ENEffective Insolvency and Creditor Rights Systems
The World Bank's 2004 ROSC for Chile reviewed the then-extant insolvency and creditor rights regime in the country. The report found that, on the whole, Chile was in reasonable compliance with modern expectations of a credit-based economy. Nonetheless, the report disclosed several shortcomings, primarily occasioned by the over-reliance on real-estate as collateral. Also, the World Bank found that Chile did not adequately address the problem of pledges, although the bill for Capital Market II reform, which was pending before Congress at the time of the report, contained provisions that would specifically address many of these particular issues. Another problem identified by the World Bank report involved the lack of alternatives to the judiciary in the area of enforcement, leading to an overburdening of the court system and excessive delays in case resolution. In 2006, the International Monetary Fund urged swift passage of the Bill on Capital Market Reform II as an important way in which to improve Chile's insolvency regime, which occurred in June 2007.
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IDInternational Financial Reporting Standards
According to the assessment of accounting and auditing practices conducted by the World Bank in 2004, since 1997, Chilean standard setting authorities have been converging their national standards with international accounting and auditing standards. Nonetheless, significant differences between national and international standards still persist. The World Bank, therefore, recommended adopting International Financial Reporting Standards (IFRSs) promulgated by the International Accounting Standards Board for all public interest entities and developing simplified accounting standards for small and medium sized enterprises. In line with these recommendations, according to the Financial Sector Reform and Strengthening Initiative website, Chile embarked upon a project for the gradual adoption of IFRSs laid out in four phases. The Deloitte IAS Plus website explains that Chile will be adopting IFRSs for all companies registered with the Superintendency of Securities and Insurance (SVS) and all Superintendency of Banks and Financial Institutions (SBIF) regulated entities over a three-year period beginning 2009 and ending 2011. Other than a few exceptions, according to this plan, all major listed (open) companies, as well as banks and financial institutions will present financial statements in accordance with IFRSs by 2009. As for smaller listed (open) companies, insurance companies, mutual funds, pension funds, stock brokers and dealers, insurance agents, companies that issue publicly traded debt securities and listed companies unable to switch to IFRSs in 2009, will prepare financial statements in line with the international standards by December 31, 2010. Finally, other entities registered with the SVS, such as non-issuers that have voluntarily registered, will transition into IFRSs by 2011. Non-listed companies that do not fit in the above mentioned categories continue to adhere to the Chilean Generally Accepted Accounting Principles.
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ENPrinciples of Corporate Governance
According to a 2003 World Bank assessment of Chilean corporate governance practices, Chile scores well on the assessment on compliance with the Organization for Economic Co-operation and Development (OECD) principles. Nonetheless, certain weaknesses were identified and the World Bank made policy recommendations in three broad areas relating to legislative reform, institutional strengthening, and voluntary/private initiatives. The World Bank recommended amending the legislative framework to achieve greater transparency and strengthening the market surveillance mechanisms. Improvements in the general enforcement of investor property rights were also suggested. More recently, a 2008 paper by Allen and Gourevitch notes that ownership is highly concentrated and that minority shareholder dissatisfaction is "substantial." However, Chile has been taking initiatives to achieve greater convergence with international practices. Law No. 19,705 known as the Corporate Governance Law was introduced in 2000 with the main goal to protect minority shareholder rights in Chilean companies, especially during changes in corporate control. Furthermore, according to the Deloitte IAS Plus website, by 2009, all major listed companies will be presenting financial statements in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board.
