:
1. Audited annual financial statements of the foreign entity.
2. Plan of works and projections and annual situation of cash flows –or its equivalent- with a detail of the activities and organizational structure.
3. Audited annual financial statements of the representative.
4. Information related to the operations that the foreign entity conducts with residents in the country with or without the intervention of the local representative by means of its branches and subsidiaries in other countries with the scope, manner and periodicity established by the Authority of Application.
Special Book. Accounting obligations.
The representative of the foreign entity shall keep records of his/her representation acts in a special book to be legalized before the corresponding Public Registry of Commerce.
Such book shall keep records of any and all acts carried on behalf of the represented entity regardless of any impact in the balance statement of the entity. Petitions or requests received shall also be recorded.
Likewise, accounting book keeping is now also mandatory.
Operational obligations. Functional independence of the office destined to the representation.
The representative office must count with functional independence from other companies. For such purposes, it must be placed in a premise of exclusive use for the representation activity and shall count with a duly identified own private access.
Likewise, the representative must count with collaborators assisting him/her in support or administrative duties or else hire independent providers for such purposes.
Revocation of authorization.
The causes for the revocation of the authorization granted to the representative are the following:
1. Express request of the foreign entity or request of the representative (who must provide evidence of acknowledgement by the foreign entity).
2. Decision of the Authority of Application in the case: (a) of material changes in the basic conditions taken into account at the time of the granting of the authorization, (b) the representative or the alternate/s representative/s are not in condition to conduct his/her activity and provided the foreign entity does not proposes other representatives for their replacement within 90 days as from the date in which its acknowledges such circumstance, (c): of any breach in the duties, obligations or forbidden acts by the representative of the foreign entity (i.e. duly keeping of the Special Book and other commercial registries).
Term for the compliance with the new Regulation.
Foreign financial institutions not authorized to operate as such in the country that count with authorized representative in the country as well as its representatives shall count with 180 days as from the date of this Regulation to adequate themselves to these dispositions. Basically, this would imply:
1. Request for authorization before the Authority of Application for its alternate/s representative/s. Those entities that currently count with an assistant representative authorized by this entity may request him/her authorization as alternate representative.
1. Comply with the new informative and accounting system.
2. Have independent premises and organizational structure. In the event the representation of the foreign entity provides evidence of a previous rental agreement in force, an extension of the term for the compliance with the new regulations can be granted.
Argentina tightens controls over unauthorized representations of foreign financial entities