FinancialStandards

Report

Colombia

January 2009

www.eStandardsForum.org

www.estandardsforum.org

Table of contents

I. Principles of Corporate Governance

II. Objectives and Principles of Securities Regulation

III. Effective Insolvency and Creditor Rights Systems

IV. Insurance Core Principles

V. Anti-Money Laundering/Combating Terrorist Financing Standard

VI. Core Principles for Effective Banking Supervision

VII. Core Principles for Systemically Important Payment Systems

VIII. Special Data Dissemination Standard

IX. Code of Good Practices on Transparency in Monetary Policy

X. Code of Good Practices on Transparency in Fiscal Policy

XI. International Financial Reporting Standards

XII. International Standards on Auditing

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Principles of Corporate Governance

LEVEL OF COMPLIANCE: ENACTED

SummarySince 1995 Colombia has made progress with its corporategovernance regime, particularly for listed companies. A newset of corporate governance provisions was established withthe Securities Market Law of 2005, introducing the concept ofindependent directors among other regulations. Then, in 2007the Superintendency of Finance (SF), with the collaborationof private entities, published the Country Code. The Codeincorporated international best practices and aimed to improvethe enforcement of corporate governance rules. The codefollows a "comply or explain" model. Prior to that, in 2001,Colombia had established a minimum corporate governancedisclosure regime for companies that wished to be eligiblefor pension fund investments. It has encouraged institutionalinvestors to assume the role of active shareholders. However,weaknesses in the corporate governance regime remained andled to an official proposal for reform in this area. Colombianeeds to adopt internationally accepted auditing andaccounting standards, improve minority shareholder rights, andstrengthen the enforcement of rules in certain areas suchas insider trading. As of April 2008, Congress was analyzingdraft Bill No. 165 of 2007, which proposes the adoption ofInternational Financial Reporting Standards (IFRS), previousInternational Accounting Standards. This would take place by2010 for larger companies and 2012 for small and mediumenterprises. Private sector efforts in Colombia have been ledthe Confederation of Chambers of Commerce through anumber of activities designed to raise private-sector awarenessas to the importance of adopting good corporate governancepractices.

General OverviewAs far back as 2003, the World Bank was reporting in itsReport on the Observance of Standards and Codes onCorporate Governance (ROSC) that the recognition ofcorporate governance issues was growing in Colombia. Themain agencies that have been promoting corporate governanceissues have been the Superintendency of Finance (SF), which

has played a central role in the regulatory field; theConfederation of Chambers of Commerce (CCC); and theCenter for International Private Enterprise (CIPE). The LatinAmerican Banking Federation (FELABAN), reported on itswebsite that the CCC and ICPE have encouraged goodcorporate governance practices within the private sector.

In a 2007 paper for an Organization for Economic Co-operation and Development (OECD) conference in Bogota,Andrés Bernal recapped the developments in corporategovernance in Colombia over the past decade. In 1995, LawNo. 222 of 1995 modified the Commerce Code by includingrules dealing with corporate governance. This change waslater complemented by Resolution No. 275 of 2001, whichdefinitively introduced good corporate governance inColombia. Resolution No. 275 establishes that issuers intendingto receive financing from pension funds should publish a codeof corporate governance. Four years later, in 2005, Congressapproved the new Securities Market Law No. 964, whichcreated a new set of rules regarding corporate governance.According to Ferrero et al, writing in 2005, this law became apillar of the corporate governance legal framework. Finally, in2007, the Colombian Corporate Governance Code - knownas the Country Code, or Código País - was released by theSF in an effort to strengthen the enforcement of corporategovernance rules.

The 2007 report by Bernal explains that different codes ofgood corporate governance practices have emerged over time.There are four different codes: the 2001 Code of the NationalFederation of Chambers of Commerce, which applies toissuers; the Small and Medium Enterprises (SMEs) Code of2003; the Andean Code of 2004 for listed and non-listedcompanies; and the Country Code of 2007, which applies tolisted companies. The SF reported in 2007 that the CountryCode follows a "comply-or-explain" model applicable to issuercompanies that must submit information to the SF regardingthe implementation of corporate governance practices throughthe annual Survey of Best Corporate Practices. According to

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the 2007 Bernal report for the OECD, the Country Codehas become the single official benchmark for corporategovernance since 2007. Bernal's report further asserts that,according to an international consultant hired by the SF toreview the code, Colombia´s new code is in line with bestinternational practices. The International Finance Corporation's(IFC) 2006 report cautions that the good governance codesnow have to be internalized in Colombian organizationalculture.

In its 2003 report, the World Bank states that there aresanctions related to insider trading and self dealing, since it isforbidden to execute operations using privileged information.Also, managers need a two-thirds majority of shareholdervotes at the Annual General Meeting (AGM) to authorizethe purchase of company shares. Nonetheless, there areinsufficient instruments to detect insider dealings. Colombialacks an electronic surveillance system and has no methodfor controlling practices like "front running." A 2005 report bythe International Monetary Fund (IMF) remarks that businessgroups have adopted more transparent practices as aconsequence of market liberalization. However, enterprisesare commonly family-owned or run by a small number ofshareholders, while pyramidal structures and cross-shareholding are frequently observed. The 2003 World Bankreport also cautioned that Colombia's accounting and auditingpractices were substandard. However, Dinero Magazine'swebsite discloses that, in April 2008 the Congress beganconsideration of a project to adopt International FinancialReporting Standards (IFRS), previous International AccountingStandards (IAS).

Capital markets in Colombia are relatively shallow. Tradingvolume represented 10 percent of GDP in 2006 andcapitalization reached 41.6% of GDP in the same year. Asof 2006, 90 companies were listed on the Colombian StockExchange (BVC) and, as Uribe notes in his 2007 report,concentration levels are high: the ten largest companiesrepresent 67.73 percent of market capitalization. The InvestorProtection Index is a subcomponent of the World Bank's 2008Doing Business Indicators, and consists of three aspects ofinvestor protection: transparency of transactions (Extent ofDisclosure Index), liability for self-dealing (Extent of DirectorLiability Index) and shareholders' ability to sue officers and

directors for misconduct (Ease of Shareholder Suits Index). Theindices range between 0 and 10, with higher values indicatinggreater disclosure, greater liability of directors, and greaterpower of shareholders to challenge the transaction, andtherefore, better investor protection. Colombia scores 8.0 inthe disclosure index, against a regional average of 4.2 and anOECD average of 6.4. It scores 2.0 in the Director LiabilityIndex, against a regional average of 5.0 and an OECD averageof 5.1; and it scores 9.0 in the Shareholder Suits Index, againsta regional average of 6.0 and an OECD average of 6.5.

Principle: Principle I: Ensuring theBasis for an Effective CorporateGovernance Framework[Insufficient Information]

According to the 2005 report by Ferrero et al., Colombiahas made considerable efforts toward developing a properregulatory framework for corporate governance. SeveralColombian public entities have become leaders in this respect.The 2007 Bernal report identifies several pieces of legislationrelating to this enterprise: Law No. 222 of 1995, whichmodified the Colombian Commerce Code and included suchcorporate governance provisions as regulations covering theelection of boards of directors, proxy-voting, and disclosure ofinformation; Resolution No. 275 of 2001 requires issuers whowish to receive investments from pensions funds to adopt acorporate governance code; and Securities Market Law No.964 of 2005. This last, according to the OECD's 2007 report,"created a complete set of corporate government rules thathas small room for self-regulation" (p.7). The 2003 WorldBank report notes that Resolution No. 275 establishes thatcompanies must implement mechanisms to protect andguarantee equal treatment of shareholders, and the companymust publish these mechanisms in its code of good governance.Ferrero et al. cite three more resolutions: Resolution No. 116of 2002, which gives stockholders the right to deliberate andvote freely and spontaneously, Resolution No. 72 of 2001,which requires equitable treatment for all stockholders, andResolution No. 157 of 2002, which establishes punishmentssuch as the sale and purchase of transactional securities.

According to the 2007 Bernal report, Law No. 222, ResolutionNo. 275, and Law No. 964 address the creation of codes

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containing corporate governance provisions. Bernal describesfour different types of Codes of Good Corporate Governance.First is the 2001 Code of the National Federation of Chambersof Commerce , which applies to issuer companies, is basedon OECD principles, and sets out practices that correspondto developed legal system; the SME Code of 2003, whichwas created by a committee drawn from private and officialinstitutions and serves as a general guide for small and mediumenterprises; the Andean Code of 2004, which applies to listedand non-listed companies; and the Country Code of 2007,which applies to listed companies. Bernal's report asserts thatthe Country Code is an attempt to unify market standardsand eliminate asymmetries created by previous regulations. Thecode follows a "comply or explain" model, requiring that issuerssubmit information on the code to the SF through the annualsurvey of Best Corporate Practices. Reporting must eitherprovide the level of compliance achieved, or offer reasonsfor failing to adopt Country Code recommendations. Theresults of these surveys are posted on the SF website. Bernalstates that the model of corporate governance establishedby the code "should strengthen Colombian capital markets,bringing new issuers to the market and facilitate local andinternational investment" (p.11). Furthermore, the Code hasbecome the single official benchmark of corporate governancesince 2007. Bernal adds that, according to an internationalconsultant, Colombia´s new code is in line with bestinternational practices. The IFC's 2006 report cautions thatgood governance must now be internalized in Colombianorganizational culture. The report shows the results of a 2005survey, which reveals that only 48% of Colombia's largestcompanies acknowledge the concept of corporate governance.

Bernal reports that corporate governance matters aresupervised by the SF, which was created in 2005 with themerger of the Superintendency of Banks and theSuperintendency of Securities. The functions of this new entityare established in Decree No. 4327 of 2005. The FELABAN2007 report notes that the SF has played an essential rolein regulating corporate governance. In addition, Bernal notesthat the BVC and the CCC have special programs devotedto promoting corporate governance, whereas the ColombianInsurance Companies Federation is implementing a programto create guidelines on corporate governance for insurancecompanies. The FELABAN report adds that the CCC and

CIPE are the primary organizations promoting corporategovernance in Colombia. Overall, however, the publiclyavailable information does not specifically address Colombia'scompliance with this principle.

Principle: Principle II: The Rights ofShareholders and Key OwnershipFunction[Insufficient Information]

In its 2003 ROSC, the World Bank rates Colombia'sobservance with the sub-principles of Principle II as follows."Basic Shareholder Rights" is rated as "Largely Observed",denoting that only small shortcomings are seen and these donot raise questions about the authorities' ability and intent toachieve full observance in the short term. "Rights to Participatein Fundamental Decisions" and "Shareholder's Annual GeneralMeeting Rights" are rated as "Partially Observed," indicatingthat while the legal and regulatory framework complies withthe Principle, practices and enforcement diverge. However,"Disproportionate Control Disclosure" and "FunctioningControl Arrangements" are rated as "Materially NotObserved." This indicates that, despite progress, shortcomingsare sufficient to raise doubts about the authorities' ability toachieve observance. "Cost/benefit to voting" is rated as "NotObserved." However, the World Bank's assessment wasconducted prior to the enactment of the 2005 SecuritiesMarket Law and the 2007 publication of the Country Code.Therefore, Colombia's current level of compliance with thisprinciple cannot be assessed.

The World Bank report notes that all shares are registered,and entry into the share registry constitutes legal proof ofownership. Share registration can be done through the CentralDepository. The World Bank notes that shares can be freelytransferred, but this transfer is not handled on a delivery-versus-payment (DVP) basis. Therefore, according to theWorld Bank, "the clearance and settlement cycle should belowered substantially and DVP adopted in order to minimizetransfer risks" (p.4). The World Bank further asserts thatcompanies have different reporting obligations. All registeredinformation is publicly available for a small fee. Through theAGM, shareholders elect the members of the board ofdirectors. This election is carried out using an "electoral

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quotient" system designed to guarantee proportionalrepresentation for each shareholder. The 2005 Ferrero reportstates that removal of board members follows a simplemajority rule. However, Article 39 of the new SecuritiesMarket Law No. 964 establishes that listed companies canadopt alternative mechanisms, consistent with a World Bankrecommendation that had been made prior to the passage ofthe law.

The World Bank found that Colombia addresses the sub-principle "rights to participate in fundamental decisions,"through the requirement that an Extraordinary GeneralMeeting be called to make fundamental decisions. In addition,shareholders can raise issues that have not been included onthe agenda of these meetings. However, some decisions can betaken unilaterally by the board of directors. The World Bankhas recommended that meetings address only those topicsincluded on the agenda, and that in cases concerning theacquisition or sale of assets of considerable value must beapproved by the shareholders. Most decisions are taken bysimple majority. Bernal reported in 2007 that, according toprovisions of Law No. 964, the board must respond toproposals submitted by shareholders (or a group) representingmore than 5 percent of capital.

The Ferrero report asserts that, in the context of the AGM,there are several decisions that must be referred to theshareholders. These include the election and removal of boardmembers, approval of financial statements, establishment ofthe company's dividend policy, and determination of corporatechanges. The World Bank 2003 report identifies someshortcomings in this regard and recommends that there shouldbe an extension of the notice period for AGMs; that aninformative agenda should be available to the shareholdersin advance; that the number of shareholders necessary tocall for meetings should be lowered from its current levelof 20 percent; and that, although it is allowed to vote bymail and electronic mechanisms, distance voting mechanismsshould be more functional. The 2007 Country Code addressessome of these recommendations. It suggests that companiesshould provide shareholders with information containing boardof directors candidates, when available, as well as financialinformation relating to the issues on the meeting agenda. TheWorld Bank also reports that multiple voting and voting caps

are not allowed. However, given that important shareholdersare not required to provide details regarding their beneficialownership, complicated ownership structures make it nearlyimpossible to analyze the relationship between cash flow rightsand control. The 2007 Oxford Analytica report notes thatthere is no legislation establishing the principle of one voteper share or that refers to cumulative voting or proportionalrepresentation. In addition, the World Bank reports thatshareholders' agreements must be delivered to the companyand can be reviewed by shareholders. However, shareholdersare not always informed about these arrangements. TheFerrero report states that anti-take over devices are notregulated by law in Colombia. Finally, regarding institutionalinvestors, the 2003 World Bank report recommends thatlegislative reforms dealing with pension funds should addressthe roles and responsibilities of institutional investors. The 2007OECD report on Institutional Investors in Colombia notes thatthe SF was evaluating a reform in this area that sought toimpose "a much stronger responsibility on behalf of InstitutionalInvestors of analyzing the corporate governance structure asone of the criteria used in the investment decision makingprocess" (p. 4). The draft legislation includes the obligationfor institutional investors to formally express the weight givento corporate governance practices when deciding on aninvestment and to keep records of the analysis made in thisrespect.

Principle: Principle III: The EquitableTreatment of Shareholders[Insufficient Information]

In its 2003 report, the World Bank rates Colombia'sobservance with the sub-principles of Principle III as follows:"All shareholders should be treated equally" is rated as "PartiallyObserved," indicating that while the legal and regulatoryframework complies with the Principle, practices andenforcement diverge. "Prohibit insider trading" is rated as"Materially not Observed," denoting that, despite progress,shortcomings are sufficient to raise doubts about theauthorities' ability to achieve observance. The sub-principle"Board and managers disclose interests" is rated as "NotObserved." However, since the World Bank's assessment wasconducted prior to the enactment of the 2005 SecuritiesMarket Law and the 2007 publication of the Country Code,

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Colombia's level of compliance with this principle cannot beassessed. The World Bank states that shareholders have broadlegal protections. They can contest decisions that violate thelaw or infringe on their collective rights and interests. Classaction suits can be undertaken under the provisions of LawNo. 472 of 1998. Moreover, the bylaws provide informationregarding the various types of shares and their related rights.Special meetings of the affected shareholders, with a majorityrule scheme, must be arranged in order to change the rights ofa particular class of shares. Nonetheless, the World Bank notesthat shareholder compensation is unavailable in practice, dueto the cost of litigation and the length of court procedures.

The World Bank report also states that managers require a2/3 majority vote at the AGM in order to purchase shares oftheir company. The execution of operations using privilegedinformation is forbidden and monetary sanctions can beapplied. Employees that misuse information are subject to afine. Since 2000 the unauthorized use of information isconsidered a criminal act. However, as of 2003, only onecase of insider trading and self-dealing was sanctioned. Thisis partially explained by the lack of sufficient mechanisms todetect insider dealings, given that Colombia does not havean electronic surveillance system or a method for controllingpractices like "front running." Additionally, the World Bankstates that "surveillance is complicated by the fact that banksand insurance companies may trade over the counter" (p.8).Furthermore, evidence indicates that insider trading is likely acommon practice, mainly in fixed income operations. Finally,the World Bank reports that managers are not allowed to takepart in any transaction that may cause conflicts of interests, butmay receive loans from the firm. Nevertheless, this provisionis rarely observed. The report states that Colombia has notreached a desired level of transactional transparency andregulation. As a result, the World Bank recommends thatdirectors inform the board and abstain from voting when facingconflicts of interest. Section 17 of the Country Code addressesthis issue because it requires directors to provide the boardwith information related to direct or indirect relationships withthe company, providers, or other interested groups.

Principle: Principle IV: The Role ofStakeholders in CorporateGovernance[Insufficient Information]

The 2003 World Bank ROSC rates Colombian compliancewith this principle as follows: Concerning the sub-principles"Stakeholders' rights respected" and "Access to information,"Colombia meets all essential criteria and shows no deficiencies.The sub-principle "Performance enhancement" is rated as"Largely Observed," indicating that only minor shortcomingsare observed, whereas "Redress for violation of rights" is ratedas "Partially Observed" because, although Colombia'sregulatory framework complies with the principle, practicesand enforcement diverge. Shareholder, employee, and creditorrights are established in the Labor Code, the Commercial Codeas amended, the Corporate Restructuring Law No. 550 of1999, and other laws and regulations. The World Bank statesthat employees are considered creditors and may secure theirwages when a corporate restructuring occurs. Furthermore,creditors and employees have voting rights in cases of debtrestructuring, and employees are represented in the liquidationprocess. The report notes that there are no specific regulationsdealing with the involvement of shareholders in governanceissues. The Constitution and other laws contain provisionsprotecting consumer groups, creditors, and others. Accordingto a 2007 report by the Superintendency of Companies andthe Ministry of Commerce, Industry and Tourism, Law No.1116 was approved in 2006 to establish a new corporateinsolvency regime. This new framework is less favorable todebtors and addresses various shortcomings of the prior law.In 2003 the World Bank had stated that "environmentallegislation is considered advanced for the region. Class-actiontype mechanisms permit affected parties to seek protectionand/or compensation, but the court system is slow andinefficient" (p.9). However, the World Bank's assessment wasconducted prior to the enactment of the 2005 SecuritiesMarket Law and the 2007 publication of the Country Code.Therefore, Colombia's current level of compliance with thisprinciple cannot be assessed.

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Principle: Principle V: Disclosure andTransparency[Insufficient Information]

The 2003 World Bank ROSC rates Colombian compliancewith this principle as follows: The sub-principle "Fair and timelydissemination" is rated as "Observed," denoting that all essentialcriteria are met without significant deficiencies. "Disclosurestandards" is rated as "Partially Observed," denoting thatalthough the legal framework is adequate, practices andenforcement diverge. In addition, "Standards on accountingand auditing" and "Independent audit annually" are "Materiallynot Observed," because shortcomings raise doubts about theauthorities' ability to comply with the principles. However,the World Bank's assessment was conducted prior to theenactment of the 2005 Securities Market Law and the 2007publication of the Country Code, so Colombia's current levelof compliance with this principle cannot be assessed.

The World Bank notes that the Commercial Code regulatesthe required contents of a company's annual report. In thecase of listed companies, Resolution No. 400 of 1995 stipulatesthat the report shall include a balance sheet, income statement,cash flow statement, statement of changes in equity, and notes.A report of the general auditor is also included, togetherwith an analysis of the company goals. Companies must alsodisclose risk factors and risk management and must publishthe certification of the general auditor for internal control.Furthermore, while the names of board members and keyexecutives are published, details regarding their remunerationand governance structures are lacking. In cases of a mergeror spin-off, companies must disseminate information relatingto creditors' rights, and notice must be delivered to creditorsso that they can participate in any restructuring meetings.The 2006 IFC report, based on a survey of Colombian listedcompanies, notes that the surveyed companies consider theinformation made available to the market to be sufficient andsee no need for further requirements.

The 2005 IMF report states that Colombia's financialinformation requirements need to converge with internationalstandards and adds that improvements are required in orderto eliminate inconsistencies. The World Bank report of 2003notes that Decree No. 2649 of 1993 promulgated the

Colombian General Accepted Accounting Principles (GAAP),but states that these GAAP are not in line with InternationalAccounting Standards. A 2008 Dinero Magazine article notesthat the Colombian accounting system is a hybrid betweenthe now non-applicable GAAP, and International FinancialReporting Standards (IFRSs). Consequently, the financialstatements are confusing and difficult to understand. TheWorld Bank concurs with this perception, noting that marketparticipants find information quality to be poor. The WorldBank adds that "the country's legal and regulatory requirementson accounting are not conducive to high-quality financialreporting" (p.2). At the time of the World Bank assessment,Colombia was attempting to improve its corporate financialreporting regime. The Dinero website discloses that, as ofApril 2008, Congress was reviewing Bill No. 165, a proposalfor all Colombian enterprises to adopt IFRSs. The proposedschedule for implementation establishes 2010 for adoption bylarge companies and 2012 for medium and small enterprises.

The World Bank addresses Colombia's performance withregard to external auditors by noting that the AGM establishesthe functions of the "revisor fiscal [fiscal reviewer]" includingthe following points: "(1) certification of the quality of internalcontrols defined broadly (including processes and operations);(2) certification that the firm complies with laws and bylaws;(3) signing of financial statements together with the legalrepresentative" (p.11). However, since the "revisor fiscal" givesinstructions to the company, there is a conflict of interestbecause the roles of the instructor and auditor are played by asingle individual. The independence of the "revisor fiscal" is alsoa matter of concern, particularly when his or her salary is paidby the company. Finally, the World Bank finds that, regardingthe channels for disseminating information, companies arerequired to send to the SF and the BVC a variety of reports,including financial statements. Material information is providedto the market immediately.