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IDInternational Standards on Auditing
An assessment of accounting and auditing practices conducted by the World Bank in 2004 points out that since 1997 Chilean standard setting authorities have been bringing Chilean Generally Accepted Auditing Standards (GAAS) in line with International Standards on Auditing (ISAs). Although broadly aligned with ISAs, Chilean GAAS still differ from the international standards as it is less specific and fails to cover important accounting areas. According to the World Bank, this could hamper the accuracy of the financial statements and the perception of the quality of financial reporting by the stakeholders. The World Bank, therefore, recommended to either incorporate the missing ISAs into Chilean GAAS, or to adopt ISAs altogether. On January 21, 2004, the Inter-American Development Bank (IADB) approved a project "International Financial Reporting and Auditing Standards: Chile." Its primary purpose is to strengthen existing mechanisms to support the system of issuance and adoption of international standards, as well as to converge towards ISAs and international accounting standards. More recently, a 2007 Chilean Association of Accountants (CCC) self-assessment confirmed that the CCC is in the process of implementing the IADB convergence plan for the adoption of ISAs in Chile. It was decided that international standards will be adopted without modifications, the self-assessment explains. However, as of July 2008, there is no indication that ISAs had been adopted by the Chilean authorities.
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ENAnti-Money Laundering/Combating Terrorist Financing Standard
The Financial Action Task Force of South America against Money Laundering (GAFISUD) conducted a mutual evaluation of Chile's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the Financial Action Task Force (FATF) 40+9 recommendations and special recommendations. GAFISUD published its findings in a 2006 report, in which it concludes that Chile is compliant with 8 recommendations and special recommendations; largely compliant with 15; partially compliant with 19 and; non-compliant with 7. The mutual evaluation notes that the overall AML/CFT framework in Chile achieves a relatively high degree of compliance with most of the FATF's recommendations and special recommendations. Nevertheless, there are some areas where Chile's AML/CFT regime could be enhanced. The GAFISUD mutual evaluation and a 2008 U.S. Department of State (DoS) report cite strict banking secrecy laws as a notable weakness in Chile's AML/CFT regime, as they seriously limit the ability of Chilean authorities to identify and investigate potential money laundering cases. Nevertheless, as of March 2008, a committee in Chile's House of Representatives is contemplating a draft law to ensure the Chilean financial intelligence unit (FIU) and prosecutors have easier access to bank and tax records. However, the U.S. DoS report notes that the law's passage is unlikely unless the president grants it urgent status. The mutual evaluation rates Chile as non-compliant with most FATF recommendations pertaining to Designated Non-Financial Business and Professions (DNFBPs) and according to the 2008 U.S. DoS report, DNFBPs are not under the supervision of any regulatory body for compliance with AML/CTF standards. Furthermore, the report states that the lack of a definition of "suspicious activity" for non-bank and non-financial institutions is a key deficiency in Chile's AML/CTF regime. Money laundering is criminalized pursuant to Law No. 19.366 of 1995, Law No. 19.913 of 2003, and Law No. 20.119 of 2006. Terrorist financing is criminalized pursuant to Law No. 18.314 of 1984 modified in 2003 by Law No. 19.906 and according to the 2008 U.S. DoS report, Law No. 19.906 improves upon Law No. 18.314 by making Chile's terrorist financing laws consistent with the provisions of the United Nations International Convention for the Suppression of the Financing of Terrorism.
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IICore Principles for Systemically Important Payment Systems
The IMF, in 2004, conducted a Financial Sector Assessment Program (FSAP) of Chile's financial sector in which it conducted an informal assessment of the payment systems in the country. However, the findings of this assessment were not published. A 2007 (published in 2008) annual report by the BCCh notes that there are two high-value payment systems in the county, namely, the Real-Time Gross Settlement (RTGS) system owned and operated by the BCCh, and the High-Value Payment Clearing House, managed and run by ComBanc S.A. A 2004 Financial Stability Report by the BCCh noted that at the time of the launch of the RTGS system, the system met the standards recommended internationally for payment systems of systemic importance. A 2004 report by the Central Bank of Guatemala also states that the Chilean payment systems fulfill international standards on systemically important payment systems and provide a modern, efficient and secure payment system to the financial system. However, the information in the above reports is too sparse, random, and insignificant to provide an authoritative assessment of Chile's compliance with the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems. Besides, neither the above reports nor the information on the BCCh website explicitly cite which systems in Chile are of systemic importance to the Chilean financial system.
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