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Uruguay

Objectives and Principles of Securities Regulation

Summary
The entire financial system in Uruguay is supervised by the Central Bank of Uruguay through the Superintendency of Financial Intermediaries (SIIF). As of 2006, the International Monetary Fund and the World Bank were in the process of conducting the Financial Sector Assessment Program (FSAP) on Uruguay, aimed at identifying key elements for a medium-term structural reform agenda in the financial sector. The findings of the FSAP are expected to be presented with the IMF Article IV Consultation in mid-2006. Meanwhile, the authorities of Uruguay decided on the key elements of draft legislation to strengthen, among other issues, financial sector supervision. One of the proposals in the draft legislation is to create a single superintendency within the Central Bank for all regulated financial institutions, encompassing banking, securities markets, pensions, and insurance. The IMF concurred with the authorities that in the case of Uruguay, keeping the supervisory authority for the financial system within the Central Bank has advantages in terms of institutional strength and independence. However, there is not enough publicly available information to make an assessment as to Uruguay's overall level of compliance with the Objectives and Principles of Securities Regulation of the International Organization of Securities Commissions (IOSCO).

    General Overview

    As of 2006, a joint World Bank-IMF Financial Sector Assessment Program (FSAP) is under way, which will identify key elements for a medium-term structural reform agenda in the financial sector. The first FSAP took place in October 2005 and the second was scheduled to take place in January 2006. (IMF 2006, p. 15)
    Meanwhile, the Uruguay authorities have decided on the key elements of draft legislation to strengthen central bank independence, financial sector supervision, and the bank resolution framework and deposit insurance. One of the proposals in the draft legislation is to create a single superintendency within the Central Bank for all regulated financial institutions, encompassing banking, securities markets, pensions, and insurance. The superintendent will be granted increased autonomy in decision making regarding individual institutions and certain regulatory measures, while reporting to the BCU (Central Bank) board. The IMF concurred with the authorities that in the case of Uruguay, keeping the supervisory authority for the financial system within the central bank has advantages in terms of institutional strength and independence. (IMF 2006, p. 16)
    The entire financial system in Uruguay is supervised by the Central Bank of Uruguay through the Superintendency of Financial Intermediaries (for banks and other non-bank financial companies) and the Superintendency of Insurance (for insurers and re-insurers). (FIRST Initiative website)
    Uruguay's capital market is highly underdeveloped and concentrated in public paper. There is no effective regulatory system to encourage and facilitate portfolio investment. Although there are two stock exchanges, only 12 firms are registered and trading with shares is virtually nil. After booming in 1996 and 1997, the commercial paper market soon stalled. Currently only 15 firms operate with commercial paper and transactions are minimal. There are only four investment funds that mostly service domestic clients and invest their funds in Uruguayan public paper. Risk rating firms first came to Uruguay in 1998. Private firms do not use "cross shareholding" or "stable shareholder" arrangements to restrict foreign investment. Nor do they restrict participation in or control of domestic enterprises. (U.S. DoC 2006)
    Capital markets in Uruguay are very small, centered around the two stock exchanges, the Montevideo Stack Exchange (Bolsa de Valores de Montevideo, BVM) and the Electronic Stock Exchange (Bolsa Electrónica de Valores, BEV). Increasing the volume of trading on the stock exchanges will depend greatly on the development of the Administradoras de Fondos Previsionales (AFAPs), the private pension funds. (FIRST Initiative website)
    According to the Law No. 16,749, the Central Bank of Uruguay must ensure the transparency, competitiveness and self-regulation of the securities markets for the public and investors. (BCU website)
    Uruguay is an ordinary member of the International Organization of Securities Commissions (IOSCO). Membership in IOSCO does not require a formal declaration of adoption of the principles. (IOSCO website)


    The Principles

    1. The responsibilities of the regulator should be clear and objectively stated.

    There is no publicly available information as to Uruguay's compliance with this principle.

    The Central Bank of Uruguay is the regulating and supervisory organization of the local securities market. To this end, it has a series of competencies assigned to it by the normative and legal framework. Within the Central Bank, the Area Controller of the Securities Market is the person charged with fulfilling this mission. (BCU website)

    According to the Law No. 16,749, the Central Bank of Uruguay must ensure the transparency, competitiveness and self-regulation of the securities markets for the public and investors. (BCU website)

    2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

    There is no publicly available information as to Uruguay's compliance with this principle.

    3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

    There is no publicly available information as to Uruguay's compliance with this principle.

    4. The regulator should adopt clear and consistent regulatory processes.

    There is no publicly available information as to Uruguay's compliance with this principle.

    5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

    There is no publicly available information as to Uruguay's compliance with this principle.