Principle: Principle VI: TheResponsibilities of the Board[Insufficient Information]

In its 2003 ROSC, the World Bank rates Colombia'sobservance with the sub-principles of Principle VI as follows:"Treat all shareholders fairly," "The board should fulfill certain

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key functions," and "The board should be able to exerciseobjective judgment" are rated as "Materially not Observed,"meaning that there are shortcomings that raise doubts aboutthe authorities' ability to comply with the sub-principles. Thesub-principle "Acts as due diligence care" is rated as "PartiallyObserved," denoting an adequate legal framework but a lackof appropriate enforcement. The sub-principle "Ensurecompliance with law" is rated as "Largely Observed," sincethere are only minor shortcomings. "Access to Information"is rated as "Observed." However, since the World Bank'sassessment was conducted prior to the enactment of the2005 Securities Market Law and the 2007 publication of theCountry Code, Colombia's current level of compliance withthis principle cannot be assessed. Also, the World Bank reportremarks that board decisions that affect different types ofshareholders must be in line with the law and bylaws ensuringequitable treatment. However, in practice, directors areconnected with large shareholders and defend their interests.Moreover, there is no legislation that forces directors to takeinto account stakeholders' interests. However, there is aprovision in Resolution No. 275 that recommends thatcompanies recognize stakeholders' rights.

Regarding the functions of boards of directors, the WorldBank notes that board responsibilities are more specificallydetailed in company bylaws. The legal framework elaborateslittle on this topic, although the Commercial Code "empowersthe board to sign and execute contracts on behalf of thecompany and take all decisions needed to fulfil corporateinterests" (p.13). According to the World Bank report, theboard of directors must foster the firm's purpose, control thecompliance of norms and fulfilment of duties, abstain fromaccessing privileged information and participating in forbiddenactivities, and treat shareholders equally and in concordanceto their rights. In addition, the Commercial Code entrusts theboard with the responsibility of electing the legal representativeor CEO. However, market participants assert that this functionis often executed by the controlling shareholders. TheCommercial Code establishes that the managers have theresponsibility to assure the integrity of accounting and financialreporting systems. In this respect, the Ferrero report statesthat the board of directors is required to meet at least oncea year to set the company's objectives. The 2007 SF report

notes that the Country Code recommends that the Board ofDirectors meet once per month.

Article No. 4 of Law No. 964 defines the concept of"independent director" and establishes criteria for determiningthe characteristics that a person must fulfill in order to beconsidered as independent. In addition, it establishes that atleast 25 percent of the board be comprised of independentdirectors. The SF website discloses that, as of October 2006,57 percent of Colombian issuers complied with this rule.However, Ferrero et al. reported in 2005 that the conceptof non-executive director does not exist in Colombia. Withrespect to board committees, the report remarks that theyare not established by law. However, Law No. 964 requiresthat listed companies form an audit committee tasked withevaluating compliance by internal audit programs. The 2003World Bank report states that board members can accessconfidential information. In practice, however, the use of thiskind of data is controlled by the CEO. The Country Coderecommends that board members have the right to accessinformation prior to board meetings.

Sources of AssessmentBernal, A., "Country Report: Voluntary Corporate Governance Code inColombia," The 2007 Meeting of the Latin American CorporateGovernance Roundtable, Medellín, Colombia, October 10-11, 2007.Available from OECD website. Accessed on June 2, 2008. (Bernal 2007)http://www.oecd.org/dataoecd/4/4/39741294.pdf

Oxford Analytica, "Shareholder And Creditor Rights In Key EmergingMarkets 2006," Oxford: Oxford Analytica, January 2007. Available fromCalifornia Public Employee Retirement System (CalPers) website. Accessedon June 2, 2008 (OA 2007)http://www.calpers.ca.gov/eip-docs/investments/assets/equ...

World Bank, "Report on the Observance of Standards and Codes:Corporate Governance Country Assessment, Colombia," World Bank,August 2003. Available from World Bank website.(World Bank 2003)http://www.worldbank.org/ifa/rosccgcol.pdf

Relevant OrganizationsCentral Depository - Depósito Central de Valores (Deceval) (website inSpanish only)http://www.deceval.com.co/

Colombian Confederation of Chambers of Commerce - ConfederaciónColombiana de Cámaras de Comercio (Confecámaras) (website in Spanishonly)http://www.confecamaras.org.co/

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Colombian Insurance Companies Federation - Federación deAseguradores Colombianos (Fasecolda) (website in Spanish only)http://www.fasecolda.com/fasecolda/

Corporate Governance Colombia - Gobierno Corporativo Colombiahttp://www.gobiernocorporativo.com.co/

Ministry of Commerce, Industry and Tourism - Ministerio de Comercio,Industria y Turismo (MCIT) (website in Spanish only)http://www.mincomercio.gov.co/eContent/home.asp

Ministry of Finance and Public Credit - Ministerio de Hacienda y CréditoPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co

Stock Exchange of Colombia - Bolsa de Valores de Colombia (BVC)(website in Spanish only)http://www.bvc.com.co/

Superintendency of Finance - Superintendencia Financiera (SF)http://www.superfinanciera.gov.co/

Relevant Legislation/RegulationCountry Code, 2007 - Código País, 2007 (in Spanish only)http://www.superfinanciera.gov.co/Codigopais/textos/codig...

Framework Code of Good Corporate Governance for Small and MediumEnterprises, 2003 - Código Marco de Buen Gobierno Corporativo paraPymes, 2003http://www.cipe.org/regional/lac/pdf/SME_CG_Code.pdfhttp://www.kpmg.com.co/files/documen_corp_gov/release/cm_...

Guidelines for an Andean Code of Corporate Governance, 2005 -Lineamientos para un Código Andino de Gobierno Corporativo, 2005 (inSpanish only)http://gc.caf.com/upload/pubs/Lineamientos%20para%20un%20...

Securities Market Law No. 964, 2005 - Ley del Mercado Público deValores No. 964, 2005(in Spanish only).http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Decree by which the Superintendency of Banks merges with theSuperintendency of Securities No, 4327, 2005 - Decreto por el cual sefusiona la Superintendencia Bancaria en la Superintendencia de Valores y semodifica su estructura No. 4327, 2005 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Commercial Code of Colombia Decree No. 410, 1971 - Código deComercio de Colombia Decreto No. 410, 1971 (in Spanish only)http://alcaldiademonteria.tripod.com/codigos/comercio/cod...

Decree regulating Accounting in general and issuing Generally AcceptedAccounting Principles or Norms No. 2649, 1993 - Decreto por el cual sereglamenta la Contabilidad en General y se expiden los Principios oNormas de Contabilidad Generalmente Aceptados en Colombia No.2649, 1993 (in Spanish Only)http://www.actualicese.com/normatividad/2001/decretos/D26...

Resolution establishing the requirements needed by Corporate Public andPrivate Bodies to receive investments from Pension Funds No. 275, 2001 -Resolución por la cual se establecen los requisitos que deben acreditar lasPersonas Jurídicas Públicas y Privadas que pretendan ser destinatarias de lainversión de recursos de los Fondos de Pensiones No. 275, 2001 (inSpanish only)http://www.superfinanciera.gov.co/boletin/re027501.htm

Resolution modifying Resolution No. 400 of 2005, No. 72, 2001 -Resolución por la cual se modifica la resolución 400 de 1995, No. 72, 2001(in Spanish only)http://www.superfinanciera.gov.co/boletin/re007201.htm

Bill adopting International Financial Reporting Standards for thepresentation of financial statements No. 165, 2007 - Proyecto de Ley porla cual el Estado Colombiano adopta las Normas Internacionales deInformación Financiera para la presentación de informes contables No.165, 2007 (in Spanish only)http://www.actualicese.com/normatividad/2007/10/24/proyec...

Supplementary SourcesDel Valle Borráez, C. and Carvajal Cordoba, M. "Updated White PaperProgress Report - Colombia" The Seventh Meeting of the Latin AmericanCorporate Governance Roundtable, Buenos Aires, Argentina, June 22-23,2006. Available from OECD website. Accessed on August 28, 2008. (DelValle Borráez and Carvajal Cordoba 2006)http://www.oecd.org/dataoecd/17/56/37329678.pdf

Dinero Magazine Website. Last Updated on March 28, 2008. Accessed onJune 5, 2008. (Dinero Magazine website)http://www.dinero.com/wf_InfoArticulo.aspx?IdArt=46084

FELABAN, "Prácticas de Buen Gobierno Corporativo en el SectorFinanciero [Good Corporate Governance Practices in the FinancialSector]," Federación Latinoamericana de Bancos, October 2007. Availablefrom FELABAN website. Accessed on June 2, 2008. (FELABAN 2007)http://www.felaban.com/pdf/buen_gobierno.pdf

Ferrero, E., et al, "Sources of Corporate Governance Rules/Practices inColombia, First Part," Boletín 62, Centro Nacional de GobiernoCorporativo Confecámaras, 2005. Available from Gobierno Corporativowebsite. Accessed on June 2, 2008. (Ferrero et al 2005a)http://www.gobiernocorporativo.com.co/documentos/Boletine...

Ferrero, E., et al, "Sources of Corporate Governance Rules/Practices inColombia, Second Part," Boletín 63, Centro Nacional de GobiernoCorporativo Confecámaras, 2005. Available from Gobierno Corporativowebsite. Accessed on June 2, 2008. (Ferrero et al 2005b)http://www.gobiernocorporativo.com.co/documentos/Boletine...

International Finance Corporation, "El Gobierno Corporativo en Colombia[Corporate Governance in Colombia]," IFC, 2006. Available from IFCwebsite. Accessed on June 3, 2008. (IFC 2006)http://www.ifc.org/ifcext/corporategovernance.nsf/Attachm...

International Monetary Fund, "Colombia: Financial System StabilityAssessment Update, including Reports on the Observance of Standardsand Codes on the following topics: Securities Regulation, Insolvency andCreditor Rights Systems, and Payment Systems," Country Report No. 05/287, Washington, D.C.: IMF, August 2005. Available from InternationalMonetary Fund website. Accessed on May 23, 2008. (IMF 2005)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

Ministry of Finance and Public Credit, "Exposición de Motivos: Proyecto deLey de Reforma Financiera [Exposition of Reasons: Financial Reform Bill],"MHCP, n. d. Available from Stock Exchange of Colombia website.Accessed on May 28, 2008. (MFPC n.d.)http://www.bvc.com.co/bvcweb/administracion/editor/homeFi...

Organization for Economic Co-operation and Development, "CountryReport: The Role of Institutional Investors in Promoting CorporateGovernance in Colombia," Meeting of the Latin American Corporate

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Governance Roundtable, Medellín, Colombia, October 10-11, 2007.Available from OECD website. Accessed on June 2, 2008. (OECD 2007)http://www.oecd.org/dataoecd/3/35/39742010.pdf

Presidency of Colombia Website. Last updated on May 29, 2008. Accessedon May 29, 2008. (Presidency website)http://www.presidencia.gov.co/sne/2005/noviembre/28/04282...http://www.presidencia.gov.co/sne/2005/junio/23/04232005.htm

Superintendency of Companies and Ministry of Commerce, Industry andTourism, "Cartilla: Nuevo Régimen de Insolvencia Empresarial, Ley 1116 de2006 [Chart: New Corporate Insolvency Regime, Law 1116 of 2006],"Superintendency of Companies, 2007. Available from Legislación yJurisprudencia website. Accessed on July 23, 2008. (SC&MCIT 2007)http://www.legislacionyjurisprudencia.com/temas/2007/Cart...

Superintendency of Finance, "Presentación del Código País [Country CodePresentation]," Bogotá: SF, May 2007. Available from SF website. Accessed

on June 4, 2008. (SF 2007)http://www.superfinanciera.gov.co/Codigopais/presentacion...

Superintendency of Finance Website. Last updated on April 8, 2008.Accessed on June 5, 2008. (SF website)http://www.superfinanciera.gov.co/GobiernoCorporativo/ley...http://www.superfinanciera.gov.co/Codigopais/informeanual...

Uribe G., J. M., "Indicadores Básicos de Desarrollo del Mercado AccionarioColombiano [Basic Indicators for the Development of the Stock Market],"BanRep, September 2007. Available from Central Bank of Colombiawebsite. Accessed on June 6, 2008. (Uribe 2007)http://www.banrep.gov.co/documentos/publicaciones/report_...

World Bank, "Doing Business: Colombia," 2008. Available from the DoingBusiness website. Accessed on June 23, 2008. (World Bank 2008)http://www.doingbusiness.org/ExploreEconomies/?economyid=46

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Objectives and Principles of Securities Regulation

LEVEL OF COMPLIANCE: ENACTED

SummaryThe International Monetary Fund (IMF) published an updatedFinancial System Stability Assessment for Colombia in 2005.At the time of the assessment, the Colombian capital marketregulatory regime was under review. The IMF noted that theproposed reform of the securities regulatory framework wouldbring it in line with best international practices so as topromote efficiency and integrity, protect investors' rights, andprevent systemic risks. The Securities Market Law No. 964 waspassed by Congress in July 2005. A 2005 presentation by FlórezVillegas of the Ministry of Finance and Public Credit assertedthat the law brings Colombia into closer compliance withthe principles of the International Organization of SecuritiesCommissions, eliminates ambiguities, fully implements theprinciples related to supervisory objectives, and adequatelyregulates several other issues. In addition, in April 2008, thegovernment sent to Congress a draft Financial Reform Billthat aimed to strengthen the rights of financial consumers.Congress is also analyzing a draft bill that seeks to reconcileColombia's accounting standards with international practices.The Superintendency of Finance was created in 2005 throughthe merger of the Superintendency of Securities and theSuperintendency of Banks. The new agency began operating inJanuary 2006. It is in charge of supervising the financial system,organizing and developing the Colombian stock market, andprotecting investors.

General OverviewIn 2005, the International Monetary Fund (IMF) published anupdate to its Financial System Stability Assessment (FSSA)which had been produced in 1999 but not published. TheIMF report noted that while private capital markets have beendeveloping, they still suffered from a lack of depth and liquidity.According to the report, the main reason for this lack ofdevelopment was the limited supply of investment securities bylocal corporations and deficiencies in clearance and settlementsystems. The banking sector still dominates the distribution ofcapital and "secondary market liquidity lags behind comparable

countries, especially in equity" (p. 24), stated the FSSA. The IMFattributed this to structural factors and some lags in marketinfrastructure, stating that it would be necessary to modernizethe securities-market regulatory framework in order toincrease liquidity and stimulate investment. A review of theregulatory regime was underway in 2004, and the IMF notedthat the proposed reforms would bring it into line with bestinternational practices, promote efficiency and integrity,protect investors' rights, and prevent systemic risks. Thereforms took effect when the Securities Market Law No. 964(SML) was passed by Congress in July 2005. A 2005presentation by Flórez Villegas of the Ministry of Finance andPublic Credit (MHCP) agreed with the IMF findings, stating thatthe law brings Colombia closer to the principles promulgatedby the International Organization of Securities Commissions(IOSCO) since it eliminates ambiguities, fully implements theprinciples related to supervision objectives, and adequatelyregulates other issues. In a 2008 report, the MHCP assertedthat, in April, 2008 the Colombian government sent toCongress a draft Financial Reform Bill that aimed to adopt anintegral scheme for protecting financial consumers.

The Superintendency of Finance (SF) was created on January1, 2006, by the merger of the Superintendency of Securitiesand the Superintendency of Banks. It is in charge of supervisingthe financial system, organizing and developing the Colombianstock market and protecting investors. An undated documentavailable from the SF website discloses that this institution is atechnical entity attached to the MHCP and is administrativelyand financially autonomous. According to the Latin AmericanSecurities Markets Institute website, Colombian legislationregulating the securities market consists of the SML; DecreeNo. 4327 of 2005, creating the Superintendency of Finance;Financial System Organic Statute Decree No. 663 of 1993,which regulates the financial system; Decree No. 2739 of 1991,which establishes the functions and structure of the regulator;and other resolutions that establish specific provisions.

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In 2001, the stock exchanges in Bogotá, Cali, and Medellínwere merged to create the Colombian Stock Exchange (BVC),which is located in Bogotá. Colombia's capital market, thoughstill underdeveloped, is growing as is evident in rising marketcapitalization from US$14.1 billion in 2003 (equivalent to 16%of GDP), to US$58.5 billion (43% of GDP) in 2007. However,long-term corporate and project finance is still principallyavailable only from banks. The U.S. Department of Commerce(DoC) noted in its 2008 Country Commercial Guide that loanswith a maturity in excess of five years are seldom issued. Onlythe largest of Colombia's companies can tap the local stock orbond markets to meet their finance needs, but the majoritydoes so via the banking system, by reinvesting their profits,and through suppliers' credit. According to the DoC report,the government "envisions revising the regulation of privatepension funds to allow them to participate more actively inthe capital markets." The IOSCO website discloses that theSF is an IOSCO member and a member of the President'sCommittee, the Emerging Markets Committee, and the Inter-American Regional Committee within IOSCO.

Principle: 1. The responsibilities ofthe regulator should be clear andobjectively stated.[Enacted]

An undated document on the SF website notes that the SFis in charge of supervising the financial system, organizing anddeveloping the Colombian stock market, and protectinginvestors. This institution is a technical entity attached to theMHCP but with administrative and financial autonomy. It wascreated in 2005 by Decree No. 4327, after the merger ofthe Superintendency of Securities and the Superintendencyof Banks, which constituted Colombia's first step toward theimplementation of a new and integrated supervisory schemein Colombia. The functions of the SF are set out in provisionsof several laws: Decree No. 2739 of 1991; Financial SystemOrganic Statute Decree No. 663 of 1993; the SML of 2005;and regulations modifying and amending these norms. FlorezVillegas reported for the MHCP in 2005 that IOSCO Principle1, concerning the objectives of the regulator, is incorporatedin its entirety in Article No. 1 of the SML, including the aim

of protecting investigators; assuring that the market is fair,equitable and transparent; and reducing systemic risk.

Principle: 2. The regulator should beoperationally independent andaccountable in the exercise of itsfunctions and powers.[Insufficient Information]

The 2005 presentation by Flórez Villegas noted that the SMLbrings Colombia closer to IOSCO's principles, but does sowithout contradicting the provisions contained in theConstitution. Florez Villegas asserts that the SML does notcontradict OSCO's Principle 2 and clarifies the regulatoryframework. The IMF's 2007 Article IV Consultation reportnoted that Colombia's government has proposed financialreforms that include strengthening the independence of theSF via a fixed-term appointment for the superintendent. TheIMF suggested that the superintendent's term of appointmentbe changed so that it overlaps with the presidential term. Thiswould further strengthen the superintendents autonomy. TheIMF also supported the proposal to develop and explicitly statea fixed set of criteria for by which a superintendent may bedismissed. However, neither the IMF report nor the FlorezVillegas document explicitly addresses Colombia's compliancewith this principle.

Principle: 3. The regulator shouldhave adequate powers, properresources and the capacity toperform its functions and exercise itspowers.[Insufficient Information]

The 2005 presentation by Flórez Villegas claims that the SMLdoes not contradict IOSCO Principle 3. However, thedocument does not directly address Colombia's level ofcompliance with this principle. In its 2005 FSSA update, whichwas issued prior to the implementation of the SML, the IMFrecommended that the regulator be given sufficient resourcesin order to perform supervision, enforcement, and securitiessettlement as a short-term recommendation.

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Principle: 4. The regulator shouldadopt clear and consistent regulatoryprocesses.[Insufficient Information]

The 2005 presentation by Flórez Villegas stated that the SMLdoes not contradict IOSCO's Principle 4 and contributes tothe elimination of regulatory ambiguities. Moreover, the reportdeclared that the Law establishes provisions that are close tothe IOSCO's principles. Nevertheless, this information is notsufficient to address Colombia's compliance with this principle.

Principle: 5. The staff of the regulatorshould observe the highestprofessional standards, includingappropriate standards ofconfidentiality.[Insufficient Information]

According to the 2005 presentation by Flórez Villegas, theSML does not contradict IOSCO's Principle 5 and contributesto the elimination of regulatory ambiguities. Nevertheless, thisinformation is not sufficient to address Colombia's compliancewith this principle.

Principle: 6. The regulatory regimeshould make appropriate use of Self-Regulatory Organizations (SROs)that exercise some direct oversightresponsibility for their respectiveareas of competence, to the extentappropriate to the size andcomplexity of the markets.[Insufficient Information]

Per the 2005 presentation by Flórez Villegas, the SMLestablishes adequate provisions related to self-regulatoryorganizations (SROs) and provides the government with theauthority to set out rules concerning this issue. In a 2008report by Rosillo Rojas of the Colombian Stock Market Self-Regulator (AMV), the self-regulatory framework has evolved

since 2001. In that year, the three stock exchanges in Bogotá,Cali, and Medellín were merged in the BVC. In 2004, a numberof supervisory bodies were created within the BVC, including adisciplinary chamber, a supervisory commission, and a marketgovernor. In 2005, the SML established that all financialintermediaries must be self-regulated, and the AMV wascreated in 2006 with the purpose of regulating, supervising,sanctioning, and certifying stock market intermediaries.However, the above information does not directly addressColombia's level of compliance with this principle.

Principle: 7. SROs should be subjectto the oversight of the regulator andshould observe standards of fairnessand confidentiality when exercisingpowers and delegatedresponsibilities.[Insufficient Information]

A 2005 presentation by Rosillo Rojas of the AMV assertedthat entities must comply with the following requirements forbecoming SROs: demonstrate their importance to the marketand have certain number of members; possess enforcementand registry mechanisms; have an adequate representationof its members; appropriate fee and payment scheme; andcomprehensive rules. Article No. 25 of the SML establishesthat the regulator must supervise the correct operation ofSROs. The Rosillo Rojas' 2008 presentation noted that theLaw provides an extensive legal framework related to self-regulation. According to the SF website, it has signed anagreement with the AMV to harmonize their functions,promote mutual cooperation, and avoid duplication of tasks.However, there is insufficient information to directly addressColombia's level of compliance with this principle.

