Member Article

Good corporate governance is fundamental for the stability, sustainability, and efficiency of financial institutions. In El Salvador, the regulation of these institutions is governed by local legislation and regulations that contain good practices established in international principles, particularly those of the Organization for Economic Cooperation and Development (OECD) and the Basel Committee on Banking Supervision. These principles have been largely adopted by local regulations, specifically in the Corporate Governance Technical Standards (NRP-17) issued by the Central Reserve Bank.

 

Financial institutions supervised by the Superintendencia del Sistema Financiero de El Salvador operate under a rigorous legal and regulatory framework. These laws and regulations are designed to ensure transparency, accountability, the implementation of adequate internal control systems, and robust, comprehensive risk management to protect customers, depositors, and other stakeholders.

 

It is important to note that the rules for adequate corporate governance in Salvadoran financial institutions are not only found in NRP-17, but also in the Commercial Code, special laws of each regulated financial institution (e.g., Banking Law, Insurance Companies Law, Securities Market Law, among others) and the Law of Supervision and Regulation of the Financial System.

 

As part of the local application of the Corporate Governance principles of the Basel Committee on Banking Supervision, the role of the supervisors is fundamental for the orientation and surveillance of the governance of the institutions, therefore, the Superintendency of the Financial System, according to the Law of Supervision and Regulation of the Financial System, has broad powers to carry out comprehensive evaluations, which, among other things, can evaluate a good corporate governance of the entities subject to its supervision.

 

Among the elements to be highlighted in the Salvadoran legislation and regulations, the following can be identified:

 

1- Organizational structure

The technical regulations developed by the Central Reserve Bank establish the organizational structure necessary for effective corporate governance, including the responsibilities of the General Shareholders’ Meeting, Board of Directors, Senior Management, and various specialized committees such as the Audit and Risk Committees. These bodies should operate with a clear segregation of duties, promoting a balance between profitability and risk management.

 

2- Transparency and protection of interests

A fundamental aspect of corporate governance is transparency and protection of the interests of shareholders and clients. Financial institutions should implement policies and procedures that ensure an adequate framework of transparency and protection of interests. This includes adequate information management and effective communication with all interested parties.

 

3- Ethics and conduct policies

The code of ethics or code of conduct is an essential part of corporate governance standards. These codes should contain behavioral values, policies and mechanisms to ensure compliance, addressed to all levels of the organization, including the Board of Directors and Senior Management. In addition, these documents should promote clear policies and rules to mitigate the risks of possible conflicts of interest that may occur within the institution.

 

4- Supervision and continuous evaluation

The Board of Directors is responsible for supervising and controlling the management of Senior Management to ensure that the strategic guidelines and approved risk levels are respected. In addition, the entity’s corporate governance practices should be periodically evaluated to identify areas for improvement and ensure alignment with the best international standards.

 

Conclusion

The corporate governance framework in El Salvador is designed to foster a sound and stable financial environment. If its implementation is well structured, financial institutions can ensure not only compliance with local legislation but also the adoption of international best practices in corporate governance. This approach not only improves the competitiveness of institutions but also contributes significantly to the stability and sustainability of the country’s financial system.

 

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