Last updated: 20:57 / Thursday, 20 June 2013
Passes two decrees

Colombia Streamlines and Increases the Transparency of the Investment Fund Industry

Colombia Streamlines and Increases the Transparency of the Investment Fund Industry

The Colombian Ministry of Finance and Public Credit has undergone a major change which affects the management of investment funds and securities custody activities respectively. These changes are the result of a coordinated effort between various Colombian financial market players, lasting over a year and a half.

Mauricio Cardenas, Colombian Minister of Finance and Public Credit, said on Monday that these decrees allow Colombians easier, safer and more reliable access to the stock market. “These rules aim to boost this industry which on a worldwide basis is one of the most efficient means to channel the savings of individuals and companies to the capital markets,” the official assured.

In this regard, the Ministry issued Decrees numbers 1242 and 1243 of  the year 2013, which amended  Decree  number 2555 issued in 2010, in connection with the administration of collective investment funds and securities custody activities, respectively.

The main issues covered by the decrees are:

  • In order that ordinary people may access collective investment funds as an efficient and safe method for saving their resources in the capitals market, the specialization of the different activities necessary for the operation of the aforementioned aspects (management, administration, distribution and custody) is permitted. This allows the reduction of costs for investors and provides greater access to these types of products.
  • Investors may turn to brokerage firms, trust companies and investment management companies to invest their resources in collective investment funds. Relevant studies will be conducted in those institutions as to their risk profile and other aspects which will allow determining the most appropriate investment for each investor, therefore adequately protecting their interests.
  • It eases the process of authorization and distribution of collective investment funds which invest in traditional assets such as stocks and bonds, creating a faster channel in which the Financial Superintendence of Colombia authorizes fund families for this type of products.
  • For funds which invest in non-traditional assets (invoices, commodities, court decisions, etc.), on which most investors do not have a very deep understanding,  the standards of obligations of expert advisors  are broadened, and should be provided by institutions conducting the distribution of investment funds individually, to each of the investors who  require it. Establishing special cases such as funds with any type of borrowings above the amount of fund resources (leverage), in which the type of client that may access them shall be limited.
  • In order to protect investors’ resources and prevent them from being used to fulfill transactions belonging to either the management companies or to other clients, securities custody activity is introduced into national regulation, which involves the obligation of guaranteeing the custody of securities of collective investment funds with a trust company. This development puts the country in line with international safety standards and transparency in managing funds’ resources.
  • Additionally, in order to encourage the implementing of the aspect of custody in the stock market, the possibility of exercising it voluntarily in the administration of third party resources by brokerage firms and investment trusts administered by trust companies is established.

The Colombian government expects that this reform will speed up the development of this important, although still small industry, which manages assets of close to 6% of GDP, which is low compared to other economies in the region such as Chile where funds manage 15 % of GDP, or Brazil, where it reaches levels similar to those of advanced economies with 60% of GDP.