Principle: 8. The regulator shouldhave comprehensive inspection,investigation and surveillance powers.[Insufficient Information]

Prior the enactment of the SML, the 2005 IMF report hadrecommended that the regulator be provided with sufficient

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resources to supervise stock market intermediaries. Writingin 2005 for of the then-existing Superintendency of Securities(which later merged with the Superintendency of Banks toform the SF), Del Valle reported that any actor who intendedto operate in the stock market must subscribe to the StockMarket Information Integral System, on which the SF relies, inpart, in order to conduct its supervision. With the enactmentof the SML, securities supervision in Colombia now followsa three-pronged approach: (1) the permanent supervision ofexchanges among others; (2) the control of issuers; and, (3) thesupervision by activity, covering among others asset managers.However, the publicly available information does not directlyaddress Colombia's level of compliance with this principle.

Principle: 9. The regulator shouldhave comprehensive enforcementpowers.[Insufficient Information]

According to Del Valle's 2005 presentation, the SML led tothe implementation of a new scheme of sanctions that haveeliminated ambiguities in the previous regulation. However,the information does not directly address Colombia's level ofcompliance with this principle.

Principle: 10. The regulatory systemshould ensure an effective andcredible use of inspection,investigation, surveillance andenforcement powers andimplementation of an effectivecompliance program.[Insufficient Information]

The SF's 2008 Management Report noted that the SFperforms off-site supervisions through various quantitative andqualitative warning models. Moreover, the 2005 presentationby Flórez Villegas noted that supervision and enforcementissues are adequately established in the SML. However, thepublicly available information does not directly addressColombia's level of compliance with this principle.

Principle: 11. The regulator shouldhave authority to share both publicand non-public information withdomestic and foreign counterparts.[Insufficient Information]

The 2005 IMF report argued that Colombia should promotelocal and international information sharing. The SF website listsvarious agreements that have been reached between the SFand other local and foreign supervisory entities in order tofacilitate the exchange of information. . However, the publiclyavailable information does not directly address Colombia's levelof compliance with this principle.

Principle: 12. Regulators shouldestablish information sharingmechanisms that set out when andhow they will share both public andnon-public information with theirdomestic and foreign counterparts.[Insufficient Information]

See Principle 11.

Principle: 13. The regulatory systemshould allow for assistance to beprovided to foreign regulators whoneed to make inquiries in thedischarge of their functions andexercise of their powers.[Insufficient Information]

See Principle 11.

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Principle: 14. There should be full,timely and accurate disclosure offinancial results and otherinformation that is material toinvestors' decisions.[Enacted]

In 2003, the World Bank published a Report on theObservance of Standards and Codes on CorporateGovernance (ROSC-CG) benchmarking Colombia against thePrinciples of Corporate Governance promulgated by theOrganization for Economic Cooperation and Development(OECD). The report asserted that Colombia "partiallyobserved" the OECD principle which reads: "The corporategovernance framework should ensure that timely and accuratedisclosure is made on all material matters regarding thecorporation." This rating indicates that, while the legal andregulatory framework complies with the Principle, practicesand enforcement diverge from it. Colombia's CommercialCode Decree No. 410 of 1971 requires companies to publishan annual report that includes: (1) a balance sheet; (2) incomestatement; (3) cash flow statement; (4) statement of changes inequity; (5) the external auditor's report; and (6) a discussion onmanagement and company's objectives. Also, Resolution No.400 of 1995 requires that listed companies disclose financialinformation to the SF the BVC. However, informationregarding employees and stakeholders do not need to bepublished. According to market participants who use thereports, data quality is poor.

Principle: 15. Holders of securities ina company should be treated in a fairand equitable manner.[Enacted]

In its 2003 ROSC-CG, the World Bank found Colombia tohave "partially observed" the OECD principle regarding the"equitable treatment of shareholders." This finding indicatesthat, while the legal and regulatory framework complies withthe principle, practices and enforcement diverge from it. Onthe other hand, the principle related to insider trading and theprohibition of self-dealing is rated as "Materially not Observed,"

meaning that despite progress, shortcomings raise doubtsabout the authorities' ability to achieve observance. Accordingto the report, the shareholders' meeting agenda alwaysincludes (1) the approval of financial statements; (2) electionof the members of the board of directors; and (3) selectionof the external auditor. The report also noted that, in theory,shareholders can seek redress and initiate suits against firm'smanagers via an extraordinary general meeting called byshareholders with at least 20 percent of capital. However, thecost and the length of the court procedures inhibit the use ofsuch mechanisms.

Principle: 16. Accounting andauditing standards should be of a highand internationally acceptablequality.[Intent Declared]

As per the 2003 World Bank ROSC on Accounting andAuditing (ROSC-AA) Colombia's generally acceptedaccounting principles (GAAP) are established by Decree No.2649 of 1993. However, those standards differ materially fromInternational Accounting Standards (currently InternationalFinancial Reporting Standards or IFRSs). Several accountingrules are also established by different public bodies and, sincethose standards differ, companies must use different accountingpractices when they provide information to those entities. Also,policymakers believe that Colombian accounting principles aresubstandard. In addition, Colombian auditing standards do notcomply with International Standards on Auditing (ISAs).According to the Dinero website, however, as of March, 2008Colombia's Congress was analyzing draft Bill No. 165 of 2007,which establishes a procedure for the adoption of IFRSs. Thelegislation asserts that Colombian companies must implementinternational standards by 2010 for large companies, whereassmall and medium enterprises must do so by 2012.

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Principle: 17. The regulatory systemshould set standards for the eligibilityand the regulation of those who wishto market or operate a collectiveinvestment scheme.[Insufficient Information]

According to the 2005 Flórez Villegas presentation, the SMLregulates issues or provides the government with the authorityto establish rules concerning collective investment schemes,in line with IOSCO's objectives and principles. Nevertheless,the publicly available information is not sufficient to addressColombia's compliance with this principle.

Principle: 18. The regulatory systemshould provide for rules governingthe legal form and structure ofcollective investment schemes andthe segregation and protection ofclient assets.[Insufficient Information]

According to the 2005 Flórez Villegas presentation, the SMLregulates issues or provides the government with the authorityto establish rules concerning collective investment schemesin line with IOSCO's objectives and principles. The JaramilloOssa 2006 presentation stated that the SML requires collectiveinvestment managers to redress third parties' assets in casesof insolvency, bankruptcy, and other similar situations.Nevertheless, this information is not sufficient to addressColombia's compliance with this principle.

Principle: 19. Regulation shouldrequire disclosure, as set forth underthe principles for issuers, which isnecessary to evaluate the suitabilityof a collective investment scheme fora particular investor and the value ofthe investor’s interest in the scheme.[Insufficient Information]

According to the 2005 Flórez Villegas report, the SMLregulates issues or provides the government with the authorityto establish rules concerning collective investment schemes inline with IOSCO's objectives and principles. Nevertheless, thisinformation is not sufficient to address Colombia's compliancewith this principle.

Principle: 20. Regulation shouldensure that there is a proper anddisclosed basis for asset valuation andthe pricing and the redemption ofunits in a collective investmentscheme.[Insufficient Information]

See Principle 19.

Principle: 21. Regulation shouldprovide for minimum entry standardsfor market intermediaries.[Insufficient Information]

Regarding market intermediaries, the 2005 Flórez Villegaspresentation notes that Art. 4 of the SML sets out provisionsor enables the government to issue norms regulating marketintermediaries that are in line with IOSCO's objectives andprinciples. Nevertheless, this information is not sufficient toaddress Colombia's compliance with this principle.

Principle: 22. There should be initialand ongoing capital and otherprudential requirements for marketintermediaries that reflect the risksthat the intermediaries undertake.[Insufficient Information]

See Principle 21.

Principle: 23. Market intermediariesshould be required to comply with

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standards for internal organizationand operational conduct that aim toprotect the interests of clients,ensure proper management of risk,and under which management of theintermediary accepts primaryresponsibility for these matters.[Insufficient Information]

See Principle 21. In addition, according to an April 2008 MHCPpress release, the government sent to Congress a draftFinancial Reform Bill that introduces a new regime forprotecting financial consumers, detailing their rights andfinancial service providers' obligation regarding the diffusion ofinformation and the quality of services.

Principle: 24. There should beprocedures for dealing with thefailure of a market intermediary inorder to minimize damage and lossto investors and to contain systemicrisk.[Insufficient Information]

See Principle 21.

Principle: 25. The establishment oftrading systems including securitiesexchanges should be subject toregulatory authorization andoversight.[Insufficient Information]

According to the 2005 presentation by Flórez Villegas, theSML establishes provisions for secondary markets in line withIOSCO's objectives and principles. Nevertheless, the publiclyavailable information is not sufficient to address Colombia'scompliance with this principle.

Principle: 26. There should beongoing regulatory supervision ofexchanges and trading systems whichshould aim to ensure that theintegrity of trading is maintainedthrough fair and equitable rules thatstrike an appropriate balancebetween the demands of differentmarket participants.[Insufficient Information]

See Principle 25.

Principle: 27. Regulation shouldpromote transparency of trading.[Insufficient Information]

There is insufficient publicly available information as toColombia's compliance with this principle.

Principle: 28. Regulation should bedesigned to detect and determanipulation and other unfairtrading practices.[Insufficient Information]

There is insufficient publicly available information as toColombia's compliance with this principle.

Principle: 29. Regulation should aimto ensure the proper management oflarge exposures, default risk andmarket disruption.[Insufficient Information]

There is insufficient publicly available information as toColombia's compliance with this principle.

Principle: 30. Systems for clearingand settlement of securities

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transactions should be subject toregulatory oversight, and designed toensure that they are fair, effectiveand efficient and that they reducesystemic risk.[Enacted]

Prior to the implementation of the SML, the 2005 IMF reporthad noted that the draft version of the law would addressesmost of the shortcomings of Colombia's legal framework andwould improve compliance with the Core Principles forSystematically Important Payment Systems. Moreover, thereport noted that the draft law included provisions coveringsuch issues as netting and protection of the system againstbankruptcy procedures. The BVC concurred with thisassessment in its 2005 report, asserting that the lawincorporates best international practices concerningoperational security. In addition, the BVC stated that the lawincreases the safety of negotiations, improves efficiency andefficacy, and facilitates the fulfillment of contracts.

Sources of AssessmentFlórez Villegas, "La Regulación en la Nueva Ley del Mercado de Valores[The New Securities Law Regulation]," Ministry of Finance and PublicCredit, July 2005. Available from Superintendency of Finance website.Accessed on July 10, 2008. (Flórez Villegas 2005)http://www.superfinanciera.gov.co/seminarios/leyvaloresfl...

International Monetary Fund, "Colombia: Financial System StabilityAssessment Update, including Reports on the Observance of Standardsand Codes on the following topics: Securities Regulation, Insolvency andCreditor Rights Systems, and Payment Systems," Country Report No. 05/287, Washington, D.C. : IMF, August 2005. Available from InternationalMonetary Fund website. Accessed on May 23, 2008. (IMF 2005)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

World Bank, "Report on the Observance of Standards and Codes:Corporate Governance Country Assessment, Colombia," World Bank,August 2003. Available from World Bank website. Accessed on July 1,2008. (WB 2003b)http://www.worldbank.org/ifa/rosccg_col.pdf

World Bank, "Colombia: Report on the Observance of Standards andCodes - Accounting and Auditing," World Bank, July 2003. Available fromthe World Bank website. Accessed on July 1, 2008. (WB 2003a)http://www.worldbank.org/ifa/rosc_aa_col.pdf

Relevant OrganizationsColombian Stock Exchange - Bolsa de Valores de Colombia (BVC)(website in Spanish only)http://www.bvc.com.co/

Colombian Securities Market Self-Regulator - Autorregulador del Mercadode Valores de Colombia (AMV)http://www.amvcolombia.org.co/index.php?pag=home&id=12%7C...

Ministry of Finance and Public Credit - Ministerio de Hacienda y CréditoPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co

Superintendency of Finance - Superintendencia Financiera (SF)http://www.superfinanciera.gov.co

Relevant Legislation/RegulationColombian Constitution, 1991 - Constitución Política de Colombia, 1991(in Spanish only)http://www.ideaspaz.org/proyecto03/boletines/download/bol...

Securities Markets Law No. 964, 2005 - Ley del Mercado de ValoresNo.964, 2005 (In Spanish Only)http://www.gobiernocorporativo.com.co/_private/ley_964_05...

Financial System Organic Statute, Decree No. 663, 1993 - EstatutoOrgánico del Sistema Financiero, Decree No. 663, 1993 (in Spanish only)http://www.superfinanciera.gov.co/Normativa/NormasyReglam...

Commerce Code, Decree No. 410, 1971 - Código de Comercio, DecretoNo. 410, 1971 (in Spanish only)http://encolombia.com/derecho/CodigoComercioColombiano/Co...

Decree merging the Colombian Superintendency of Banks with theSuperintendency of Securities, No. 4327, 2005 - Decreto por el cual sefusiona la Superintendencia Bancaria de Colombia en la Superintendenciade Valores y se modifica su estructura No. 4327, 2005 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Decree adapting the structure of the National Securities Commission tothe new Superintendency No. 2739, 1991 - Decreto por el cual se adecúala estructura de la Comisión Nacional de Valores a su nueva naturaleza desuperintendencia No. 2739, 1991 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Resolution updating and unifying the norms issued by the GeneralDepartment of the Superintendency of Securities No. 400, 1995 -Resolución por la cual se actualizan y unifican las normas expedidas por laSala General de la Superintendencia de Valores y se integran por vía dereferencia otras No. 400, 1995. (in Spanish only)http://www.minhacienda.gov.co/portal/page/portal/4190E358...

Bill adopting International Financial Reporting Standards for thepresentation of accounting reports No. 165, 2007 - Proyecto por el cual elEstado colombiano adopta las normas internacionales de informaciónfinanciera para la presentación de informes contables No. 165, 2007 (inSpanish only)http://www.adecum.org/globalconta/proyectoadopcionifrs(16...

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Supplementary SourcesColombian Stock Exchange, "Aportes de la Ley del Mercado de Valores[Contributions of the Securities Market Law]," Forum: The SecuritiesMarket Reform, Contents and Implications, August, 2005. Available fromColombian Superintendency of Finance website. Accessed on July 10,2008. (BVC 2005)http://www.superfinanciera.gov.co/seminarios/JUANCORDOBA%...

Council of Securities Regulators of the Americas website. Accessed on July10, 2008. (COSRA website)http://www.cvm.gov.br/ingl/inter/cosra/survei-e.asphttp://www.cvm.gov.br/ingl/inter/cosra/membro-e.asphttp://www.cvm.gov.br/ingl/inter/cosra/bylaw-e.asp

Del Valle, C., "Ley del Mercado de Valores [Securities Market Law]," Forum:The Securities Market Reform, Contents and Implications, August, 2005.Available from Colombian Superintendency of Finance website. Accessedon July 10, 2008. (Del Valle 2005)http://www.superfinanciera.gov.co/seminarios/forocdelvall...

Duque Tobón, L. I., "Ley del Mercado de Valores: Antecedentes yAplicaciones [Securities Market Law: Background and Applications]," n.d.Available from EAFIT University website. Accessed on July 9, 2008. (DuqueTobón n.d.)http://www.eafit.edu.co/NR/rdonlyres/5EB56B95-7708-46AB-9...

Forigua Rojas, J., Ley de Mercado de Valores 964 de 2005: RégimenSancionatorio, Infracciones y Sanciones Administrativas [Securities MarketLaw 964 of 2005: Sanctionary Regime, Administrative Infractions andSanctions]," Securities Market Law Seminar, July 2005. Available fromColombian Superintendency of Finance website. Accessed on July 10,2008. (Forigua Rojas 2005)http://www.superfinanciera.gov.co/seminarios/regimensanci...

International Monetary Fund, "Colombia: 2007 Article IV Consultation -Staff Report; and Public Information Notice on the Executive BoardDiscussion," Country Report No. 08/31, Washington, D.C. : IMF, January2008. Available from International Monetary Fund website. Accessed onMay 7, 2008. (IMF 2008)http://www.imf.org/external/pubs/ft/scr/2008/cr0831.pdf

International Organization of Securities Commissions website. Accessed onJuly 12, 2008 (IOSCO website)http://www.iosco.org/lists/display_committees.cfm?cmtid=8http://www.iosco.org/lists/display_committees.cfm?cmtid=9http://www.iosco.org/lists/display_committees.cfm?cmtid=1

Jaramillo Ossa, J. H., "La Protección al Inversionista y a los Activos de losClientes en Colombia [Investor and Client's Assets Protection inColombia]," Seventh Annual Seminar of the Americas' Central SecuritiesDepositories Association, 2006. Available from Americas' CentralSecurities Depositories Association website. Accessed on July 10, 2008.

(Jaramillo Ossa 2006)http://www.acsda.org/download/spanish/sem_2006/10_11_2006...

Ministry of Finance and Public Credit, "Minhacienda Radica Proyecto deReforma Financiera en el Congreso: Habrá un Régimen Integral paraDefender al Consumidor de los Servicios Financieros [The Ministry ofFinance and Public Credit Submits the Financial Reform Bill to Congress:There Will Be an Integral Regime to Protect Consumer from FinancialServices," Bogotá: Ministry of Finance and Public Credit, April 2008.Available from Colombian Superintendency of Finance website. Accessedon July 10, 2008. (MHCP 2008)http://www.superfinanciera.gov.co/NormativaFinanciera/com...

Rosillo Rojas, M., "La Autorregulación en la Ley del Mercado de Valores:Diagnóstico, Perspectivas y Retos [Self-Regulation in the Securities MarketLaw: Diagnosis, Perspectives and Challenges]," Securities Market LawSeminar, July 2005. Available from Colombian Superintendency of Financewebsite. Accessed on July 10, 2008. (Rossillo Rojas 2005)http://www.superfinanciera.gov.co/seminarios/autorregulac...

Rosillo Rojas, M., "Regulación y Autorregulación: la Autorregulación en elMercado de Valores Colombiano [Regulation and Self-regulation: Self-Regulation in the Colombian Securities Market]," Stocks MarketDevelopment International Conference in Chile, Santiago, Chile, June 27,2008. Available from Superintendencia de Valores y Seguros de Chilewebsite. Accessed on July 10, 2008. (Rosillo Rojas 2008)http://www.svs.cl/sitio/publicaciones/doc/Present_Maurici...

Superintendency of Finance, "Informe de Gestión: Enero - Diciembre de2007 [Management Report: January - December 2007]," March 2008Available from Superintendency of Finance website. Accessed on June 20,2008. (SF 2008)http://www.superfinanciera.gov.co/NuestraSuperintendencia...

Superintendency of Finance, "Superintendencia Financiera de Colombia[Colombian Superintendency of Finance]," n.d. Available fromSuperintendency of Finance website. Accessed on June 20, 2008. (SF n.d.)http://www.superfinanciera.gov.co/NuestraSuperintendencia...

Superintendency of Finance website. Last updated on June 12, 2008.Accessed on July 10, 2008. (SF website)http://www.superfinanciera.gov.co/NuestraSuperintendencia...

Unidad de Información y Análisis Financiero website. Last updated on May6, 2008. Accessed on May 6, 2008. (UIAF website)http://www.uiaf.gov.co/index.php?idcategoria=360&uiaf_uia...http://www.uiaf.gov.co

U.S. Department of Commerce, "Doing Business in Colombia: A CountryCommercial Guide," 2008. Available from U.S. & Foreign CommercialService and U.S. Department of State website. Accessed on July 15, 2008.(U.S. DoC 2008)http://www.buyusainfo.net/docs/x_805569.pdf

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Effective Insolvency and Creditor Rights Systems

LEVEL OF COMPLIANCE: INSUFFICIENT INFORMATION

SummaryAccording to the 2007 report by the Superintendency ofCompanies and the Ministry of Commerce, Industry, andTourism, Law No. 1116 was passed in 2006 to establish a newframework for corporate insolvency procedures in Colombia.The new law introduced modifications to the previouslegislation, mainly to Law No. 550 of 1999, which overlyprotected debtors and thereby negatively affected bank lendingand the Colombian financial market. The World Bank websitediscloses that the reform legislation was expected to follow theWorld Bank's Principles and Guidelines for Effective Insolvencyand Creditor Rights Systems issued in 2001, as well as theUNCITRAL Model Law on Cross-Border Insolvency. However,there is insufficient information publicly available as to thecompliance of the adopted law with the World Bank´sPrinciples.

General OverviewThe 2005 Financial System Stability Assessment (FSSA) by theInternational Monetary Fund (IMF) and a 2006 article by A.Rouillon both assert that, in 1999, the Colombian insolvencyframework was modified by the emergency passage of LawNo. 550. This law aimed to protect debtors and wasexcessively tilted against creditors. This turned out to bepotentially detrimental to the growth of bank lending andeconomic development. However, the FSSA noted thatColombia intended to reform its insolvency legislation. In fact,the World Bank's Insolvency Overview, available on the WorldBank website, stated that Colombia was taking intoconsideration the World Bank principles of 2001 in theelaboration of the alternative insolvency framework. The 2007report by the Superintendency of Companies and the Ministryof Commerce, Industry and Tourism (SS&MCIT), states thata new corporate insolvency regime was established by LawNo. 1116 of 2006. This Law modified the previous legislation,particularly Law No. 550 of 1999. According to OxfordAnalytica's 2007 report, the implementation of the new Lawhas led to a significant change in the legislation affecting

creditors' rights. Nevertheless, there is insufficient informationpublicly available as to the compliance of the adopted law withthe World Bank´s Principles

The SS&MCIT report asserted that the new law, which wasimplemented in June 2007, brought about several changes. Itestablished that debtors must elaborate a company recoveryplan and made compulsory the payment of taxes and pensionliabilities in order to initiate the liquidation process. It alsoreduced the privileged status of fiscal liabilities. It introducedbalance between creditor and debtor rights. In addition, itmade permanent some provisions contained in the Law No.550 and it made liquidation processes more dynamic. The IMFreport observed that, prior to the implementation of LawNo. 1116, there were two main weaknesses concerning theinsolvency system. First, there were inadequate requirementsfor implementing a restructuring agreement and, second, therewere delays in insolvency procedures.

