Chile’s financial services regulator publishes new General Standards on corporate governance and risk management

Chile’s financial services regulator, the Comisión del Mercado Financiero (CMF), has issued General Standards (NCGs) numbers 507, 508, and 509 to provide instructions on corporate governance and comprehensive risk management for various securities market entities.

The requirements outlined in the NCGs, which will go into effect on February 1, 2025, will apply to general fund administrators (NCG 507), stock and commodity exchanges (NCG 508), securities deposit and custodial companies, and companies that manage clearing and settlement systems for financial instruments (NCG 509). 

The principal common aspects of the relevant NCGs include the following:

1. Strategic objectives for the establishment of the organizational structure, such as policies that allow adequate management of the risks that each type of entity develops.
   
   
2. Approval of “risk appetite” levels, at an aggregate level, and the types of risks that an entity is willing to assume in order to achieve its strategic objectives and business plan.
   
   
3. Formation of risk management and internal audit committees (composed of at least one director).
   
   
4. Documentation, transparency, and availability of information from boards of directors and committees for examination at the request of the CMF.
   
   
5. Implementation of risk management, control, and internal audit programs, under standards updated by these regulations.
   
   
6. Preparation and implementation of risk management and internal control policies and procedures approved by the board of directors.
   
   
7. Requirement for external audit companies to include statements in their annual reports regarding the internal control mechanisms of the aforementioned entities.

The NCGs also establish specific instructions based on the characteristics of each entity and the risks they face. The most relevant of these are briefly described below. 

NCG 507 for general fund administrators

• Establishes employee hiring and compensation policies that do not produce or exacerbate conflicts of interest.
  
  
• Requires the approval of a code of ethics.
  
  
• Requires stress tests in liquidity management policies.

NCG 508 for stock exchanges and commodity exchanges

• Mandates an appropriate organizational structure for risk management that ensures segregation and independence of roles for internal audit, broker audit, and risk management functions.
  
  
• Establishes minimum policies and procedures to be implemented, including eligible instrument maintenance, legal and regulatory compliance, direct market access, algorithm use in negotiations, prevention of illegal activities, market integrity, introduction of new services, custody management, query resolution, and information disclosure, among others.
  
  
• Requires entities to appraise the risk management and compliance of their member brokers and inform this appraisal to the CMF. 

NCG 509 for securities deposit and custody companies, and companies that manage clearing and settlement systems for financial instruments 

• Establishes risk management policies, including management of the credit risk of their participants.
  
  
• Requires entities to have a code of ethics and demonstrate policies and procedures to continually improve standards.
  
  
• Requires companies that manage clearing and settlement systems to ask their participants to demonstrate compliance with certain requirements, including minimum liquidity and solvency.

For more information, please contact the authors. 

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