    6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

    There is no publicly available information as to Uruguay's compliance with this principle.

    7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

    There is no publicly available information as to Uruguay's compliance with this principle.

    8. The regulator should have comprehensive inspection, investigation and surveillance powers.

    There is no publicly available information as to Uruguay's compliance with this principle.

    9. The regulator should have comprehensive enforcement powers.

    There is no publicly available information as to Uruguay's compliance with this principle.

    10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

    There is no publicly available information as to Uruguay's compliance with this principle.

    11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

    There is no publicly available information as to Uruguay's compliance with this principle.

    12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

    There is no publicly available information as to Uruguay's compliance with this principle.

    13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

    There is no publicly available information as to Uruguay's compliance with this principle.

    14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

    There is no publicly available information as to Uruguay's compliance with this principle.

    15. Holders of securities in a company should be treated in a fair and equitable manner.

    There is no publicly available information as to Uruguay's compliance with this principle.

    According to the countries reponses to the Council of Securities Regulators of the Americas questionnaire of 2002, Article 322 of the Act on Commercial Corporations states that each ordinary share has right to one vote. However the corporate contract may demand a minimum number of shares which cannot exceed ten. Shareholders may resort to grouping their shares in order to attain the established minimum, appointing a common representative. (COSRA 2002)

    Articles 322 and 323 state that preferred shares may be deprived of voting rights, except at ordinary meetings when the company is in default regarding the observance of rights accorded to them and in extraordinary meetings which consider resolutions or reforms that confer the right to withdraw. (COSRA 2002)

    In relation to changes in the voting rights corresponding to a class of shares art. 319 rules on this aspect: it is an essential right of shareholders to take part and vote in meetings. According to Article 349, in order to adopt resolutions affecting the rights of a given class of share, the approval or ratification of its holders, adopted during a special meeting, shall be required. (COSRA 2002)

    With respect to the votes casting by custodians, Section. 355 states in its first paragraph that every company shall have a Book for the Registry of Shareholder Attendance to Meetings wherein shall be noted the names of those intending to attend, the class, number and value of shares registered and the number of votes corresponding to them. Concerning share deposit Section.350 rules that in order to attend meetings shareholders shall deposit with the company their shares or a deposit certificate issued by a financial brokerage firm, by a stockbroker, by the judiciary depository or by other persons, in which case shall be required the corresponding certification by a public notary. The company shall deliver the necessary receipt, whereby they shall be admitted to the meeting. (COSRA 2002)

    Holders of nominative or book entry shares, the registry whereof be kept by the company itself, shall be exempt from the obligation to deposit their shares or present their certificates or receipts, but shall nevertheless inform of their intention to attend so that they be registered in the Book for the Registry of Shareholder Attendance to Meetings within the same term as the other shares. (COSRA 2002)

    With respect to the insider trading prohibitions, the Act on Capital Markets states that issuers or brokers that make use of reserved or privileged information, obtained by reason of their station or position, which be unknown to the market for the purpose of gaining advantage in negotiation with securities, shall be liable to penalization, which fact does not preclude action for damages were this the case. (COSRA 2002)

    The Regulatory Decree of the Act on Capital Markets points out further that persons or entities which act in the securities market or carry out activities connected therewith, and in general, whomsoever by reason of his/her work, profession, station or duties has access to privileged or confidential information, shall abstain from preparing or carrying out transactions with whatever class of securities said information refers to, for as long as the latter continues to be of privileged or confidential nature. Neither may he/she communicate said information to third parties, except in the normal exercise of his/her position or duty, nor recommend a third party to operate with the aforementioned securities, based in this information. (COSRA 2002)

    16. Accounting and auditing standards should be of a high and internationally acceptable quality.

    There is no publicly available information as to Uruguay's compliance with this principle.

    The Decree 162/2004 issued on May 15, 2004 made International Accounting Standards (IASs) mandatory for use in Uruguay. The IASs applicable in Uruguay are those that had been issued by the International Accounting Standards Board (IASB) before 1 January, 2003. Consequently, the Decree 162/2004 does not cover IASs and IFRSs approved by the IASB during 2003 - 2004 which significantly differ from previous version of IASs and cover topics where no guidance existed. (CCEA n.d).

    17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

    There is no publicly available information as to Uruguay's compliance with this principle.

    18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

    There is no publicly available information as to Uruguay's compliance with this principle.

    19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

    There is no publicly available information as to Uruguay's compliance with this principle.

    20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

    There is no publicly available information as to Uruguay's compliance with this principle.

    21. Regulation should provide for minimum entry standards for market intermediaries.

    There is no publicly available information as to Uruguay's compliance with this principle.