The World Bank website notes that creditor rights and thecollateral system are regulated by the Colombian Civil Codeand the Commercial Code. The IMF report asserts that, beforethe passage of Law No. 1116, Colombian legislation adequatelyestablished creditor rights but still displayed shortcomings inits enforcement proceedings. The report notes the need forcentralized land and movable-property registries and observesthat individual suits had inappropriate procedures at theirdisposal for collecting funds for secured and unsecuredcreditors. Moreover, Rouillon's 2006 report states that securedcreditors considered the collateral mechanisms provided byColombian legislation insufficient, asserting that default riskswere not reduced by those instruments. According to theBrigard and Urrutia 2006 report, Law No. 222 of 1995 alsosets out provisions on liquidations and restructuringprocedures, and the 1993 Financial System Organic StatuteDecree No. 663 provides for liquidations and the takeover ofinsolvent firms by the financial entities supervisor. The WorldBank website discloses that Decree No. 1080 of 1996, the CivilProcedure Code, and the Civil Code also establish provisions

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related to liquidations. The U.S. Department of Commerce's(DoC) 2008 report states that Law No. 145 of 1999 providesthe Colombian government with the authority to intervene inall companies permanently located in Colombia. The reportnotes that "this law promotes solutions along the lines ofU.S.-style 'Chapter 11' bailouts for companies with financialproblems which face possible liquidation or bankruptcy" (p.92). The report adds that the legislation provides for stringentprocedures concerning restructuring agreements. For example,companies that are being restructured cannot freely performfinancial operations unrelated to the company's activity.

An undated article appearing on the MCIT website states thatthe Superintendency of Companies arranges the bankruptcyprocesses for all legal persons, whereas specialized civil judgesarrange processes for individuals. According to this article,the Superintendency seeks to contribute to communitydevelopments through the correct interpretation andimplementation of the legal regime and to implement adequateresolution processes. It seeks to perform its tasks effectivelyin order to avoid crisis situations and to monitor restructuringand bankruptcy processes. Prior to legislative reforms, the IMFhad reported that enhancing public confidence in insolvencyresolution procedures would improve the Superintendency'sability to fulfill its role. Touillon, however, observe that theColombian institutional framework is not aligned withinternational standards because the Superintendency ofCompanies is not as independent as the Judiciary.

The International Bank for Reconstruction and Developmentand the World Bank have published a "Doing Business" reportfor Colombia in 2009, in which it dealt with Colombia'spractices on a number of dimensions, including closing abusiness. The results of this review are summarized on theWorld Bank's "Doing Business 2009" Colombia webpage.According to the report, business-closing practices can beevaluated by looking at three principle elements: the time(in years) it takes to complete the process, the cost (as apercentage of the debtor estate) of the procedure, and therecovery rate enjoyed by creditors, expressed in terms ofcents on the dollar. The report presents these data alongsidecomparable averages achieved both within the region andacross the membership of the Organization for Economic Co-operation and Development (OECD). According to the

report, it takes an average of 3 years to complete a businessclosing in Colombia, compared with a regional average of 3.3years and an OECD member state average of 1.7 years. InColombia it costs 1.0% of the estate to close a business,compared to 15.9% for the region and 8.4% for OECD states.Finally, creditors recover an average of 52.8 cents on the dollarin Colombia, whereas the regional average is 26.8 cents andthe OECD average is 68.6.

Sources of AssessmentInternational Monetary Fund, "Colombia: Financial System StabilityAssessment Update, including Reports on the Observance of Standardsand Codes on the following topics: Securities Regulation, Insolvency andCreditor Rights Systems, and Payment Systems," Country Report No. 05/287, Washington, D.C.: IMF, August 2005. Available from InternationalMonetary Fund website. Accessed on July 23, 2008. (IMF 2005)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

World Bank website. Accessed on July 23, 2008. (WB website)http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/LAWANDJUS...

Relevant OrganizationsColombian Juridical Branch - Rama Jurídica de Colombia (website inSpanish only)http://www.ramajudicial.gov.co/csj_portal/index.html

Ministry of Commerce, Industry and Tourism - Ministerio de Comercio,Industria y Turismo (MCIT) (website in Spanish only)http://www.mincomercio.gov.co/eContent/home.asp

Superintendency of Companies - Superintendencia de Sociedades (SS)(website in Spanish only)http://www.supersociedades.gov.co/ss/drvisapi.dll?

Relevant Legislation/RegulationCommercial Code Decree No. 410, 1971 - Código de Comercio DecretoNo. 410, 1971 (in Spanish only)http://alcaldiademonteria.tripod.com/codigos/comercio/cod...

Colombian Civil Code - Código Civil Colombiano (in Spanish only)http://encolombia.com/derecho/C%C3%B3digoCivilColombiano/...

Civil Procedure Code Decrees No. 1400 and No. 2019, 1970 - Código deProcedimiento Civil Decretos No. 1400 y No. 2019, 1970 (in Spanish only)http://alcaldiademonteria.tripod.com/codigos/civil/tblcnd...

Law modifying the Commerce Code Book II, issuing a new regime ofbankruptcy processes, and other dispositions No. 222, 1995 - Ley por lacual se modifica el Libro II del Código de Comercio, se expide un nuevorégimen de procesos concursales y se dictan otras disposiciones No. 222,1995 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Law establishing the Corporate Insolvency Regime in the Republic ofColombia and other dispositions are issued No. 1116, 2006 - Ley por lacual se establece el Régimen de Insolvencia Empresarial en la República de

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Colombia y se dictan otras disposiciones No. 1116, 2006 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Law creating a regime to promote and facilitate corporate recovery toensure corporate responsibility and issuing norms to harmonize thecurrent legal framework with the requirements of this Law No. 550, 1999 -Ley por la cual se establece un régimen que promueva y facilite lareactivación empresarial y la reestructuración de los entes territoriales paraasegurar la función social de las empresas y lograr el desarrollo armónicode las regiones y se dictan disposiciones para armonizar el régimen legalvigente con las normas de esta ley No. 550, 1999 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Law No. 145, 1999 - Ley No. 145, 1999

Financial System Organic Statute Decree No. 663, 1993 - EstatutoOrgánico del Sistema Financiero No. 663, 1993 (in Spanish only)http://www.superfinanciera.gov.co/Normativa/NormasyReglam...

Decree reforming the Superintendency of Companies and issuing normson its administration and resources No. 1080, 1996 - Decreto por el cualse reestructura la Superintendencia de Sociedades y se dictan normassobre su administración y recursos No. 1080, 1996 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Supplementary SourcesBrigard & Urrutia Abogados S.A., "Guide to Doing Business in Colombia,"Bogotá, Colombia: Brigard & Urrutia, September 2006. Available fromLeximundi website. Accessed on July 22, 2008. (Brigard & Urrutia 2006)http://www.lexmundi.com/images/lexmundi/PDF/guide_colombi...

International Bank for Reconstruction and Development and the WorldBank, "Doing Business 2009: Country Profile for Colombia," 2009. Available

from Doing Business website. Accessed on January 5, 2009. (IBRD&WB2009)http://www.doingbusiness.org/exploreeconomies/?economyid=46http://www.doingbusiness.org/Documents/CountryProfiles/CO...

Ministry of Commerce, Industry and Tourism, "Superintendencia deSociedades [Superintendency of Companies]," n.d. Available from WorldBank website. Accessed on July 23, 2008. (MCIT n.d.)http://siteresources.worldbank.org/GILDCOLOMBIA/Library/2...

Oxford Analytica, "Shareholder And Creditor Rights In Key EmergingMarkets 2006," Oxford Analytica, January 2007. Available from CaliforniaPublic Employee Retirement System website. Accessed on July 22, 2008.(OA 2007)http://www.calpers.ca.gov/eip-docs/investments/assets/equ...

Rouillon, A., "Colombia: Derechos de Crédito y Procesos Concursales[Colombia: Credit Rights and Bankruptcy Processes]," May 2006. Availablefrom Ministry of Finance and Public Credit website. Accessed on July 23,2008. (Rouillon 2006)http://www.minhacienda.gov.co/portal/page/portal/MinHacie...

Superintendency of Companies and Ministry of Commerce, Industry andTourism, "Cartilla: Nuevo Régimen de Insolvencia Empresarial, Ley 1116 de2006 [Chart: New Corporate Insolvency Regime, Law 1116 of 2006],"2007. Available from Legislación y Jurisprudencia website. Accessed on July23, 2008. (SS&MCIT 2007)http://www.legislacionyjurisprudencia.com/temas/2007/Cart...

U.S. Department of Commerce, "Doing Business In Colombia: A CountryCommercial Guide for U.S. Companies", U.S. & Foreign CommercialService and U.S. Department Of State, March 2008. Available from U.S.Department of Commerce website. Accessed on July 23, 2008. (U.S. DoC2008)http://www.buyusainfo.net/docs/x_3734345.pdf

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Insurance Core Principles

LEVEL OF COMPLIANCE: INSUFFICIENT INFORMATION

SummaryThe Financial System Stability Assessment update conductedby the International Monetary Fund (IMF) in 2005 asserts thatthe regulatory capabilities of the supervisor have improved,as reflected by the enhanced technical skills of staff, and theadoption of modern procedures consistent with internationalbest practices. However, the political independence of thesupervisor, solvency margins rules, international cooperation,and the scheme for taking preventive measures are key areaswhere further advances are needed. Consequently, the IMFassessment recommended that Colombia improve supervisorypractices and market infrastructure, and reinforce theregulation of the non-life sector concerning provisioning andrisk-oriented solvency. Further, the IMF suggested thatColombia strengthen the independence of the supervisor andassign more resources to insurance supervision. In August2007, the Federation of Colombian Insurers released aCorporate Governance Code for the insurance industry inorder to promote best corporate governance practices ofinsurers. Nevertheless, there is insufficient information publiclyavailable as to Colombia's compliance with the Insurance CorePrinciples promulgated by the International Association ofInsurance Supervisors in 2003.

General OverviewPrior to 2005, the year in which Colombia modified itssupervisory framework, the insurance sector was supervisedby the Superintendency of Banks (SB). During this period,the International Monetary Fund (IMF) published a FinancialSystem Stability Assessment (FSSA) Update which assertedthat progress had been made in the regulation of theColombian insurance sector. The IMF cited improvements inthe regulator's technical skills and the adoption of modernprocedures in line with international best practices as two keyareas in which progress had been made. However, a significantreduction in staffing raised concerns regarding SB's ability tocarry out proper regulation. The IMF report stated that therehad been significant advances in the area of internal risk-based

financial assessment methods, and steady progress was beingmade towards a solvency-monitoring approach. However, thereport noted that "some data collection initiatives in the nonlifesector are needed to take the analysis further along withtargeted assistance on technical issues" (p. 18). The reportrecommended different measures to cope with the identifiedshortcomings. It suggested that Colombia strengthen itssupervisory practices and reinforce the provisioning and risk-oriented solvency regulation of the nonlife sector. Theindependence of the supervisor should be improved and thereshould be more resources assigned to supervise the insurancesector. In 2005, the SB and the Superintendency of Securitieswere merged to form the Superintendency of Finance (SF) inaccordance with Decree No. 4327 of 2005. Since this occurredafter the IMF's Update, there in insufficient information asto Colombia's current compliance with the Insurance CorePrinciples promulgated by the International Association ofInsurance Supervisors (IAIS) in 2003.

The SF website discloses that the insurance sector in Colombiais governed by the following laws and regulations: (1) FinancialSystem Organic Statute Decree No. 663 of 1993 (EOSF)sets rules regarding the supervisor and supervised entities,inspections, sanctions, and procedures; (2) Commerce Codethrough Decree No. 410 of 1971, which regulates insurancecontracts; (3) SB External Communication No. 7 of 1996,which regulates operational aspects; and (4) SB ExternalCommunication No. 100 of 1995 on accounting and valuationissues. The 2008 report by the Ministry of Finance and PublicCredit (MHCP) states that the Colombian government hassent a Bill to Congress that seeks to protect financialcustomers, However, the 2007 report by Fedesarrollo and theCenter for International Private Enterprise (CIPE) points outthat although the reform bill would introduce some changes tothe structure and supervisory function of the financial system,there are some important issues that are not included, suchas creditors rights, financial information, and the execution andconstitution of guarantees.

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A brochure available on the SF website discloses that the SF isin charge of regulating and supervising insurance activities andprotecting policy-holders. Decree No. 2739 of 1991, the EOSF,Law No. 964 of 2005, and modifying regulations confer on theSF those functions previously assigned to the Superintendencyof Securities (SV) and the SB. The SF is a technical bodyunder the MHCP. The 2007 report by Acosta asserts thattwo of the main challenges facing the SF are to design astronger governance structure and to increase its financial andpolitical independence. The SF reports that, as of 2008, 24general insurance companies, 20 life insurance companies, and5 capitalization companies operated in the Colombianinsurance market. The insurance sector has showed asignificantincrease of assets under management since 1999. Acosta notesthat, as of 2007, the portfolio composition of the insurancesector was: (1) 47 percent of sovereign debt; (2) 32 percent ofother debts; and (3) 21 percent of equities. As noted on theIAIS website, Colombia is a member of the IAIS.

Principle: ICP 1 Conditions foreffective insurance supervision[Insufficient Information]

A brochure available on the SF website discloses that the SFis in charge of supervising the Colombian financial system,including the insurance sector. The objective of the SF is topreserve stability, promote the development of the securitiesmarket, and protect investors and policy holders. The SFacknowledges that financial supervision is key to promotingColombian economic and social development. The EOSFspecifies the main functions of the SF and includes provisionsregarding insurance companies, credit institutions, financialservices companies, capitalization companies, and insuranceand reinsurance brokers. Concerning accounting standards, the2005 IMF report notes that there are serious departures frominternational accounting principles, and the interpretation ofthe Colombian accounting requirements is troublesome.However, the Dinero Magazine website discloses thatCongress is considering Bill No. 165 of 2007, which wouldadopt International Financial Reporting Standards (IFRSs) asmandatory standards to be applied in large companies by 2010.For small and medium-size companies, the deadline is 2012.However, there is insufficient information publicly available asto Colombia's compliance with this principle.

Principle: ICP 2 Supervisoryobjectives[Insufficient Information]

According to Article No. 46 of the EOSF, the supervisoryobjectives are to guarantee that financial activities benefit thesociety; to protect people that have savings, depositors, policy-holders, and investors; to promote free competition; todemocratize credit; and to protect and foster financialinstitutions development. Nonetheless, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: ICP 3 Supervisoryauthority[Insufficient Information]

The SF was created by Decree No. 4327 of 2005 with themerger of the SB and the SV. Prior to this merger, theinsurance sector was supervised by the SB. The 2005 IMFFSSA Update noted that, under this earlier system, there hadbeen progress in the regulation of Colombia's insurance sector,particularly in the area of improved technical skills and theadoption of modern procedures that approached internationalbest practice. The SF website discloses that theSuperintendency's functions include the supervision ofinsurance activities and the protection of policy holders.Decree No. 2739, the EOSF, and Law No. 964, as well asother modifying regulations, invest the SF with the functionsof its predecessor agencies. The SF is a technical body underthe MHCP. Furthermore, the SF is also controlled by entitiessuch as the General Comptroller and the General Prosecutor'sOffice. Per the 2007 Acosta report, two of the main challengesfacing the SF are to design a stronger governance structure andto increase its financial and political independence. However,there is insufficient information publicly available as toColombia's compliance with this principle.

Principle: ICP 4 Supervisory process[Insufficient Information]

Before the creation of the SF through the merger of the SBand SV, the SB published a 2005 report entitled "Inspection

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Methodology Document." This report explained in detail theSB supervisory process, which comprised five steps: (1) annualplanning establishing the entities to be inspected; (2) individualinspection planning performed three weeks before theinspection which aims to analyze off-site information; (3)solicitation of information; (4) inspection development; and(5) elaboration of the inspection report. Nonetheless, thereis insufficient information publicly available as to Colombia'scompliance with this principle.

Principle: ICP 5 Supervisorycooperation and information sharing[Insufficient Information]

Article 92 of Law No. 795 of 2003, which modifies someprovisions of the EOSF, creates a Coordination Committee forfinancial sector supervision. This was composed by the MHCP,the SB, and the SV (now the MHCP and the SF), the CentralBank of Colombia, and the Financial Institutions GuaranteeFund. The Committee facilitates information sharing, promotesthe homogeneity of the procedures employed, and coordinatesactions. However, as noted in the 2005 IMF report, it wasnecessary to establish a better mechanism for coordinationof efforts and information sharing among various agencies.However, there is insufficient information publicly available asto Colombia's compliance with this principle.

Principle: ICP 6 Licensing[Insufficient Information]

As indicated on the SF's website, the Colombian NationalConstitution defines insurance activity as being an issue ofthe public interest. Such activity can only be executed withprior authorization by the State. The requisites and proceduresthat institutions must comply with in order to obtain thesupervisor's authorization are set out in Articles 39 and 108of the EOSF and External Communication No. 7 of 1996.According to the EOSF, the entities must send to thesupervisor a formal solicitation that includes: (1) proposed by-laws; (2) the amount and form of capital to be raised (this mustexceed the minimum required); (3) information on participantsin such activities; (4) a feasibility plan: and (5) any additionalinformation requested by the supervisor.

According to the SF website, the minimum capital entrancerequirement for insurance companies is 5.5 billion pesos. Thisrequirement reaches 22 billions pesos for reinsurancecompanies, These amounts are adjusted annually, accordingto Law No. 795 of 2003. An additional minimum capitalrequirement applies that is established by the governmentand varies depending on the type of insurance activity. Withregard to foreign insurers, Article 188 of the EOSF states thatinsurance on ships, cars, and planes registered in Colombiamust be provided by companies that are legally established inColombia or by foreign companies with previous authorizationfrom the supervisor. Nonetheless, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: ICP 7 Suitability of persons[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: ICP 8 Changes in controland portfolio transfers[Insufficient Information]

Article 326 of the EOSF states that the supervisor can rejector accept the merger or acquisition of any insurance company.As noted on the SF website, insurance companies are able totransfer insurance contracts totally or partially to other entitiesthat offer a corresponding type of insurance. SF authorizationis required when the transfer is larger than the 25 percent ofthe portfolio of the branch. Insured people must be informedin advance of such transfers, and their rights and guaranteescannot be modified. However, there is insufficient informationpublicly available as to Colombia's compliance with thisprinciple.

Principle: ICP 9 Corporategovernance[Insufficient Information]

In August 2007 the Federation of Colombian Insurers releaseda Corporate Governance Code for the insurance industry.

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The Code provides a framework to be used by the insurancecompanies to elaborate their own codes following internationalstandards, according to the Federation website. As of May2008, 60 percent of insurance companies have implementedtheir own codes, according to the Goseguros website.Nonetheless, there is insufficient information publicly availableas to Colombia's compliance with this principle.

Principle: ICP 10 Internal control[Insufficient Information]

According to the SF website, Colombian Commerce Code,through Decree No. 410 of 1971, establishes that all issuersmust have an external auditor ("revisor fiscal"), in charge ofevaluating the adequacy of the companies' internal controls.As stated in the Correa Bonillas's 2001 report, ExternalCommunication No. 7 of 1996 establishes the rules on internalcontrols that supervised entities must follow. Furthermore,the Communication states that entities should establish anaudit committee. The 2008 SF "Management Report: January-December 2007" asserts that the SF verifies the adequacy ofcompanies' internal controls and oversees the implementationof measures and procedures. However, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: ICP 11 Market analysis[Insufficient Information]

The SF website discloses aggregate and detailed data on theinsurance market in general, as well as information on individualentities. The SF issues press releases with data on (1) theindustry's general balance sheet, liabilities and assets; (2) theindustry's financial statements; (3) the evolution of eachinsurance business line; and (4) the financial situation of eachcompany. However, there is insufficient information publiclyavailable as to Colombia's compliance with this principle.

Principle: ICP 12 Reporting tosupervisors and off-site monitoring[Insufficient Information]

The SF website discloses aggregate and detailed data on theinsurance market in general, as well as information on individualentities. The SF issues press releases with data on (1) theindustry's general balance sheet, liabilities and assets; (2) theindustry's financial statements; (3) the evolution of eachinsurance business line; and (4) the financial situation of eachcompany. However, there is insufficient information publiclyavailable as to Colombia's compliance with this principle.

Principle: ICP 13 On-site inspection[Insufficient Information]

As established by the EOSF and the Commerce Code ofColombia, as soon as an insurance company is granted a licenseto do business in the country, the regulatory authorities startmonitoring the company's corporate affairs. According to the2008 SF "Management Report: January-December 2007," theSF's on-site inspections are the main verification mechanismof the supervised entities' procedures and compliance withregulations. Moreover, Article 326 of the EOSF establishesthat the supervisor can carry out inspections to oversee theentities' financial situation, its business management, and specialissues. Nevertheless, there is insufficient information publiclyavailable as to Colombia's compliance with this principle.

Principle: ICP 14 Preventive andcorrective measures[Insufficient Information]

Article 113 of the EOSF sets forth the different supervisorymeasures that the SF can take to prevent entities from takingpossession of its goods, assets, or businesses. Prior to theintegration of the SB and the SV into the SF, according to the2005 SB "Conceptual and Supervisory Policy Document," thesupervisor had powers to issue recommendations, and takepreventive and corrective actions to overcome deficiencies.However, no information on the compliance of the newregime with this principle is publicly available.

