External Circular 007 of 1996 issued by the Superintendency of Banks, as amended by Circulars 014 of 1997 and 088 of 1998 established, inter alia, the legal regime applicable to representation offices of foreign financial entities and reinsurance companies in Colombia.
Items 2.1 and 3.1 of the above-mentioned External Circulars establish the powers granted and the restrictions applicable to representation offices of foreign financial entities, respectively.
Pursuant to item 2.1 of External Circular 088 of 1998 of the Superintendency of Banks, representation offices of foreign financial entities may only carry out the following activities in Colombia:
- Promote and offer the services of the foreign companies they represent, provided these activities are authorized by Colombian law.
- Provide the companies they represent with the assistance and advise necessary for them to carry out their activities.
- Carry out the activities necessary to recover money on behalf of the companies they represent, provided that they are authorized by them to do so.
These recovery activities are limited to credits granted by the companies they represent.
In general, the scope of the activities of representative offices in this connection covers mainly the establishment of a link between the companies they represent and potential clients in Colombia, without assuming obligations or risks related with or derived from the performance of financial activities, nor rendering mailing or similar services.
- Their activities must be limited to the promotion, on behalf of the company they represent, of foreign indebtedness transactions with Colombian public or private companies and individuals.
Item 3.1 of External Circular 088 of 1998 establishes that representation offices of foreign financial entities may not carry out the following activities:
- Transactions that can only be carried out by banks and financial institutions.
- Request or obtain in the country resources from Colombian residents to be invested abroad.
- Undertake directly or indirectly or be bound by obligations related with the activities they promote.
In addition to the above, pursuant to item 2.3 of the above-mentioned External Circular representation offices of foreign financial entities authorised by the Superintendency of Banks may establish branches in locations different than their principal place of business to promote their services.
These branches will depend directly on the authorised representation office and their "activities must strictly comply with items 2 and 3 of this chapter [the above mentioned items 2.1 and 3.1 of the Circular]".
The Council of State annulled the above-mentioned items 2.1 and 3.1 of External Circulars number 001 of 1996, 014 of 1997 and 088 of 1998, all issued by the Superintendency of Banks, by means of judgment 10018 of October 6 of 2000, together with the expression "and their activities must strictly comply with items 2 and 3 of this chapter" contained in item 2.3 of said External Circulars.
The ground for this decision was mainly that the Superintendency of Banks exceeded it's powers when it regulated operational aspects of representation offices of foreign entities taking into account that law only afforded the Superintendency with the surveillance, inspection and control duties established in the Organic Statute of the Financial System.
As per articles 150 and 189 of the Colombian Constitution, 3 and 33 of Law 35 of 1993 and 46 and 48 of the Organic Statute of the Financial System, it is the National Government who has the duty of regulating financial entities.
The main consequence of this judgment is that representation offices of foreign financial entities would seem to be left without any regulation regarding what they can and cannot do, which could affect their activities in the country taking into account that financial entities in Colombia may only carry out the activities expressly permitted by law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.