    22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

    There is no publicly available information as to Uruguay's compliance with this principle.

    23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

    There is no publicly available information as to Uruguay's compliance with this principle.

    24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

    There is no publicly available information as to Uruguay's compliance with this principle.

    25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

    There is no publicly available information as to Uruguay's compliance with this principle.

    26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

    There is no publicly available information as to Uruguay's compliance with this principle.

    27. Regulation should promote transparency of trading.

    There is no publicly available information as to Uruguay's compliance with this principle.

    28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

    There is no publicly available information as to Uruguay's compliance with this principle.

    With respect to the insider trading prohibitions, the Act on Capital Markets states that issuers or brokers that make use of reserved or privileged information, obtained by reason of their station or position, which be unknown to the market for the purpose of gaining advantage in negotiation with securities, shall be liable to penalization, which fact does not preclude action for damages were this the case. (COSRA 2002)

    29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

    There is no publicly available information as to Uruguay's compliance with this principle.

    30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

    There is no publicly available information as to Uruguay's compliance with this principle.

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    Sources of Assessment

    International Monetary Fund, "Uruguay: Second Review under the Stand-By Arrangement, Requests for Modification, Waiver of Nonobservance and Applicability of Performance Criteria, and Extension of Repurchase Expectations in the Credit Tranches," Country Report No. 06/123, Washington D.C.: IMF, March 2006. Available from International Monetary Fund website. Accessed on July 13, 2006. (IMF 2006)

    Relevant Organizations

    Central Bank of Uruguay - Banco Central del Uruguay (BCU)

    Superintendency of Financial Intermediaries (SIIF) at the BCU

    Montevideo Stock Exchange - Bolsa de Valores de Montevideo (BVM)

    Ministry of Economy and Finance - Ministerio de Economía y Finanzas (MEF) (website in Spanish only)

    Uruguay Electronic Stock Exchange - Bolsa Electrónica de Valores (BEV) (website in Spanish only)

    National Chamber of Commerce and Services of Uruguay - Cámara Nacional de Comercio y Servicios de Uruguay (CANADECO) (website in Spanish only)



    Relevant Legislation/Regulation

    Financial Intermediation Act, Decree-Law No. 15.322, 1982 - Decreto-Ley No. 15.322 Ley de Intermediación Financiera, 1982

    Rules on Financial Intermediation, Law No. 17.613, 2002 - Ley No. 17.613 de Reestructuracion del Sistema Financiero, 2002

    Law No. 16.774 on Investment Funds, 1996 - Ley No. 16.774 de Fondos de Inversión, 1996 (in Spanish only)

    Law No. 16.749 on the Securities Market, 1996 - Ley No. 16.749 de Mercado de Valores, 1996 (in Spanish only)

    Law No. 17.202 Modification of Law 16.774 on Investment Funds, 1966 - Ley No. 17.202 Incorporación a la Ley 16.774 de Fondos de Inversion y Securitizacion de Activos, 1966 (in Spanish only)

    Decree No. 274/998, 1998 - Decreto No. 274/998, 1998 (in Spanish only)

    Communications to Capital Market Agents - Comunicaciones del Area de Mercado de Valores (in Spanish only)

    Compilation of Central Bank Norms that Regulate the Capital Market - Area de Control del Mercado de Valores Recopilación de Normas (in Spanish only)



    Supplementary Sources

    U.S. Department of Commerce, "Doing Business In Uruguay: A Country Commercial Guide for U.S. Companies," U.S. & Foreign Commercial Service and U.S. Department of State, January 2006. Available from U.S. Department of Commerce website. Accessed on July 13, 2006. (U.S. DoC 2006)

    Financial Sector Reform and Strengthening (FIRST) Initiative website. Last updated on July 6, 2005. Accessed on July 13, 2006. (FIRST Initiative website)

    Association of Accountants, Economists and Business of Uruguay," Consecuencias de la Aplicación del Decreto 162/04 en el Marco del Proyecto de Convergencia hacia las Normas Internacionales de Contabilidad [Impact of Application of Decree 162/04 as a part of the Convergence Process to International Accounting Standards]," n.d. Available from the Association of Accountants, Economists and Business of Uruguay (CCEA) website. Accessed on July 12, 2006. (CCEA n.d.) (in Spanish only)

    Council of Securities Regulators of the Americas, "Countries Responses to COSRA's Questionnaire on Corporate Governance," 2002. Available from the Council of the Securities Regulators of the Americas (COSRA) website. Accessed on July 6, 2006. (COSRA 2002)

    International Organization of Securities Commission (IOSCO) website. Last updated in 2006. Accessed on July 6, 2006. (IOSCO website)
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