Principle: ICP 15 Enforcement orsanctions[Insufficient Information]

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The 2005 SB report titled "Conceptual and Supervisory PolicyDocument" notes that Colombian legislation (in particularArticle 114 of the EOSF) establishes that the supervisor mayimpose sanctions when companies do not comply with thesupervisor's dispositions and when submitted accountinginformation is inconsistent. The SF's 2008 Management Reportnotes that, during 2007, the SF issued 35 reprimands andimposed 145 fines. Nevertheless, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: ICP 16 Winding-up & exitfrom the market[Insufficient Information]

The EOSF establishes that the supervisor can take possessionof the supervised entity in order to determine whether to windit up or look for alternative solutions that would allow thecompany to continue operating. However, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: ICP 17 Group-widesupervision[Insufficient Information]

According to the 2008 SF Management Report, Article 325of the EOSF sets out that supervision must be performedon a comprehensive and consolidated basis. The SB's 2005"Conceptual and Supervisory Policy Document" notes thatsupervision shall take into account the increasing globalizationof financial transactions. The presence of foreign companiesin Colombia and the establishment of Colombian companies'branches abroad call for a supervisory process with aninternational dimension. Nevertheless, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: ICP 18 Risk assessmentand management[Insufficient Information]

The 2005 IMF report states that significant progress had beenmade with relation to internal risk-based financial assessmentmethods. Also, Colombia had made steady advances towards asolvency-monitoring approach. However, "some data collectioninitiatives in the nonlife sector are needed to take the analysisfurther along with targeted assistance on technical issues" (p.18). According to the 2008 SF Management Report, the SF hasbeen gradually implementing risk-based supervision, followingrecommendations of other supervisors and internationalorganizations such as the International Organization ofSecurities Commission, the Basel Committee, and theCommittee of Sponsoring Organizations of the TreadwayCommission. Furthermore, the report notes that every entityis supervised taking into account its risk profile. However, thereis insufficient information publicly available as to Colombia'scompliance with this principle.

Principle: ICP 19 Insurance activity[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: ICP 20 Liabilities[Insufficient Information]

As indicated on the SF's website, insurance and reinsurancecompanies established in Colombia must build appropriatereserves to cover casualty payments. The following reservesare considered: (1) reserves for unearned premiums; (2)reserves for reported claims; (3) reserves for unreportedclaims; (4) a mathematical reserve, that is the differencebetween the actual value of the future risk of the insurancecompany and the actual value of net premiums that are paid bythe insured; and (5) reserves from deviation of casualties whendealing with catastrophes. Technical reserves must be investedin a portfolio that is regulated by Decrees No. 94 of 2000 andNo. 2779 of 2001. Decree No. 94 sets out that reserves shallfollow a conservative investment strategy. Nevertheless, thereis insufficient information publicly available as to Colombia'scompliance with this principle.

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Principle: ICP 21 Investments[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: ICP 22 Derivatives andsimilar commitments[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: ICP 23 Capital adequacyand solvency[Insufficient Information]

As indicated on the SF's website, once in operation, insuranceand reinsurance companies must comply with minimum capitalrequirements. The minimum capital requirement for insurancecompanies is 5.5 billion pesos. This requirement reaches 22billion pesos for reinsurance companies. These amounts areannually adjusted in line with Law No. 795. Also, there is anadditional minimum net worth requirement that is establishedby the government and varies depending on the insurancebusiness line. The EOSF requires insurance companies to holda solvency margin determined by the government. This marginis calculated as a function of the largest of the total amount ofpremiums collected or the mean of claims paid in the last threefinancial years. Nonetheless, there is insufficient informationpublicly available as to Colombia's compliance with thisprinciple.

Principle: ICP 24 Intermediaries[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: ICP 25 Consumerprotection[Insufficient Information]

According to the SF website, the SF's mission is to preservepublic confidence and financial system stability, to make stockmarkets transparent and efficient; and to protect consumers offinancial services. In order to achieve this objective, accordingto MHCP Press Communication No. 28 of April, 2008, thegovernment sent to the Congress a Financial Reform Bill thatwould provide a comprehensive consumer protection scheme.The document notes that the Bill contains a chapter whichdetails consumer rights, insurer obligations, and possiblesanctions. The proposed bill strengthens the role of "ClientDefender" and sets out that the information provided to theconsumer must be timely, transparent, truthful, andappropriate. Nonetheless, there is insufficient informationpublicly available as to Colombia's compliance with thisprinciple.

Principle: ICP 26 Information,disclosure & transparency towardsthe market[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: ICP 27 Fraud[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: ICP 28 Anti-moneylaundering/ Combating the Financingof Terrorism[Insufficient Information]

The 2008 report by the Bureau of International Narcoticsand Law Enforcement Affairs states that Colombia formallyadopted legislation in 1999 to establish the FinancialInformation and Analysis Unit (UIAF) within the MHCO. TheUIAF enjoys ample powers to access and analyze financialinformation of public and private entities in Colombia.Supervised entities are required to report suspicious

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transactions to the UIAF, but not to the implicated clients. Inaddition, most entities under the supervision of the UIAF mustestablish "know-your-customer" provisions. Nevertheless, thereis insufficient information publicly available as to Colombia'scompliance with this principle.

Sources of AssessmentInternational Monetary Fund, "Colombia: Financial System StabilityAssessment Update, Including Reports on the Observance of Standardsand Codes on the following topics: Securities Regulation, Insolvency andCreditor Rights Systems, and Payment Systems," Country Report No. 05/287 Revised, Washington, D.C.: IMF, August 2005. Available fromInternational Monetary Fund website. Accessed on May 23, 2008. (IMF2005)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

Relevant OrganizationsCentral Bank of Colombia - Banco de la República de Colombia (CBC)http://www.banrep.gov.co/index_eng.html

Federation of Colombian Insurers - Federación de AseguradoresColombianos (FASECOLDA) (website in Spanish only)http://www.fasecolda.com/fasecolda/

Financial Institutions Guarantee Fund - Fondo de Garantías de InstitucionesFinancieras (FOGAFIN) (website in Spanish only)https://www.fogafin.gov.co/Principales/principal.html

General Prosecutor's Office - Fiscalía General de la Nación (FGN)(website in Spanish only)http://www.fiscalia.gov.co/

Ministry of Finance and Public Credit - Ministerio Hacienda y CreditPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co/

Office of the General Comptroller - Contraloría General de la Repúblicade Colombia (CGR) (website in Spanish only)http://www.contraloriagen.gov.co/html/home/home.asp

Superintendency of Companies - Superintendencia de Sociedades (SS)(website in Spanish only)http://www.supersociedades.gov.co/ss/drvisapi.dll?MIval=s...

Superintendency of Finance - Superintendencia Financiera (SF)http://www.superfinanciera.gov.co/

Relevant Legislation/RegulationColombian Constitution, 1991 - Constitución Política de Colombia, 1991(in Spanish only)http://www.ideaspaz.org/proyecto03/boletines/download/bol...

Financial System Organic Statute, Decree No. 663, 1993 - EstatutoOrgánico del Sistema Financiero, Decreto No. 663, 1993 (in Spanish only)http://www.superfinanciera.gov.co/Normativa/NormasyReglam...

Law creating the Financial Information and Analysis Unit No. 526, 1999 -Ley por la cual se crea la Unidad de Información y Análisis Financiero No.

526, 1999 (in Spanish only)http://www.secretariasenado.gov.co/leyes/L0526_99.HTM

Law issuing General Norms, Objectives and Criteria that the NationalGovernment Must Consider when Regulating Activities Related to theManagement, Use, and Investment of Resources Collected from the Publicthrough Securities, and Other Norms Are Enacted No. 964, 2005 - Leypor la cual se dictan normas generales y se señalan en ellas los objetivos ycriterios a los cuales debe sujetarse el Gobierno Nacional para regular lasactividades de manejo, aprovechamiento e inversión de recursos captadosdel público que se efectúen mediante valores y se dictan otrasdisposiciones No. 964, 2005 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Law adjusting Some Norms of the Financial Sector Organic Statute andOther Dispositions Are Enacted No. 795, 2003 - Ley por la cual se ajustanalgunas normas del Estatuto Orgánico del Sistema Financiero y se dictanotras disposiciones No. 795, 2003 (in Spanish only)http://www.superfinanciera.gov.co/Normativa/leyreformafin...

Commerce Code, Decree No. 410, 1971 - Código de Comercio, DecretoNo. 410, 1971 (in Spanish only)http://encolombia.com/derecho/CodigoComercioColombiano/Co...

Decree merging the Colombian Superintendency of Banks with theSuperintendency of Securities and Its Structure Is Modified No. 4327, 2005- Decreto por el cual se fusiona la Superintendencia Bancaria de Colombiaen la Superintendencia de Valores y se modifica su estructura No. 4327,2005 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Decree by which the Structure of the National Securities Commission IsAdapted to Its New Nature as Superintendency No. 2739, 1991 - Decretopor el cual se adecua la estructura de la Comisión Nacional de Valores a sunueva naturaleza de superintendencia (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Decree Establishing the Investment Regime for Insurance Companies andCapitalization Companies No. 94, 2000 - Decreto por el cual se estableceel régimen de inversiones de entidades aseguradoras y sociedades decapitalización No. 94, 2000 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Decree Regulating Decree No. 94 of 2000, No. 2779, 2001 - Decreto porel cual se reglamenta el decreto 94 de 2000, No. 2779, 2001 (in Spanishonly)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

External Communication of the Superintendency of Banks No. 7, 1996 -Circular Externa de la Superintendencia Bancaria No. 7, 1996 (in Spanishonly)http://www.superfinanciera.gov.co/Normativa/NormasyReglam...

External Communication of the Superintendency of Banks No. 100, 1995 -Circular Externa de la Superintendencia Bancaria No. 100, 1995 (in Spanishonly)http://www.superfinanciera.gov.co/Normativa/NormasyReglam...

Corporate Governance Code of the Federation of Colombian Insurers,2007 - Código de Gobierno Corporativo de la Federación deAseguradores Colombianos, 2007 (in Spanish only)http://www.fasecolda.com/fasecolda/BancoConocimiento/S/so...

Draft Law by which the Colombian State Adopts International FinancialReporting Standards for the Accounting Reporting No. 165, 2007 -Proyecto por el cual el Estado colombiano adopta las Normas

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Internacionales de Información Financiera para la presentación de informescontables No. 165, 2007 (in Spanish only)http://www.adecum.org/globalconta/proyectoadopcionifrs(16...

Supplementary SourcesAcosta, A., "Colombia Summary," Presentation at the World Bank andInternational Monetary Fund Conference on Aligning Financial SupervisoryStructure with Country Needs, Washington, D.C., June 5-6, 2006. Availablefrom World Bank website. Accessed on November 17, 2008. (Acosta2006)http://info.worldbank.org/etools/library/view_p.asp?lprog...

Acosta, A., "El Sector Asegurador y la Superintendencia Financiera [TheInsurance Sector and the Superintendency of Finance]," Presentation at theXVI International Insurance Conference, Cartagena, May 2007. Availablefrom Superintendency of Finance website. Accessed on June 20, 2008.(Acosta 2007)http://www.superfinanciera.gov.co/ComunicadosyPublicacion...

Correa Bonilla, P., "Política de Supervisión y Control [Supervision andControl Policy]," Speech at the Insurance Companies Convention, Boyacá,Colombia, November 17, 2001. Available from Superintendency of Financewebsite. Accessed on June 20, 2008. (Correa Bonilla 2001)http://www.superfinanciera.gov.co/ComunicadosyPublicacion...

Dinero Magazine website, "Hacia una Contabilidad Global [Toward GlobalAccounting]," March 28, 2008. Available from Dinero Magazine website.Accessed on June 5, 2008. (Dinero Magazine website)http://www.dinero.com/wf_InfoArticulo.aspx?IdArt=46084

Fedesarrollo and Center for International Private Enterprise, "El Proyectode Reforma Financiera [The Financial Reform Project]," Economics andPolitics: Analysis of Current Legislative Situation Analysis, No. 25,November 2007, Accessed on November 17, 2008. (Fedesarrollo&CIPE2007)http://www.cipe.org/regional/lac/pdf/Fedesarollo35.pdf

Superintendency of Finance, "Informe de Gestión: Enero-Diciembre 2007[Management Report: January-December 2007]," March 2008. Availablefrom Superintendency of Finance website. Accessed on June 20, 2008. (SF2008a)http://www.superfinanciera.gov.co/NuestraSuperintendencia...

Superintendency of Finance, "Comportamiento del Sector Aseguradorenero - marzo de 2008 [Insurance Sector Performance January - March2008]," March 2008. Available from Superintendency of Finance website.Accessed on June 20, 2008. (SF 2008b)http://www.superfinanciera.gov.co/ComunicadosyPublicacion...

Superintendency of Finance, "Superintendencia Financiera de Colombia[Colombian Superintendency of Finance]," n.d. Available fromSuperintendency of Finance website. Accessed on June 20, 2008. (SF n.d.)(in Spanish only)http://www.superfinanciera.gov.co/NuestraSuperintendencia...

Superintendency of Finance website. Last updated on June 12, 2008.Accessed on June 19, 2008. (SF website)http://www.superfinanciera.gov.co/NuestraSuperintendencia...http://www.superfinanciera.gov.co/Normativa/NormasyReglam...http://www.superfinanciera.gov.co/ComunicadosyPublicacion...http://www.superfinanciera.gov.co/Cifras/informacion/trim...http://www.superfinanciera.gov.co/Normativa/NormasyReglam...

Goseguros website. Last updated on May 29, 2008. Accessed on June 19,2008. (Goseguros website) (in Spanish only)http://www.goseguros.com/noticias/noti_hoy.asp?N=4842

Federation of Colombian Insurers website. Accessed on June 19, 2008.(Fasecolda website) (in Spanish only)http://www.fasecolda.com/fasecolda/BancoConocimiento/S/so...

International Association of Insurance Supervisors website. Accessed onJune 24, 2008. (IAIS website)http://www.iaisweb.org/index.cfm?pageID=31

Ministry of Finance and Public Credit, "Minhacienda radica proyecto deReforma Financiera en el Congreso: habrá un régimen integral paradefender al consumidor de los servicios financieros [The Ministry ofFinance submits the Financial Reform Bill to the Congress: there will be anintegral regime to defend the consumer from financial services]," April2008. Available from Superintendency of Finance website. Accessed onJune 20, 2008. (MHCP 2008) (in Spanish only)http://www.superfinanciera.gov.co/NormativaFinanciera/com...

Presidency of Colombia website. Accessed on May 23, 2008 (Presidencywebsite) (in Spanish only)http://www.presidencia.gov.co/sne/2005/noviembre/28/04282...http://www.presidencia.gov.co/sne/2005/junio/23/04232005.htm

Superintendency of Banks, "Documento Conceptual y de Política deSupervisión [Conceptual and Supervisory Policy Document]," June 2005.Available from Superintendency of Finance website. Accessed on June 20,2008. (SB 2005a)http://www.superfinanciera.gov.co/ComunicadosyPublicacion...

Superintendency of Banks, "Documento de Metodología de Inspección[Inspection Methodology Document]," November 2005. Available fromSuperintendency of Finance website. Accessed on June 20, 2008. (SB2005b)http://www.superfinanciera.gov.co/ComunicadosyPublicacion...

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Anti-Money Laundering/Combating Terrorist Financing Standard

LEVEL OF COMPLIANCE: INTENT DECLARED

SummaryIn October 2004, the Financial Action Task Force of SouthAmerica (GAFISUD) conducted a mutual evaluation ofColombia to assess the country's compliance with the FinancialAction Task Force's (FATF) 40+8 recommendations and specialrecommendations on anti-money laundering and combatingthe financing of terrorism. The results were released in a2004 report, in which GAFISUD stated that Colombia is "non-compliant" with three recommendations and six specialrecommendations (SR). The report also found Colombia tobe "partially compliant" with ten recommendations and onespecial recommendation, "largely compliant" with fifteenrecommendations and "compliant" with twelverecommendations and one special recommendation. However,the GAFISUD report identified several shortcomings and areasin which improvements were needed. Most significantly, thereport noted that Colombia was non compliant with thespecial recommendations relating to terrorist financing. Thecountry did not comply with the FATF's requirements onthe criminalization of the financing of terrorism. Proceduresto freeze terrorists' assets were not efficient and financialinstitutions were not required to report suspicious transactionsrelating to terrorism. However, according to several reports,subsequent to the 2004 GAFISUD report, Law No. 1121 of2006 amended the criminal code to establish terrorist financingas a separate crime, following recommendations from theGAFISUD and the Egmont Group. However, there is nopublicly available assessment of this law's effectiveness or itscompliance with the FATF requirements. Furthermore,according to a 2005 report by the International MonetaryFund, the Colombian authorities are deeply committed tocombating money laundering.

General OverviewThe Financial Action Task Force of South America (GAFISUD)conducted an evaluation of Colombia's compliance with theFinancial Action Task Force's (FATF) 40+8 recommendationsand special recommendations. The results of the assessment

were published in the 2004 GAFISUD mutual evaluationreport. In this document GAFISUD found that Colombia is"non-compliant" with three recommendations and six specialrecommendations. It is "partially compliant" with tenrecommendations and one special recommendation and it is"largely compliant" with fifteen recommendations and"compliant" with twelve recommendations and one specialrecommendation. The report also stated that Colombiaacknowledges the importance of combating money launderingand terrorist financing. However, the GAFISUD evaluation alsoidentified some shortcomings. The 2004 report noted thatColombia did not have efficient procedures for confiscatingterrorists' money and assets, and financial institutions are notrequired to report suspicious transactions related to terrorismfinancing. Moreover, terrorist financing was not treated as aseparate crime.

A 2007 report by Aranguren mentioned that theimplementation of Law No. 1121 of 2006 ruled terrorism asa separate offence. Further, Aranguren stated that Colombiahas broadened its anti-money laundering and combating thefinancing of terrorism (AML/CFT) reporting requirements toother sectors, such as lotteries, bingo games, betting parlors,and notaries. The International Monetary Fund's (IMF) 2005Financial System Stability Assessment (FSSA) also reportedthat Colombian AML legislation considers money launderingas an autonomous offense. Several offences are defined inthe legislation, although smuggling and piracy are not included.However, at the time of the 2005 FSSA, Colombia had notratified the United Nations Convention for the Suppression ofFinancing of Terrorism. In addition, the 2008 U.S. Departmentof State (DoS) report remarked that, in spite of recentimprovements, the complexity of Colombia's legal system andlimited resources hinder further developments.

Colombia's legislative and regulatory framework for AML/CFTincludes the Criminal Code, Law No. 599 of 2000, whichdetails money laundering offences; the Financial SystemOrganic Statute Decree No. 663 of 1993, which regulates

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financial institutions; Law No. 1121 of 2006, which identifiesterrorism as a separate offence; the Penal Procedures Code,Law No. 906 of 2004; and External Resolution No. 34 of2004, which regulates the supervision of financial institutions.According to GAFISUD's 2004 report, the FinancialInformation and Analysis Unit (UIAF), was created in 1999as an entity within the Ministry of Finance and Public Credit(MHCP) by Law No. 526 of 1999. It functions as theColombian financial intelligence unit. It is a leading controlauthority in Colombia and one of the most relevant entitiesin Latin America concerning AML/CFT. GAFISUD found thatthe UIAF has adequate powers and systems, but the 2007Aranguren report noted that the UIAF cannot penalize entitiesthat do not comply with reporting requirements.

Colombia is not a financial center, but the banking sector isadequately regulated. However, the U.S. Department of State(DoS) reported in 2008 that the banking sector, nonbankfinancial system, off-shore centers, and trade operations areused for money laundering purposes. Customs officials are notproperly equipped and trained to detect cross border cashsmuggling, and the government has failed to address corruptionand congestion in the court system.

Galeano Lineros reported in 2007 that the Superintendencyof Finance (SF) issued in Circular No. 22 of that year therequirements for financial entities to implement the TerrorismFinancing and Assets Laundering Risk Management System(SARLAFT), a risk-based supervision scheme that includesinternal control procedures that are in line with internationalstandards. Also, according to Aranguren, as of July 2007, thegovernment was preparing legislation that aimed at providingthe UIAF with the authority of enforcing reportingrequirements. Moreover, it plans to extend the regulatoryframework to more sectors, including international trade;vehicle marketing; precious metals; construction; andprofessional activities such as accountants and lawyers.

Principle: 1. Legal Systems andRelated Institutional Measures[Insufficient Information]

According to the 2008 U.S. DoS report, money launderinghas been broadly criminalized in Colombia. As a result of

different norms that were passed by the government in 1995,1997 and 2001, the legalization and concealment of criminalassets is a criminal offence. Also, the government criminalizedthe laundering of a variety of specified types of proceeds.Moreover, under the criminal code, a person that does notreport money laundering is committing a punishable offence.The 2004 GAFISUD report added that money laundering wasestablished as a crime by Article No. 323 of the CriminalCode (Law No. 599). According to the report, the majorshortcoming in Colombia's compliance with this principle wasthe country's failure to properly criminalize terrorist financing.However, in 2007, the Colombian authorities establishedterrorist financing as a separate crime through theimplementation of Law No. 1121. Nevertheless, there is nopublicly available assessment of this law and its effectiveness.

The GAFSUD report found Colombia "largely compliant" withRecommendation (R) 1 as it relates to money laundering and"partially compliant" with R 2 regarding the intent andknowledge of money laundering. Law No. 599 sets penaltiesfrom 6 to 15 years for money laundering crimes and imposescomplementary sanctions for legal persons, including theclosure of firms that commit this kind of crime. The GAFISUDreport also noted that Colombian criminal categories differfrom those established in Recommendation 1 and that thereis not a clear definition of legal persons' responsibilities. TheGAFISUD report also found Colombia to be non-compliantwith Special Recommendation (SR) II because terroristfinancing was not classified as a separate offense. However,both the U.S. DoS 2008 report and the 2007 report byAranguren noted that Law No. 1121 of 2006 amended thecriminal code to establish terrorist financing as a separatecrime, following recommendations from the GAFISUD and theEgmont Group.

The 2004 GAFISUD report also stated that Colombiacomplies with FATF Recommendation 3. The U.S. DoS notedthat Colombian law provides some of the most comprehensiveforfeiture legislation in Latin America. Law No. 793 of 2002shortened seizure proceedings and imposed a regulatorystructure on them. As a consequence of this change, thegovernment has improved its capacity to deal with financialand money laundering crimes. However, in spite of recentimprovements, problems related to the complexity of the legal

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system and the slow pace of final decisions regarding forfeituresremain. Nevertheless, in 2007 the Attorney General approvedsome guidelines that regulate the seizure process. GAFISUDalso found Colombia to be "non-compliant" with SRIII, becauseColombia had neither freezing mechanisms nor an efficientsystem for implementing United Nations resolutions. The U.S.DoS report mentioned that Colombia implemented a new lawallowing the UIAF to collect information related to terroristfinancing and enabling the immediate seizure of terrorist assets.However, Colombian legislation is not clear as to thegovernment's authority to block assets of individuals andentities included in the UN 1267 Sanctions Committee list.

