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Friday, September 13 de 2019

Minister of Finance announces in ChileDay 2019 a new bill to turn Chile into a regional financial center

The initiative includes regulatory changes such as facilitating the registration of foreign securities in Chile, as well as eliminating tax asymmetries between locals and foreigners that affect financing in the local market.

Activities of the ChileDay London 2019 formally began today, with the visit of the Chilean delegation, led by the Minister of Finance, Felipe Larraín, to the London Stock Exchange.

Afterwards, Minister Felipe Larraín attended the Plenary of the ChileDay at Guildhall Convention Center. At the beginning of the event, in his presentation, Conor Burns, Minister of State at the Department of International Trade of the United Kingdom, , praised Chile’s macroeconomic and fiscal management. 

Then, in his presentation, the Minister of Finance announced a new bill that seeks to turn Chile into a Regional Financial Center.

The bill was initially supported by a public-private working group, composed of the main regulators of the financial market and the Capital Market Consultative Council (CCMK, in Spanish). It will address ten areas of work, in areas such as facilitating the registration of foreign securities in Chile. With this, it will contribute to position Chile as a platform where securities of foreign issuers could be traded.

In parallel, the Financial Analysis Unit (UAF), the Financial Market Commission (CMF), the Superintendence of Pensions and the Internal Revenue Service (SII) will make modifications to their regulations with the same objective.

"Our goal is to put our country at the level of the most prominent International Financial Centers, since this has positive impacts on economic activity and employment. Therefore, it contributes to the well-being of all Chileans," said Finance Minister Felipe Larraín. He explained that the initiative would consider changes to approximately 11 existing legal bodies, to which will be added new legal bodies. 

The authority stressed that the idea of turning Chile into a Financial Center has been raised for several years, but it has not yet materialized. Now, he said, the idea will concreted through a bill. “Having good macroeconomic conditions and good institutions is necessary, but it is not enough. We want to be a world-class financial center and for this we have looked at the experience of countries like Hong Kong and Singapore, among others countries,” said the Minister.

He added that if in the next 15 years the participation of the financial sector as a percentage of GDP increases by half of what grew in Singapore, employment in the sector would triple.

The bill will address the following areas:

1. Simplify documentation procedures for non-resident investors, thus facilitating the entry of non-residents to the local market. An initiative that will be taken in this regard will be an amendment to Law 19.913 created by the Financial Analysis Unit. This will allow local financial institutions to request client information directly from another financial institution, located in Chile or abroad, thus ensuring that there is no duplicated information in the documentation required for each client.

2. Adopt international practices in fixed income markets, thus allowing international investors to have access to the liquidity provided by local actors in the fixed income market. In this regard, the bill will regulate the Over the Counter (OTC) transaction platforms, in order to allow the Pension Fund Administrators (AFPs) to trade fixed-income instruments through these markets. The OTC platforms enable investors to buy and sell securities without going through a stock exchange, and it is the standard way that international transactions occur for fixed income assets. This will allow foreign investors to trade these assets with the AFPs, which are the main local participants in this market.

3. Facilitate the registration of foreign securities in Chile, thus contributing to position Chile as a platform from which foreign issuer securities can be traded. For this, the bill will modify the Capital Markets Law, in order to allow the Financial Market Commission (CMF) to eliminate the registration requirement in Chile for securities issued in certain foreign jurisdictions. This will reduce significantly the documentation requirements demanded by the regulator.

4. Eliminate tax asymmetries between locals and foreigners that affect financing in the local market. This will allow local investors seeking financing in foreign markets to receive the same tax treatment  as investors seeking financing in the local market. One initiative along these lines will be to match the tax treatment of a loan financed by foreign creditors to credits re-financed by foreign creditors.

5. Eliminate tax asymmetries for similar capital market operations. This will contribute to increasing the efficiency of the markets. For example, the bill will introduce changes to the Income Tax Law to apply the same tax treatment for short sales as for other securities lending.

6. Simplify the bond issuance process: This will prevent market conditions from changing significantly in the period between the decision to be financed through the issuance of a bond and the time the issuance is made. In this regard, the Capital Markets Law will be modified in order to eliminate the requirement that a bond prospectus must be approved by the regulator before the issuance. Instead, the issuer will only be required to present a prospectus, thus shortening the time needed to materialize the issuance.

7. Improvements in the legislation applicable to financial market infrastructures, for services such as securities settlement, payments and market information, according to the highest international standards . One of the proposed measures is to create and regulate a trade repository, which will increase transparency in the OTC derivatives market, promote financial stability and position our market.

8. Continue advancing in the growth and development of the fund industry: One of the measures under this area will be to modify the Single Fund Law in order to make the maximum concentration limits for mutual funds more flexible, which will allow greater flexibility in terms of the ownership structure of the funds.

9. Improve the legal framework of certain financial contracts, so that the counterparties can mitigate the risks of these contracts properly. For example, legal recognition will be given to the netting of derivatives held by corporations, in order to reduce the counterparty risk of these contracts.

10. Greater flexibility in the investment limits for institutional investors: One of the measures under this area will be to modify Decree N° 3.500 to allow some pension fund limits such as those relating to alternative assets, to be defined in the Investment Regime regulation. This will give the regulator greater flexibility and will have a positive impact, both in the development of the financial market and in the pensions of citizens. It will allow the regulator to permit  increasing investment in assets that provide higher returns on pension savings. 

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