The GAFISUD report found Colombia to be largely compliantwith R 26 and 30 and compliant with R 32. The U.S. DoS andGAFISUD reports stated that the UIAF was created in 1999by Law No. 526 as an entity within the MHCP, with financialand administrative autonomy. Both the DoS report and a 2005IMF report noted that the UIAF has adequate powers andsystems, and can oversee the information of several entities,such as banks, stock exchanges, mutual and investment funds,wire transfers, and casinos. Moreover, the U.S. DoS reportasserts that the UIAF is considered one of the leaders inLatin America in anti-money laundering efforts. However, theGAFISUD noted that the UIAF has no legal authority to detectand prevent terrorist financing. The report further noted thatthe UIAF does not have enough financial and human resourcesto fulfill its functions. Moreover, the 2007 Aranguren reportasserted that the UIAF cannot penalize entities that do notcomply with reporting requirements. However, as of July 2007,the government was preparing a bill aiming to deal with theseshortcomings.

Principle: 2. Preventive Measures -Financial Institutions[Insufficient Information]

In terms of this principle, the 2004 GAFISUD report notedshortcomings in Colombia's customer due diligence (CDD)regime, and its suspicious transactions reporting requirements.Most significantly, the report found that financial institutionswere not required to file STRs for terrorist financing. However,according to the 2008 U.S. DoS report, a recent law (Law No.1121) addresses this issue. Nevertheless, there is no publicly

available source assessing the effectiveness of this Law. TheGAFISUD's 2004 report noted that Colombia is partiallycompliant with R 5, 6, and 8 regarding CDD. However, thereport added that Colombia did not comply with R 7, notingthat there are no legislative provisions with regard tocorrespondent banking. With regards to R 5, the report notedthat CDD measures lack a homogenous legal framework forthe financial sector, and also found a lack of properimplementation of CDD measures within several sectors offinancial institutions The GAFISUD report further stated thatColombia complies with R 9. The Colombian legislation onlyallows the use of intermediaries in the CDD process in casesof insurance contracts, and does not permit the use ofintermediaries for the identification of customers. TheGAFISUD report also stated that Colombia largely complieswith R 4 with regard to financial institutions confidentiality,citing the existence of clear norms that regulate the UIAFauthority to access information. However, the report foundthat some problems remain in the area of professional andcapital-markets secrecy. Nonetheless, the 2008 U.S. DoSreport asserted that financial institutions provide amplefinancial information, given that there are legal exemptions toclient confidentiality provisions when suspicions of launderingare detected. The GAFISUD did, however, propose thatColombia explicitly incorporate the exemption of secrecyconcerning exchange stocks transactions and professionalissues, and allow financial institutions to exchange information.

As to record keeping and wire transfers, the GAFISUD reportasserted that Colombia largely complies with R 10 and partiallycomplies with SR VII. The report noted that Colombia shouldexpand the legislation related to record-keeping and establishspecific provisions with regard to wire transfers. Per the U.SDoS report, Colombian legislation mandates that financialinstitutions keep records concerning customers andtransactions. The report found that the banks cooperateextensively with the government, private consultants, and otherforeign governments. Furthermore, "general negligence lawsand criminal fraud provisions ensure the financial sectorcomplies with its responsibilities while protecting consumerrights," the US DoS report added. The GAFISUD report foundColombia to be compliant with R 11 concerning complex andunusual transactions and partially compliant with R 21, thatrefers to measures to be taken with regard to transactions

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with countries that do not fulfill FATF recommendations. TheGAFISUD report noted that Colombian law does not directlyestablish requirements and specific measures to be adoptedwhen dealing with the implicit risk entailed by operations andcommercial relations with people of countries that do notcomply with FATF recommendations.

The report also stated that Colombia is partially compliantwith R 13, largely compliant with recommendations 14, 19, and25, and non-compliant with SR IV with respect to suspicioustransactions reports (STRs). The most significant shortcomingnoted by the report in regards to R 13 was that financialinstitutions are not required to prepare STRs relating terroristfinancing activities. However, the 2008 U.S. DoS report notedthat with the enactment of Law No. 1121, banks are nowresponsible for compiling and screening client information andreporting to the UIAF when there are suspicions of terroristfinancing activities. The banks must verify customer data beforeproviding services. These institutions must compare such datato the UN's 1267 Sanctions Committee consolidated list andother sources. However, although they can close suchsuspicious accounts, the banks are not able to seize its assets.

With regards to internal controls, compliance, audits, andforeign branches, the GAFISUD report found Colombiacompliant with R 15 and largely compliant with R 22. Thereport noted that Colombia provides a detailed treatmentof the topics included in R 15, whereas there are someweaknesses concerning the implementation of R 22.Colombian Law prevents banks from maintaining relations withshell banks and consequently complies with R 18. TheGAFISUD report also noted that Colombia complies withR 29, largely complies with Rs 17, 30, and 32, and partiallycomplies with R 23 with regard to supervisory and oversightsystems. The Financial System Organic Statute establishes thefunctions of the financial system supervisor, currently the SF,and also determines administrative and institutional sanctions.According to the U.S. DoS report and the 2007 report byGaleano Lineros, in 2007 the SF issued Circular No. 22, whichrequired financial entities to implement the SARLAFT, a risk-based supervising scheme including control measures alignedto international standards. Finally, GAFISUD reported thatColombia was partially compliant with R 25 and compliantwith SR VI. Colombia's External Resolution No. 8 of 2000

establishes that entities providing transfer services must besupervised.

Principle: 3. Preventive Measures -Designated non-Financial Businessand Professions[Insufficient Information]

The 2004 GAFISUD report rated Colombia as partiallycompliant with Rs 12 and 16 on CDD and record keeping forDesignated non-Financial Business and Professions (DNFBPs).The report noted that, as of 2004, Colombia had notimplemented effective controls in order to prevent moneylaundering operations within casinos and among notaries.Moreover, the report found that there were no regulationsregarding real estate agents, dealers in precious metals,company service providers, or lawyers and accountants.Lawyers, accountants, dealers in precious metals and companyservice providers were not required to prepare STRs.However, the 2007 reports by the UIAF and by Arangurennoted that, in order to comply with FATF recommendations,the UIAF had issued several regulations to implement theprovisions contained in Law. No. 1121. UIAF Resolutions No.33 and 44 established that notaries are subject to thesupervision of the Superintendency of Registry and Notariesand must prepare reports on suspicious operations. Moreover,Aranguren asserted that the government is planning to regulatemore actors, including real estate professionals, lawyers, andaccountants. The 2008 U.S. DoS report added that casinos arenot adequately regulated. The GAFISUD report further statedthat Colombia does not comply with FATF R 24, but is largelycompliant with R 25, although GAFISUD notes that there areno guidelines to implement AML/CFT measures in the case ofprofessional nonfinancial activities. Finally, the GAFISUD reportnoted that Colombia is non-compliant with R 20 on othernonfinancial businesses and professions. Despite the aboveinformation, there is no publicly available source assessing theeffectiveness of Law No. 1121.

Principle: 4. Legal Person andArrangements & Non-ProfitOrganizations[Insufficient Information]

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As noted by the GAFISUD's 2004 report, the Superintendencyof Corporations is in charge of controlling and monitoring legalpersons. According to the report, Colombia complies withFATF R 33 on legal persons and access to beneficial ownershipand the control of information. Colombia also complies withR 34 on legal arrangements and beneficial owners. Companiesthat provide financial services, including trusts, are treated asfinancial institutions. Consequently, they are regulated byDecree No. 663 of 1993 concerning money laundering. Thereport found Colombia non-compliant with SR VIII onnonprofit organizations. However, the 2008 U.S. DoS reportnoted that "charities and nongovernmental organizations areregulated to ensure compliance with Colombian law and toguard against their involvement in terrorist activity."Nevertheless, the DoS report made no specific mention ofColombia's compliance with FATF SRVIII.

Principle: 5. National andInternational Co-operation[Insufficient Information]

GAFISUD's 2004 report found Colombia to be largelycompliant with Rs 31 and 32, but still showed weaknesses withregard to the flow of information between the UIAF and theenforcement authorities. Nonetheless, Aranguren reported in2007 that, as of July 2007, the government was preparing abill to provide the UIAF with the authority to enforce thereporting of information on money laundering.

The 2004 GAFISUD report also noted that Colombia is largelycompliant with R 35 and non-compliant with SR I onConventions and United Nations (UN) Special Resolutions.Colombia fails to comply with SR I due to the inadequacyof its laws and procedures to implement UN resolutions.Subsequent to the 2004 GAFISUD report, Law No. 1121was enacted to address the issues of terrorist financing inthe country, but there is no indication as to whether thisLaw addresses Colombia's shortcomings with respect to SRI. According to the 2008 U.S. DoS report, Colombia is partyto the 1988 Vienna Convention, the International Conventionfor the Suppression of the Financing of Terrorism, the UNConvention against corruption, and the UN Conventionagainst Transnational Organized Crime (Palermo Convention).Colombia is part of the Organization of American States Inter-

American Drug Abuse Control Commission MoneyLaundering Experts Working Group, and GAFISUD.

GAFISUD reported that Colombia is compliant with R 36 onmutual legal assistance (MLA) and R 37 on dual criminality.However, Colombia is only partially compliant with R 38 onMLA with reference to confiscation and freezing. Informationconcerning the coordination of seizures with other countries isunavailable. Also, the U.S DoS report asserted that Colombiahas cooperated with the United States and other countriesin some high-profile seizures and prosecutions carried out bythe government. Nevertheless, more coordination is needed,particularly between the UIAF and the National Customs andTaxes Office. GAFISUD found Colombia to be compliant withR 39 on extradition and with R 40 on other forms ofcooperation. According to the GAFISUD and U.S. DoSreports, the UIAF has agreements with 27 foreign financialintelligence units and has no constraints on sharing informationwith them. GAFISUD found Colombia to be non compliantwith SR V on international cooperation in matters relatingto curbing terrorist financing because, at the time of theassessment, information concerning terrorist financing was notavailable and Colombian legislation did not directly criminalizeterrorist financing. However, the DoS and Aranguren,reporting in 2008 and 2007, respectively, noted that a new lawwas implemented in 2007 that established terrorist financing asan autonomous crime and regulated the flow of informationrelating to this topic.

Sources of AssessmentFinancial Action Task Force of South America, "Informe de EvaluaciónMutua sobre Lavado de Activos y Financiamiento del Terrorismo: Informede Evaluación Mutua de Colombia [Mutual Evaluation Report on MoneyLaundering and Terrorist Financing: Colombian Mutual Evaluation Report],"GAFISUD, November 2004. Available from Financial Action Task Force ofSouth America website. Accessed on July 17, 2008. (GAFISUD 2004)http://www.gafisud.org/pdf/InformeColombia.pdf

International Monetary Fund, "Colombia: Financial System StabilityAssessment Update, Including Reports on the Observance of Standardsand Codes on the Following Topics - Securities Regulation, Insolvency andCreditor Rights Systems, and Payment Systems," Country Report No. 05/287, Washington, D.C.: IMF, August 2005. Available from InternationalMonetary Fund website. Accessed on May 23, 2008. (IMF 2005)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

U.S. Department of State, Bureau for International Narcotics and LawEnforcement Affairs, "International Narcotic Control Strategy Report2008," March 2008. Available from the U.S. Department of State website.

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Accessed on July 19, 2008. (U.S. DoS 2008)http://www.state.gov/p/inl/rls/nrcrpt/2008/vol2/html/1008...

Relevant OrganizationsEgmont Grouphttp://www.egmontgroup.org

Financial Action Task Force of South America - Grupo de AcciónFinanciera de Sudamérica (GAFISUD) (website in Spanish only)http://www.gafisud.org/

Financial Information and Analysis Unit - Unidad de Información y AnálisisFinanciero (UIAF) (website in Spanish only)http://www.uiaf.gov.co

Ministry of Commerce, Industry and Tourism - Ministerio de Comercio,Industria y Turismo (MCIT) (website in Spanish only)http://www.mincomercio.gov.co/eContent/home.asp

Ministry of Finance and Public Credit - Ministerio de Hacienda y CréditoPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co/MinHacienda

National Customs and Taxes Office - Dirección de Impuestos y AduanasNacionales (DIAN) (website in Spanish only)http://www.dian.gov.co/

Office of the Attorney General - Procuraduría General de la Nación(PGN) (website in Spanish only)http://www.procuraduria.gov.co

Superintendency of Corporations - Superintendencia de Sociedades (SS)(website in Spanish only)http://www.supersociedades.gov.co/ss/drvisapi.dll?

Superintendency of Finance - Superintendencia Financiera (SF)http://www.superfinanciera.gov.co

Superintencency of Registry and Notaries - Superintendencia de Notariadoy Registro (website in Spanish only)http://www.supernotariado.gov.co/

Relevant Legislation/RegulationLaw issuing the Penal Code No. 599, 2000 - Ley por la cual se expide elCódigo Penal No. 599, 2000 (in Spanish only)http://www.ramajudicial.gov.co/csj_portal/Min/l5992000.htm

Law issuing the Penal Procedures Code No. 906, 2004 - Ley por la cual seexpide el Código de Procedimiento Penal No. 906, 2004. (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Financial System Organic Statute Decree No. 663, 1993 - EstatutoOrgánico del Sistema Financiero Decree No. 663, 1993 (in Spanish only).http://www.superfinanciera.gov.co/Normativa/NormasyReglam...

Law creating the Financial Information and Analysis Unit No. 526, 1999 -Ley por medio de la cual se crea la Unidad de Información y AnálisisFinanciero No. 526, 1999 (in Spanish only)http://www.secretariasenado.gov.co/leyes/L0526_99.HTM

Law issuing norms for preventing, detecting, researching, and sanctioningterrorist financing and other dispositions No. 1121, 2006 - Ley por la cualse dictan normas para la prevencion, detección, investigación y sanción de

la financiación del terrorismo y otras disposiciones No. 1121, 2006 (inSpanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Assets Recovery Law No. 793, 2002 - Ley de Extinción de Dominio No.793, 2002 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Law approving the 2003-2006 Development National Plan towards acommunal state No. 812, 2003 - Ley por la cual se aprueba el PlanNacional de Desarrollo 2003-2006 hacia un Estado comunitario No. 812,2003 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Resolution imposing notaries of the entire country the reporting obligationto the Financial Information and Analysis Unit No. 33, 2007 - Resoluciónpor la cual se impone a los notarios de todos los círculos del territorionacional, la obligación de reportar de manera directa a la Unidad deInformación y Análisis Financiero No. 33, 2007 (in Spanish only)http://www.uiaf.gov.co/?idcategoria=1402#

Resolution establishing a new date for implementing the reportingobligations requirements for those subject to UIAF 033 of 2007, No. 44,2007 - Resolución por la cual se fija nueva fecha para la entrada en vigorde las obligaciones de reporte que deben cumplir los sujetos destinatariosde la Resolución UIAF 033 de 2007, No. 44, 2007 (in Spanish only)http://www.uiaf.gov.co/?idcategoria=1404#

Superintendency of Banks External Resolution No. 34, 2004 (theSuperintendency of Banks was replaced by the Superintendency ofFinance)

Supplementary SourcesAranguren, M., "Lucha contra la Financiación del Terrorismo en Colombia[Fight against Terrorist Financing in Colombia]," 7th Pan-AmericanCongress on Assets Laundering and Terrorist Financing Control andPrevention, Cartagena de Indias, Colombia, July, 2007. Available fromAsobancaria website. Accessed on July 17, 2008. (Aranguren 2007)http://portal.asobancaria.com/portal/page/portal/Portal_E...

Financial Action Task Force, "Annual and Overall Review of Non-Cooperative Countries or Territories," Paris: FATF/OECD, June 2005.Available from FATF website. Accessed on July 21, 2008. (FATF 2005)http://www.fatf-gafi.org/dataoecd/41/26/34988035.pdf

Financial Action Task Force of South America, "Guía de Contactos yProcedimientos para la Cooperación Jurídica en Materia de Lavado deActivos en los Países de GAFISUD [Contacts and Procedures Guidelinesfor Legal Cooperation Concerning Money Laundering in GAFISUDCountries]," December 2006. Available from GAFISUD website. Accessedon July 17, 2008. (GAFISUD 2006)http://www.gafisud.org/pdf/COLOMBIA_3.pdf

Financial Information and Analysis Unit, "La Experiencia Colombiana en laRegulación de Sectores Reportantes por parte de la Unidad deInformación y Análisis Financiero [The Colombian Experience onReporting Regulation on the part of the Financial Information and AnalysisUnit]," Colombia, December 2007. Available from INAPCED website.Accessed on July 17, 2008. (UIAF 2007)http://www.inapced.com/ced/libreria/libreria2007/UIAF%20v...

Galeano Lineros, J. H., "Un Cambio de Cultura y Gestión en la Prevencióndel Riesgo de Lavado de Activos en Colombia [A Cultural andManagement Change in Money Laundering Risk Prevention in Colombia],"

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7th Pan-American Congress on Money Laundering and Terrorist FinancingControl and Prevention, Cartagena de Indias, Colombia, July, 2007.Available from Asobancaria website. Accessed on July 17, 2008. (GaleanoLineros 2007)http://portal.asobancaria.com/portal/page/portal/Portal_E...

Iguarán Arana, M., "Colombia Frente a la Financiación del Terrorismo[Colombia in relation to Terrorist Financing]," 7th Pan-American Congresson Assets Laundering and Terrorist Financing Control and Prevention,Cartagena de Indias, Colombia, July, 2007. Available from Asobancariawebsite. Accessed on July 17, 2008. (Iguarán Arana 2007)http://portal.asobancaria.com/portal/page/portal/Portal_E...

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Core Principles for Effective Banking Supervision

LEVEL OF COMPLIANCE: INTENT DECLARED

SummaryIn its 2005 Financial System Stability Assessment (FSSA)Update, the International Monetary Fund (IMF) stated that thequality of banking supervision and regulation in Colombia hasimproved since the Fund's 1999 Financial Sector AssessmentProgram, citing the country's implementation of the Basel CorePrinciples. The banking system has been recapitalized, and thesupervisory framework has been revamped. The revision ofthe banking law has improved solvency requirements andcreated a framework conducive to more effective supervision.In fact, the IMF noted that Colombia partially implementedRecommendations 1, 2, and 4 and has fully implementedRecommendation 3 on additional capital requirements formarket risk. Colombian authorities have also fully implementedthe IMF's 1999 recommendation for the implementation ofa system of prompt corrective action to bank failures.Notwithstanding these improvements, the 2005 IMF reportidentified several weaknesses concerning the independenceof the supervisor, the legal framework, and the provisionsfor dealing with nonperforming loans. In their 2008 report,Estrada and Rueda observed that the necessity of establishinga better regulatory and supervisory framework has led tosome changes in the institutional structure of supervision. Forinstance, in 2005 the Superintendency of Banks and the theSuperintendency of Securities were integrated into theSuperintendency of Finance (SF). Nevertheless, a 2007 articleby Asobancaria noted that the SF lacks sufficient autonomyand independence. Risk-based regulation and consolidatedsupervision remain key issues going forward. The IMF's 2007Article IV Consultations report (published in 2008) found thatthe government has embarked into a reform process aimedat developing the financial system and improving risk-basedsupervision. The report further noted that the authorities haveproposed financial sector reforms that would include, amongother things, strengthening the independence of the SF. Also,the Ministry of Finance's 2008 report asserted that a projectof financial system reform is being encouraged by thegovernment, with the objective of establishing an effective

consumer protection system and strengthening overallsupervision.

General OverviewAccording to the International Monetary Fund's (IMF) 2005Financial System Stability Assessment (FSSA) Update of its1999 Financial Sector Assessment Program (FSAP) report,"Colombia has recapitalized the banking system, improvedfinancial legislation, and revamped the supervisory framework"(p 1) and "bank supervision and regulation has improved... asindicated by progress in Basel Core Principles implementation"(p. 14). Furthermore, the report noted that revisions to theBanking Law (Law No. 510 in 1999, Decree No. 1720 in2001, and Law No. 795 in 2003) had improved banks' solvencyrequirements and made the supervisory framework moreconducive to effective supervision. The 1999 FSAP reportrecommended that Colombia (1) strengthen banks' loanclassification procedures and internal risk management; (2)strengthen on-site inspection procedures; (3) introduceadditional capital requirements for market risk; and (4)introduce prudential measures to improve the banking systemsresilience to macroeconomic shocks and credit cycles. The2005 FSSA observed that the Colombian authorities hadpartially implemented recommendation 1, 2, and 4 and hadfully implemented recommendation 3. The Colombianauthorities had also fully implemented the FSAP'srecommendation to introduce a system of prompt correctiveaction to bank failures. However, despite the reformsintroduced by the Colombian authorities to the financialsector's legal and regulatory framework, the FSSA concludedthat serious challenges remained. One such challenge wasidentified as the lack of autonomy and independence of theSuperintendency of Banks, the supervisory agency at the timeof the 2005 report. This situation has since been changed.Additional problems include the lack of a proper legalframework to protect bank supervisors; and insufficientprovisions available to deal with non performing loans.

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The legal framework for banking supervision in Colombia hasundergone several reforms, beginning in 1993. A 2008 reportby the Ministry of Finance and Public Credit (MHCP) assertedthat Law No. 35 of 1993 laid out the objectives and criteriathat the government should follow with relation to financialregulation. The 2005 FSSA stated that Law No. 510 of 1999,Decree No. 1720 of 2001, and Law 795 in 2003 raisedminimum bank capital requirements for credit and market riskand established provisions related to the early warning system,corrective actions, and consolidated supervision. The FSSAadded that the Financial System Organic Statute wasestablished by Decree No. 663 of 1993. In a 2008 paper,authors Estrda and Rueda argued that the need to establisha better regulatory and supervisory framework led to somechanges in the supervisory structure in 2005, including theintegration of some supervisory entities. The website of theColombian Presidency disclosed that the Superintendency ofFinance (SF) was created as result of a merger between theSuperintendency of Banks and the Superintendency ofSecurities. An undated report available on the MHCP websitenoted that the provisions of Decree No. 4327 of 2005 assignedto the SF those functions previously carried out by theSuperintendency of Banks and the Superintendency ofSecurities. Writing in 2005, Cadena Aguledo et al assert thatthe SF has implemented regulations dealing with solvencymargins, credit diversification, market and liquidity risk, andcorporate governance, some of which comply with the BaselII Accord. However, a 2007 report by Asobancaria notedthat the SF's dependence upon the MHCP could generatesome risks and conflicts of interest that could negatively affectfinancial system safety. The Asobancaria report states thatthere are proposals to move the banking supervisory authorityto the Central Bank of Colombia (CBC).

A 2008 IMF Article IV report noted that a "new risk-basedframework is being implemented gradually" (p. 25). The reportadded that the authorities have proposed a financial sectorreform that would include, among other things, strengtheningthe independence of the SF by establishing fixed-termappointments. According to the 2008 report by MHCP, thegovernment is encouraging a new financial sector reform thatwill establish an effective consumer protection system,strengthen overall supervision and the functioning of the

Financial Institutions Guarantee Fund, and improve efficiencywithin the financial sector.

Principle: 1. (1) Clear responsibilitiesand objectives for each supervisoryagency.[Insufficient Information]

In their 2008 report, Estrada and Rueda asserted that thenecessity of establishing a better supervisory and regulatoryframework led to some structural changes in the supervisorymodel in 2005, including the integration of some supervisoryentities. Therefore, the SF was created as result of the mergerbetween the Superintendency of Banks and theSuperintendency of Securities. The Presidency website notedthat the purpose of this merger was to improve supervisionquality and guarantee the stability of the financial sector.However, Estrada and Rueda argued that the new structurehas yet to deliver optimal results. The functions and objectivesof the SF are set forth in Decree No. 4327 of 2005. Article 8of this Decree establishes the Superintendency as supervisor ofthe financial sector, dedicated to generating stability, security,and confidence, as well as promoting the development of thesecurities market. The general functions of the SF are containedin Decrees No. 2739 of 1991 and No. 663 of 1993, whichset out the functions of the former two superintendencies, andin Law No. 964 of 2005. Moreover, a draft Financial ReformBill has been proposed by the government, in which newresponsibilities and functions for the SF have been proposedand concepts such as "inspection and vigilance" and "control"are clarified. Despite the above information, however, noneof the sources mentioned above directly address Colombia'scompliance with this principle.

Principle: 1.(2) Operationalindependence and adequateresources.[No Compliance]

In its 2005 FSSA, the IMF concluded that the Superintendencyof Banks, which was the supervisory agency at the time, lackedautonomy and independence. However, since then, theSuperintendency of Banks and the Superintendency of

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Securities were merged to form the new, unified financialsector supervisor, the SF. The 2007 Asobancaria report notedthat the SF's dependence upon the MHCP could create certainrisks. One of them is the possibility of a conflict of interestbetween the SF and the government if the latter should requirefinancing from the financial sector. Were this to occur, thegovernment could conceivably influence the SF to loosen itsprudential standards. To mitigate this problem, there have beensome proposals to move the supervisory authority to theCBC. An additional source of potential conflict is the SF'sdependence on the national budget for its funding, whichrequires that it receive prior spending authorization from theMHCP. Levies charged to supervised entities constitute a largeshare of total income for the SF, but because of this budgetaryrequirement, it cannot independently decide on how to usethese funds. This situation has led Asobancaria to conclude thatthe SF has no financial independence and is subject to potentialbudget restrictions imposed by the MHCP. The report notedthat the resignation of the Superintendent in 2007 brought theissue of the SF independence to the forefront of public debate.The 2008 IMF Article IV Consultation report stated that it"viewed steps to strengthen the independence of the FinancialSuperintendent - by providing a fixed-term appointment - asamong the most important of the proposed reforms" (p. 25)put forth by the Colombian authorities.

Principle: 1.(3) A suitable legalframework for authorization andongoing supervision.[Insufficient Information]

Prior to the integration of the financial regulator, the FinancialSystem Organic Statute established by Article 53 of 1993'sDecree No. 663 sets out the requirements for establishinga financial institution. The MHCP report asserted that theproposed Financial Reform Bill of 2008 aims to strengthen aconsolidated and comprehensive approach to financial sectorsupervision. However, there is insufficient information publiclyavailable as to Colombia's compliance with this principle.

Principle: 1.(4) A suitable legalframework to address compliance

with laws as well as safety andsoundness concerns.[Insufficient Information]

Prior to the integration of the financial regulator, the FinancialSystem Organic Statute established by Article 53 of 1993'sDecree No. 663 sets out the requirements for establishinga financial institution. The MHCP report asserted that theproposed Financial Reform Bill of 2008 aims to strengthen aconsolidated and comprehensive approach to financial sectorsupervision. However, there is insufficient information publiclyavailable as to Colombia's compliance with this principle.

Principle: 1.(5) Legal protection forsupervisors.[Insufficient Information]

According to the IMF's 2005 FSSA, Colombia lacked a properlegal framework to protect bank supervisors at that time.However, the IMF reported in 2008 that the governmentproposed reforms include more restrictive conditions for thedismissal of the Financial Superintendent. Nonetheless, thereis insufficient information publicly available as to Colombia'scompliance with this principle.

Principle: 1.(6) Arrangement forsharing of information betweensupervisors and protection ofconfidentiality of shared information.[Insufficient Information]

According to the 2005 FSSA, supervisory agencies neededto institute better formal procedures for cooperation at thenational level. Since that time, the SF was created to serve as aunified regulator and, according to the 2008 report by Estradaand Rueda, the objective of the new SF was the creation ofa better supervisory model. Nonetheless, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

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Principle: 2. Clearly definedpermissible activities for banks andcontrol of the use of the word 'bank'.[Insufficient Information]

There is insufficient information publicly available that directlyaddress Colombia's compliance with this principle. Article 2 ofthe Financial System Organic Statute defines the term "bankinginstitution," whereas Articles No. 7, 8, and 9 set out theauthorized operations and investments for banking institutions,and Article No. 10 details the limitations and prohibitionsapplicable to such institutions.

Principle: 3. Criteria for structure,directors, operating plan, controls,financial condition and capital base.[Insufficient Information]

Article 53 of the Financial System Organic Statute sets forththe requirements for establishing a financial institution. TheSuperintendency of Banks was in charge of authorizing theconstitution of financial entities when applications satisfied allthe legal requirements. The regulation also established capitalrequirements in the licensing process. The request for theestablishment of a financial institution, evaluated by theSuperintendency of Banks, had to contain: (1) proposed by-laws; (2) the amount and form of integration of capital to beraised (which needed to be larger than the minimum required);(3) information related to the participants (directors,shareholders, etc.); (3) a business plan, including a feasibilitystudy; and (4) any additional information requested by theSuperintendency of Banks. Articles 72 and 73 of the FinancialSystem Organic Statute detail the roles, obligations, andresponsibilities of managers and directors of financial entities.However, the Superintendency of Banks was replaced by SF asthe banking supervisor and there is little information publiclyavailable that directly addresses Colombia's compliance withthis principle.

Principle: 4. Authority to review andreject transfer of ownership.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: 5. Authority to reviewmajor acquisitions and investments.[Insufficient Information]

Prior to the creation of the SF, Article 65 of the FinancialSystem Organic Statute permitted the Superintendency ofBanks to object to acquisitions proposed by financialinstitutions. The banking supervisor enjoyed a period of upto two months register its objections. However, theSuperintendency of Banks was replaced by the SF as thebanking supervisor and there is little information publiclyavailable that directly addresses Colombia's compliance withthis principle.

Principle: 6. Minimum capitaladequacy requirements (meet BasleCapital Accord for internationallyactive banks).[Insufficient Information]

A 2005 report by Cadena Aguledo et al. noted that the SF hasimplemented the Basel Capital Accord's capital requirements.The 2005 IMF FSSA noted that, in 2004, the average capitaladequacy ratio was 14 percent for banks, with all banksmaintaining Capital Adequacy Ratios greater than 9 percent,the minimum requirement for banks. Nonetheless, there isinsufficient information publicly available as to Colombia'scompliance with this principle.

Principle: 7. A method exists for theevaluation of procedures related toloans, investments and portfoliomanagement.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. However, a 2008report by the IMF notes that consideration could be givento "strengthening the assessment of lending standards being

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followed by the banks, perhaps through a high frequencysurvey of bank lending officers" (p.23).

Principle: 8. Policies, practices andprocedures for evaluating the qualityof assets and the adequacy of loanloss provisions and reserves.[Insufficient Information]

In its 2005 FSSA Update, the IMF observed that Colombiahad partially implemented its recommendation (made in the1999 FSAP) regarding this principle. The report stated thatclassified loans (substandard, doubtful, or loss) were in levels of7.9 percent as of September 2004, compared to 16.3 percentat the end of 1998. The report notes that the ratio of loan-loss provisions to classified loans had grown from 25 to 54percent since 1999. As a result, banks' exposure to credit riskhad been lowered. The report, however, observed that thereare still concerns regarding a potential for the underestimationof provisioning and capital requirements. The authorities wereaware of these concerns and, at the time of the 2005 FSSAUpdate, a new regulation was introduced requiring financialinstitutions to take into account the estimated credit losses oftheir commercial and industrial loans. The 2008 IMF reportnotes that Colombia is gradually implementing a new risk basedframework. Banks were "allowed to submit their credit-riskmodels for commercial loans in 2007, while consumer creditand mortgage-based models would be eligible for submissionin 2008 and 2009, respectively" (p. 23). Despite the aboveinformation, none of the available sources directly addressColombia's compliance with this principle.

Principle: 9. Prudential limits andmanagement information system onconcentration of exposure.[Insufficient Information]

Article 17 of Decree No. 663 establishes limits regarding riskconcentration. It limits the amount of operations that financialinstitutions can perform with any given borrower. Article 49 ofDecree No. 663 states that the government has the obligationto establish maximum credit or risk concentration limits.However, the 2008 IMF report stated that "it would be useful

to assess the potential risks associated with any concentrationof banks' lending portfolios (e.g., lending to sectors that arehighly dependent on Venezuela)" (p. 23). Nonetheless, thereis insufficient information publicly available as to Colombia'scompliance with this principle.

Principle: 10. Arm's length rule andmonitoring for connected lending.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: 11. Policies and proceduresfor country risk and transfer risk.[Insufficient Information]

According to the 2005 IMF FSSA Update, there has beenno progress with relation to the regulation of country risksince the 1999 FSAP. The report also noted that foreignexchange risk appeared to be limited but equity price riskwas of concern. Nonetheless, there is insufficient informationpublicly available as to Colombia's compliance with thisprinciple.

Principle: 12. Measuring andmonitoring market risk. Limit and/orspecific capital charge on market riskexposure.[Insufficient Information]

According to the 2005 IMF FSSA Update, "the calculationof market risk capital requirements has improved; however,current rules still allow some netting of real value ofmortgages..., and peso-denominated positions, which mayunderestimate the value-at-risk" (p.11). A 2005 report byCadena Aguledo et al. noted that the SF complies with theBasel II Accord's main points related to market risk. The reportindicates that Decree No. 1720 mandates banking institutionsto hold capital for market risk. Nonetheless, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

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Principle: 13. Comprehensive riskmanagement processes.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. However, accordingto the 2005 IMF FSSA Update, there has been little progresswith respect to the implementation of proper operational andprocedural risk management since the 1999 FSAP.

Principle: 14. Adequate internalcontrols.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. However, accordingto the 2005 IMF FSSA Update, there has been little progresswith respect to the implementation of proper internal controlprocedures since the 1999 FSAP.

Principle: 15. Strict "know-your-customer" rules and high ethical andprofessional standards.[Insufficient Information]

According to the 2008 U.S. Department of State (DoS) report,Colombia formally adopted legislation in 1999 to establishthe Financial Information and Analysis Unit (UIAF), within theMHCP. The UIAF enjoys ample powers to access and analyzethe financial information of public and private entities inColombia. Supervised entities, including banks, stock exchangesand brokers, mutual and investment funds, and others, arerequired to report suspicious transactions to the UIAF. Inaddition, most entities under the supervision of the UIAF mustestablish "know-your-customer" provisions. The 2005 IMF FSSAUpdate states that the UIAF has adequate powers. Moreover,the DoS report notes that, in 2006, a new data networkwas inaugurated to share information online and facilitatecooperation related to the prevention of money launderingand other financial crimes. The DoS report adds that financialinstitutions are required by law to keep records of accountholders and financial transactions over a five-year period. The

report states that "Colombia's banks have strict complianceprocedures, and work closely with the government, otherforeign governments, and private consultants to ensure systemintegrity." Moreover, the legal framework related to negligenceand criminal fraud assures that the financial sector fulfils itsresponsibilities. These entities are also monitored by the SF,which, in January 2008, implemented a regulation requiringregulated entities to set up a new system for monitoring andpreventing risks based on international standards. Despite thisinformation, however, there is no publicly available informationthat directly addresses Colombia's compliance with thisprinciple.

Principle: 16. Effective supervisorysystem consisting of on-site and off-site supervision.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. However, accordingto the 2005 IMF FSSA Update, although Colombia hasstrengthened its on-site inspection procedures and the trainingof on-site inspectors, there had been little progress regardingthe Superintendency of Banks's on- and off-site supervisionfunctions since the publication of the 1999 FSAP. TheSuperintendency of Banks has since been replaced by the SF.

Principle: 17. Regular contact withbank management andunderstanding of bank's operations.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: 18. Analytical reports andstatistical returns on solo andconsolidated basis.[Insufficient Information]

The 2005 IMF FSSA Update report, written before the mergerof earlier supervisory agencies into the SF, noted that there

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was a significant departure from international best practiceson financial reporting and transparency due to the absenceof audit standards and the divergence of accounting standardsfrom International Accounting Standards. Additionally, thereport notes that the Superintendency of Banks (and laterthe SF) must validate bank financial statements. This generateda "confusion of roles and responsibilities between the SB[Superintendency of Banks] and the auditors that needs to beaddressed" (p.15). Nonetheless, there is insufficient informationpublicly available as to Colombia's compliance with thisprinciple.

Principle: 19. Independent validationof supervisory information throughon-site examination or externalauditors.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: 20. Ability to supervise ona consolidated basis.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: 21. Consistent accountingpolicies and practices that provide atrue and fair view of the financialcondition of the bank.[Insufficient Information]

Referring to the old supervisory structure, the 2005 IMF FSSAUpdate report noted that there was a significant departurefrom international best practices on financial reporting andtransparency due to the absence of auditing standards and thefact that Colombian accounting standards did not align with theInternational Accounting Standards. Additionally, the reportnotes that the Superintendency of Banks (now the SF) mustvalidate bank financial statements. This generated a "confusion

of roles and responsibilities between the SB [Superintendencyof Banks] and the auditors that needs to be addressed" (p.15).Nonetheless, there is insufficient information publicly availableas to Colombia's compliance with this principle.

The 2003 World Bank and IMF Report on the Observanceof Standards and Codes (ROSC) noted that Law No. 222 of1995 provided the Superintendency of Banks (now the SF)with the authority to issue accounting guidelines for the entitiesit supervises. The ROSC further noted that "for prudentialregulation of banks, the SB [Superintendency of Banks] issuesspecific accounting rules, valuation methods, and disclosurerequirements that are applicable not only to regulatoryreporting purposes but also to those who prepare general-purpose financial statements" (p.3). Inspectors of theSuperintendency of Banks were capable of taking action incases in which they found violations of accounting and auditingrequirements. The sanctions ranged from monetary penaltiesto suspensions and dismissals of advisors and auditors.

Principle: 22. Adequate supervisorymeasures to ensure timely correctiveaction.[Insufficient Information]

According to the 2005 FSSA Update, the Colombianauthorities fully implemented the 1999 FSAP'srecommendation to introduce a system of prompt correctiveactions in the case of bank failures. However, the report doesnot state the extent to which these measures comply withthe Basel Committee's requirements for this principle. Sincethe 2005 FSSA Update, the supervisory agency has changedfrom the Superintendency of Banks to the unified SF and thereis insufficient information publicly available as to Colombia'scurrent compliance with this principle

Principle: 23. Banking supervisorsmust practice global consolidatedsupervision over their internationally-active banking organizations.[Insufficient Information]

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There is insufficient information publicly available as toColombia's compliance with this principle. The IMF's 2005FSSA Update noted that the Superintendency of Banks(replaced by the SF) was not able to adequately examine therelationship between local banks and their foreign branches.

Principle: 24. International exchangeof information with othersupervisors.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: 25. Supervision of localoperation of foreign banks andinformation sharing with homecountry supervisors.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Sources of AssessmentInternational Monetary Fund, "Colombia: Financial System StabilityAssessment Update, including Reports on the Observance of Standardsand Codes on the following topics: Securities Regulation, Insolvency andCreditor Rights Systems, and Payment Systems," Country Report No. 05/287, Washington, D.C.: IMF, August 2005. Available from InternationalMonetary Fund website. Accessed on May 23, 2008. (IMF 2005b)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

World Bank and International Monetary Fund, "Report on the Observanceof Standards and Codes (ROSC): Accounting and Auditing - Colombia",Washington, D. C.: WB and IMF, July 2003. Available from World Bankwebsite. Accessed on May 28, 2008. (WB&IMF 2003)http://www.worldbank.org/ifa/rosc_aa_col.pdf

Relevant OrganizationsCentral Bank of Colombia - Banco de la República (CBC)http://www.banrep.gov.co/index_eng.html

Financial Institutions Guarantee Fund - Fondo de Garantías de InstitucionesFinancieras (FOGAFIN) (website in Spanish only)http://www.fogafin.gov.co/Principales/principal.html

Ministry of Finance and Public Credit - Ministerio de Hacienda y CréditoPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co/MinHacienda

Superintendency of Corporations - Superintendencia de Sociedades (SS)(website in Spanish only)http://www.supersociedades.gov.co/ss/drvisapi.dll?

Superintendency of Finance - Superintendecia Financiera (SF)http://www.superfinanciera.gov.co/

Relevant Legislation/RegulationNorms the Government must follow for regulating stock, financial, andinsurance activities Law No. 35, 1993 - Normas a las cuales debe sujetarseel Gobierno Nacional para regular las actividades financiera bursátil yaseguradora Ley No. 35, 1993 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Financial Reform Law No. 510, 1999 - Ley de Reforma Financiera No. 510,1999 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Public Stock Market Law No. 964, 2005 - Ley del Mercado Público deValores No. 964, 2005 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Law adjusting some norms of the Financial System Organic Statute andissuing other dispositions No. 795, 2003 - Ley por la cual se ajustan algunasnormas del Estatuto Orgánico del Sistema Financiero y se dictan otrasdisposiciones No. 795, 2003 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Concourse Processes Regime Law No. 222, 1995 - Ley de Régimen deProcesos Concursales No. 222, 1995 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Decree establishing the minimun solvency ratio for Credit Institutions No.1720, 2001 - Decreto por el cual se establece la relación mínima desolvencia de los Establecimientos de Crédito No. 1720, 2001 (in Spanishonly)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Decree merging the Colombian Superintendency of Banks with theSuperintendency of Securities and modifying its structure No. 4327, 2005 -Decreto por el Cual se fusiona la Superintendencia Bancaria de Colombiaen la Superintendencia de Valores y se modifica su estructura No. 4327,2005 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Financial System Organic Statute Decree No. 663, 1993 - Decreto delEstatuto Orgánico del Sistema Financiero No. 663, 1993 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Supplementary SourcesAsobancaria, "Dónde Encaja Mejor la Supervisión Financiera? [Where DoesFinancial Supervision Fit Better?]," Report No. 613, Asobancaria, July 2007.Available from Asobancaria webpage. Accessed on May 23, 2008.(Asobancaria 2007)http://www.asobancaria.com/upload/docs/docPub3974_2.pdf

Cadena Aguledo, J., et al, "La Banca Colombiana Frente al Pilar I delAcuerdo de Basilea II [Colombian Banks in relation to Pillar I of the Basel IIAccord]," Bogotá: Universidad Sergio Arboleda, 2005. Available fromUniversidad Sergio Arboleda website. Accessed on May 29, 2008. (CadenaAguledo et al 2005)http://www.usergioarboleda.edu.co/civilizar/revista10/ban...

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Cardenas, M. and Partow, Z., "Does Independence Matter - Case Studiesfrom Colombia", Working Paper R-341, Inter-American DevelopmentBank, October 1998. (Cardenas & Partow 1998)http://www.iadb.org/res/publications/pubfiles/pubR-341.pdf

Colombian Superintendency of Banks, "De la Teoría a la Práctica Local:Basilea y el SARC [From Theory to Local Practice: Basel and the SARC],"Cartagena: Superintendency of Banks, February 2004. Available fromWorld Bank website. Accessed on May 29, 2008. (SUPERINTENDENCYOF BANKS 2004)http://info.worldbank.org/etools/docs/library/86213/01-de...

Colombian Superintendency of Banks, "Documento de Metodología deInspección [Inspection Methodology Document]," Superintendency ofBanks, November 2005. Available from Superintendency of Financewebsite. Accessed on May 29, 2008. (SUPERINTENDENCY OF BANKS2005)http://www.superfinanciera.gov.co/ComunicadosyPublicacion...

Estrada, D., and Gutiérrez Rueda, J., "Supervisión y Regulación del SistemaFinanciero: Modelos, Implicaciones y Alcances [Financial System Supervisionand Regulation: Models, Implications, and Scope]," Borradores de EconomíaNo. 490, Bogotá: Colombian Central Bank, 2008. Available fromColombian Central Bank website. Accessed on May 23, 2008. (Estrada &Gutiérrez Rueda 2008)http://www.banrep.gov.co/docum/ftp/borra490.pdf

International Monetary Fund, "Colombia: 2005 Article IV Consultation andFourth Review Under the Stand-By Arrangement, Requests for Waiver ofNonobservance of Performance Criteria and the Completion of theFourth Review, and Request for Stand-By Arrangement - Staff Reports;Public Information Notice and Press Release on the Executive BoardDiscussion; and Statement by the Executive Director for Colombia",

Country Report No. 05/154, Washington, D.C.: IMF, May 2005. Availablefrom International Monetary Fund website. Accessed on May 23, 2008.(IMF 2005a)http://www.imf.org/external/pubs/ft/scr/2005/cr05154.pdf

International Monetary Fund, "Colombia: 2007 Article IV Consultation -Staff Report; and Public Information Notice on the Executive BoardDiscussion," Country Report No. 08/31, Washington, D.C.: IMF, January2008. Available from International Monetary Fund website. Accessed onMay 7, 2008. (IMF 2008)http://www.imf.org/external/pubs/ft/scr/2008/cr0831.pdf

Ministry of Finance and Public Credit, "Reforma Financiera [FinancialReform]," Bogotá: MHCP, April 2008. Available from Ministry of Financeand Public Credit website. Accessed on May 28, 2008. (MHCP 2008)http://www.minhacienda.gov.co/portal/page/portal/MinHacie...

Ministry of Finance and Public Credit, "Exposición de Motivos: Proyecto deLey de Reforma Financiera [Exposition of Reasons: Financial Reform Bill],"MHCP, n. d.. Available from Colombian Stock Market website. Accessedon May 28, 2008. (MHCP n.d.)http://www.bvc.com.co/bvcweb/administracion/editor/homeFi...

Presidency of Colombia Website. Last updated on July 30, 2006. Accessedon May 29, 2008. (Presidency website)http://www.presidencia.gov.co/sne/2005/noviembre/28/04282...http://www.presidencia.gov.co/sne/2005/junio/23/04232005.htm

U.S. Department of State, Bureau for International Narcotics and LawEnforcement Affairs, "International Narcotic Control Strategy Report2008," U.S Department of State, March 2008. Available from U.S.Department of State website. Accessed on July 19, 2008. (U.S. DoS 2008)http://www.state.gov/p/inl/rls/nrcrpt/2008/vol2/html/1008...

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Core Principles for Systemically Important Payment Systems

LEVEL OF COMPLIANCE: INTENT DECLARED

SummaryThere are a variety of entities that provide payment servicesin Colombia, and these, in turn, are subject to regulation bydifferent organizations. According to a 2003 report by theCentral Bank of Colombia (CBC), the Deposit Account System(CUD) is a particularly relevant system. It is the Colombianhigh-value system for the management of resources depositedin CBC accounts. It is a real time gross settlement system and,according to the 2004 CBC report, settled 88.7 percent of thetotal value of transactions in 2004. Moreover, according to the2004 CBC report, Colombia has a high degree of compliancewith the Committee on Payment and Settlement Systems'(CPSS) Core Principles for Systemically Important PaymentSystems (CPSIPS). In its 2005 Financial System StabilityAssessment (FSSA) Update, the International Monetary Fundobserved that, most of the weaknesses identified in the legalframework for payment systems in Colombia would beaddressed once the Securities Market Law came into effect.As reported on the Financial Information and Analysis Unitwebsite, this law (Securities Market Law No. 964) wasapproved by Congress in 2005. Nonetheless, there is no thirdparty assessment or detailed self assessment corroborating thisstatement in the 2004 CBC report and, since the 2005 FSSAUpdate, there has been no publicly available source addressingColombia's compliance with the CPSS's CPSIPS.

General OverviewAccording to a 2005 report by the Central Bank of Colombia(CBC), the country has different payment systems, some ofwhich are managed by the CBC and some by the privatesector. However, according to a 2003 report by the CBC,the Deposit Account System (CUD) is a particularly relevantsystem. It is the Colombian high-value system for themanagement of resources deposited on CBC accounts. Basedon information provided on the CBC's website, the CUDhas put in place international standards concerning technology,communication, and security, following the Committee onPayment and Settlement Systems' (CPSS) Core Principles for

Systemically Important Payment Systems (CPSIPS). Accordingto the CBC 2004 report, Colombia exhibits a high level ofcompliance with the CPSIPS. However, there are someweaknesses related to legal and vigilance issues.

Since 1998, the CUD has operated as a real time grosssettlement (RTGS) system. According to the 2004 CBC report,CUD settles most payment transactions in the country,accounting for 88.7 percent of the total value of transactionsin 2004. The 2003 CBC report noted that Law No. 31 of1992 stipulates that the CBC is responsible for guaranteeingthe smooth operation of internal and external payments.According to Law No. 795 of 2003, the government mustregulate payment systems and the activities that are not underthe jurisdiction of the CBC. The CBC board of directors hasissued regulations that set out access conditions, rights, andobligations of participants and the CBC. Nonetheless, the 2005International Monetary Fund (IMF) Financial System StabilityAssessment (FSSA) Update pointed out that the CBC lacks thelegal capacity for proper oversight of clearance and settlementsystems. The FSSA concluded that most of the weaknessesidentified in the legal framework for payment systems inColombia would be addressed once the draft SecuritiesMarket Law No. 964 came into effect. The report noted thatthe new law would "cover issues such as the legal validationof multilateral netting, the protection of the system againstbankruptcy procedures, settlement finality, protection ofcollateral arrangements, pledge, segregation of accounts, thelegal definition of repos, central counterparties, and novation"(p.24). The report added that the draft law would improveColombia's compliance with the CPSS. As reported on theFinancial Information and Analysis Unit (UIAF) website, thisdraft law was approved by Congress in 2005 and took effecton July 8 of that year. The 2005 IMF report also noted that thecentral bank lacked clear legislative authority for the oversightof clearance and settlement systems. The Securities MarketLaw, however, does not address this issue.

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The CBC's 2005 report identifies six different payment systemsoperated by the CBC: (1) the CUD; (2) the Central SecuritiesDepository (DCV), a system related to the management ofsecurities by means of electronic registries; (3) the ElectronicCheck Clearing System (CEDEC), that clears and settleschecks; (4) the Electronic Trading System (SEN), related togovernment bonds; (5) the Clearing System for ElectronicInterbank Transfers (CENIT), which is a clearing chamber forelectronic payments; and (6) the System for InternationalOperations (SOI). According to Nieto Olivar and TorresAlvares, writing in 1999, the systems operated by the privatesector include the Automated Clearinghouse, which providesservices similar to those of the CENIT. A 2007 report byAsobancaria noted that another body related to Colombia'spayment system supervision is the Superintendency of Finance(SF), which monitors low-value payment systems. ThePresidency website discloses that the SF was created in 2005as a result of the merger of the Superintendency of Banks andthe Superintendency of Securities. The functions and objectivesof the SF were established by Decree No. 4327 of 2005.

The CBC's 2005 report has claimed that the implementationof electronic payment services has modernized Colombian´spayment system by increasing efficiency and facilitating financialtransactions, thus putting the CBC at the forefront of reformsin this area in Latin America. However, the 2005 IMF reportindicated that, although the systemic importance of the checksystem has been reduced significantly, more improvements areneeded, because the checks that are settled are of high valueand some financial institutions use them to settle payments.Thus, the CBC should continue to encourage electronicpayments. The CBC's 2005 report identified that its primarychallenge in instituting this recommendation will be to gain thecooperation of large financial institutions. In 2008, the CBCreported that Colombia's modernization program includes theestablishment of a number of new systems that aim to reducecosts, mitigate risks, and increase efficiency.

Principle: I. The system should have awell-founded legal basis under allrelevant jurisdictions.[Insufficient Information]

In 2005, an IMF FSSA Update concluded that most of theweaknesses in the legal framework for payment systems inColombia would be addressed once the draft SecuritiesMarket Law (No. 964) came into effect. The report noted thatthe new law would "cover issues such as the legal validationof multilateral netting, the protection of the system againstbankruptcy procedures, settlement finality, protection ofcollateral arrangements, pledge, segregation of accounts, thelegal definition of repos, central counterparties, and novation"(p.24). As reported on the UIAF website, this draft law wasapproved by Congress in 2005. The IMF report noted that thecentral bank lacked clear legislative authority for the oversightof clearance and settlement systems. The Securities MarketLaw, however, does not address this issue. A 2007 report byAsobancaria noted that the Colombian institutional frameworkempowers the CBC to regulate, monitor, and operate someof the clearance and settlement systems, including the high-value system. Other, low-value systems are supervised by theMinistry of Finance and Public Credit (MHCP) and the SF.This framework yields three significant deficiencies. First, theregulatory and supervisory norms differ across the varioussettlement systems. Second, similar services are provided bypublic and private entities under different regulatory regimes.Third, none of the regulators have a view of the paymentsystem as a whole, nor do they have sufficient informationto appropriately evaluate risk. However, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: II. The system's rules andprocedures should enableparticipants to have a clearunderstanding of the system’s impacton each of the financial risks theyincur through participation in it.[Insufficient Information]

The 2001 report by the Center for Latin American MonetaryStudies and World Bank (CEMLA&WB) states that the CBCis responsible for the supervision of payment systems and themonitoring of systemic risk. This is done through the analysis ofinformation on payment flows and the interaction with marketparticipants, i.e. financial institutions. The report notes that

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"when the Central Bank directly provides payment services; itmeets its regulatory and supervisory objectives, on one hand,by means of subscription by participants of bilateral contractsand, on the other, through cooperation with the private sectorand moral suasion. The bilateral contracts explicitly establish allparticipants, obligations and responsibilities and the conditionsfor their operations, service pricing, and sanctions for non-compliance" (p.32). Nevertheless, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: III. The system should haveclearly defined procedures for themanagement of credit risks andliquidity risks, which specify therespective responsibilities of thesystem operator and the participantsand which provide appropriateincentives to manage and containthose risks.[Insufficient Information]

According to the 2001 CEMLA&WB, the CBC had been activein reducing risks in the payment system. The most importantaction has been the establishment of the RTGS system tooperate on credit risk between participants. According to a2003 CBC report, all transactions operated through CUDshould follow the RTGS principle. In addition, considering thatthis type of system requires more liquidity, the CBCincorporated mechanisms for managing liquidity risks, such asthe provision of intraday liquidity based on repos. TheCEMLA&WB report added that, in recent years, othermeasures have been followed to reduce the liquidity risk of thesystem and to guarantee its smooth functioning. The reportstated that, as a result of the lack of payment queues, "when aparticipant does not have the funds in its account to processthe payment, the transaction is rejected. However, thetransaction can be successively reactivated by the participantwithout having to be processed again by the system, sincethe operation is held in the system's memory" (p. 93).Nevertheless, there is insufficient information publicly availableas to Colombia's compliance with this principle.

Principle: IV. The system shouldprovide prompt final settlement onthe day of value, preferably duringthe day and at a minimum at the endof the day. (Systems should seek toexceed the minima included in thisCore Principle.)[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. Regarding the finalsettlement of the system, the 2004 CBC report asserts that thesecurities, foreign exchange, and money markets settle theiroperations on the same day. Furthermore, CUD operationsare processed continuously during the day when they arereported to the CBC and are settled immediately (in realtime) if there are available funds in the user's deposit account.The CBC website discloses that institutions that operate withthe CUD must be affiliated to the CBC's Electronic Services,known by the acronym SEBRA. SEBRA was established toallow for an on-line connection in real time between financialand securities intermediaries and the CBC. The CEMLA&WB2001 report describes SEBRA as a remote entry port tothe central bank's electronic applications which ensures thattransactions are quickly, safely, and efficiently carried out andeliminates the use of physical documents. According to thereport, the CBC has adopted several measures to guaranteethe smooth functioning of the CUD. These include: (1) allowingauthorized institutions by the intraday repos mechanism to getadditional liquidity for transactions using the payment system;(2) making certain that the financial system starts the day withsufficient liquidity to carry out its operations; (3) permittingthe conversion of intraday repos into overnight repos forauthorized entities, without the loss of collateral; and (4)establishing an automatic overnight repo to banks presenting ashortfall in the first check-clearing session.

Principle: V. A system in whichmultilateral netting takes placeshould, at a minimum, be capable ofensuring the timely completion ofdaily settlements in the event of an

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inability to settle by the participantwith the largest single settlementobligation. (Systems should seek toexceed the minima included in thisCore Principle.)[Insufficient Information]

The 2001 CEMLA&WB report and the 1999 article by NietoOlivar and Torres Alvarez note that the CUD is a RTGSsystem. However, there are other systems that use a nettingscheme, e.g. the CEDEC, the CENIT and the AutomatedClearinghouse Colombia. Nevertheless, there is insufficientinformation publicly available as to Colombia's compliance withthis principle.

Principle: VI. Assets used forsettlement should preferably be aclaim on the central bank; whereother assets are used, they shouldcarry little or no credit risk and littleor no liquidity risk.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. According to the2001 CEMLA&WB report, the CUD allows financialinstitutions to order payments from their accounts at the CBCto other financial institutions accounts also at the CBC.Moreover, the report states that "credit institutions(commercial and mortgage banks, financial institutions,including leasing companies and financial cooperatives), publicbanks and rediscount entities, trust companies, pension fundsmanagers, capital market operators (broker-dealers; stockexchanges and the private central securities depository),fiduciary, capitalization and insurance companies, andclearinghouses, including the clearing "networks" for debit andcredit cards, all have a deposit account in Colombian pesos atthe [CBC], on which they settle payment transactions on anRTGS basis" (p.94).

Principle: VII. The system shouldensure a high degree of security andoperational reliability and shouldhave contingency arrangements fortimely completion of dailyprocessing.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. According to the2004 CBC report, the legal framework in Colombia providesno certainty about collateral protections in cases of insolvency,nor does it empower an institution with a supervisory role forthe payment system. CUD's regulations - established by theExternal Regulatory Communication, DSEP No. 158 of 2007- disclose that the CBC has contingency schemes to allow forthe continuous operation of the CUD. The 2003 CBC reportnotes that the central bank has taken preventive actions toreduce the probability of system errors and contingency planshave been established for communications systems and forhardware and software as well.

Principle: VIII. The system shouldprovide a means of making paymentswhich is practical for its users andefficient for the economy.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. In its 2008 report,the CBC noted that there has been an importantmodernization of the Colombian payment system. As a result,transparency and market depth has been improved, monetarypolicy has become more effective, risks and costs have beenreduced, efficiency and security have been increased, andprocedures have been modernized. In addition, the EconomistIntelligence Unit's (EIU) 2005 report stated that "the electronicpayments system is modern and efficient and has graduallyimplemented emerging technologies. The high-value systemprovides financial stability, whereas the low-value systemfosters competition, leading to increased efficiency" (p.31). Thereport also stated that improvements in low-value systems

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will reduce financial institutions costs. This should lead toreductions in fees, thus benefiting consumers and increasingthe use of electronic payment products. However, the reportalso noted that Colombia could achieve further improvementsregarding liquidity issues. The report mentions the existenceof plans to create a "hybrid system that will simulate thenet settlement obligations of each participant before grosspayments are processed" (p.31). The EIU report indicates thatthe CBC's major challenge in the implementation of these planswill be securing the cooperation of large financial institutions.

Principle: IX. The system should haveobjective and publicly disclosedcriteria for participation, whichpermit fair and open access.[Insufficient Information]

The 2001 CEMLA&WB report noted that a wide variety offinancial institutions, broker-dealers, and investors can accessthe CUD system. Furthermore, the CBC website reveals thatall the entities that are authorized to open a deposit accountat the CBC can operate through the CUD. The entities mustbe affiliated to the SEBRA in order to participate in the system.Nevertheless, there is insufficient information publicly availableas to Colombia's compliance with this principle.

Principle: X. The system'sgovernance arrangements should beeffective, accountable andtransparent.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: A. The central bank shoulddefine clearly its payment systemobjectives and should disclosepublicly its role and major policieswith respect to systemicallyimportant payment systems.[Insufficient Information]

According to the 2005 IMF report, the CBC "should seekclear legislative authority for the oversight of clearance andsettlement systems. This would provide the central bank withthe legal authority to ensure the development and operationof payment mechanisms that effectively contribute to theintegrity, efficiency and safety of all financial markets and theoperation of monetary policy" (p.24). The report further notedthat the CBC should publicly disclose its objectives andimplementation strategies regarding all significant paymentsystem matters and guide private sector participants on topicsrelated to the governance, management, ways of dealing withrisks, and the policies that must be satisfied by all transactions.

The 2007 Asobancaria report noted that, contrary to themajority of countries, in Colombia the CBC does not playa supervisory role of the payment systems, because there isno legislation that allows it to do so. The legal frameworkthat determines the intervention of the CBC is established byLaw No. 31 of 1992. This law only sets out roles related tomonetary, exchange rate, and credit policies for the regulationof monetary circulation, liquidity, and the operation of thepayment system. However, the report notes that some roles,responsibilities, rights, and obligations are established in thepayment systems regulations of the CBC. However, there isinsufficient information publicly available as to Colombia'scompliance with this principle.

Principle: B. The central bank shouldensure that the systems it operatescomply with the Core Principles.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. According to the

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2005 IMF report, the CBC "should seek clear legislativeauthority for the oversight of clearance and settlement systems.This would provide the central bank with the legal authorityto ensure the development and operation of paymentmechanisms that effectively contribute to the integrity,efficiency and safety of all financial markets and the operationof monetary policy" (p.24).

Principle: C. The central bank shouldoversee compliance with the CorePrinciples by systems it does notoperate and it should have the abilityto carry out this oversight.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: D. The central bank, inpromoting payment system safetyand efficiency through the CorePrinciples, should cooperate withother central banks and with anyother relevant domestic or foreignauthorities.[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle. According to a 2000report by Nieto Olivar and Torres Álvarez, the CBC has signedagreements with the Central Banks of member countries of theLatin-American Integration Association; Dominican Republic;and China.

Sources of AssessmentCenter for Latin American Monetary Studies and World Bank, "Paymentsand Securities Clearance and Settlements Systems in Colombia," FirstEnglish edition, Mexico City: Center for Latin American Monetary Studies,August 2001.Available from the Western Hemisphere Payments andSecurities Settlement Forum website. Accessed on May 6, 2008(CEMLA&World Bank 2001)http://www.ipho-whpi.org/pdf/reporte_colombia-eng.pdf

International Monetary Fund, "Colombia: Financial System StabilityAssessment Update, including Reports on the Observance of Standardsand Codes on the following topics: Securities Regulation, Insolvency andCreditor Rights Systems, and Payment Systems," IMF Country Report No.05/287, Washington, D.C.: IMF, August 2005. Available from InternationalMonetary Fund website. Accessed on May 6, 2008 (IMF 2005)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

Relevant OrganizationsCentral Bank of Colombia - Banco de la República (CBC)http://www.banrep.gov.co/index_eng.html

Ministry of Finance and Public Credit - Ministerio de Hacienda y CréditoPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co/MinHacienda

Superintendency of Corporations - Superintendencia de Sociedades (SS)(website in Spanish only)http://www.supersociedades.gov.co/ss/drvisapi.dll?

Superintendency of Finance - Superintendecia Financiera (SF)http://www.superfinanciera.gov.co/

Financial Information and Analysis Unit - Unidad de Información y AnálisisFinanciero (UIAF) (website in Spanish only)http://www.uiaf.gov.co

Relevant Legislation/RegulationSecurities Market Law No. 964, 2005 - Ley de Mercado de Valores No.964, 2005 (In Spanish only)http://www.uiaf.gov.co/index.php?idcategoria=360&uiaf_uia...

Law modifying some norms of the Financial System's Organic Statute, andestablishing Other Dispositions No. 795, 2003 - Ley por la cual se ajustanalgunas Normas del Estatuto Orgánico del Sistema Financiero y se dictanOtras Disposiciones No. 795, 2003 (In Spanish only)http://www.fogacoop.gov.co/Normatividad/LEY%20795%20DE%20...

Central Bank of Colombia Law No. 31, 1992 - Ley del Banco de laRepública No. 31, 1992 (In Spanish only)http://www.secretariasenado.gov.co/leyes/L0031_92.HTM

Decree by which the Superintendency of Banks merges with theSuperintendency of Securities No. 4327, 2005 - Decreto por el cual sefusiona la Superintendencia Bancaria en la Superintendencia de Valores y semodifica su Estructura No. 4327, 2005 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

External Regulatory Communication DFV No. 135, 2007 - CircularReglamentaria Externa DFV No. 135, 2007 (in Spanish only)http://www.banrep.gov.co/documentos/reglamentacion/pdf/As...

External Regulatory Communication DSEP No. 152, 2008 - CircularReglamentaria Externa DSEP No. 152, 2008 (in Spanish only)http://www.banrep.gov.co/documentos/reglamentacion/Noveda...

External Regulatory Communication DSEP No. 155, 2008 - CircularReglamentaria Externa DSEP No. 155, 2008 (in Spanish only)http://www.banrep.gov.co/documentos/reglamentacion/CEDEC/...

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External Regulatory Communication DSEP No. 158, 2007 - CircularReglamentaria Externa DSEP No. 158, 2007 (in Spanish only)http://www.banrep.gov.co/documentos/reglamentacion/CUD/20...

Regulation of the Central Securities Depository Resolution No. 314, 2001- Resolución del Reglamento del Depósito Central de Valores No. 314,2001 (in Spanish only)http://www.banrep.gov.co/documentos/sistema-financiero/pd...

Superintendency of Securities Structure Decree No. 2739, 1991 - Decretode la Estructura de la Superintendencia de Valores No. 2739, 1991 (inSpanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Financial System Organic Statute Decree No. 663, 1993 - Decreto delEstatuto Orgánico del Sistema Financiero No. 663, 1993 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Supplementary SourcesAsobancaria, "Los Sistemas de Pago de Bajo Valor: Algunas ReflexionesAcerca de su Operación, Regulación y Supervisión [Low-Value PaymentSystems: Some Considerations about their Operation, Regulation andSupervision]," Report No. 632, November 2007. Available fromAsobancaria webpage. (Asobancaria 2007)http://www.asobancaria.com/upload/docs/docPub4201_2.pdf

Central Bank of Colombia, "Informe de la Junta Directiva al Congreso de laRepública [Report by the Board of Director to the Congres of theRepublic]," Central Bank of Colombia, July 2003. Available from CentralBank of Colombia website. Accessed on June 14, 2008. (CBC 2003)http://www.banrep.gov.co/documentos/junta-directiva/pdf/i...

Central Bank of Colombia, "Problemáticas Centrales del Sistema de PagosColombiano [Central Problems in the Colombian Payment System],"November 2004. Available from the Central Bank of Colombia website.Accessed on May 14, 2008. (CBC 2004)http://www.banrep.gov.co/documentos/seminarios/ppt/BR-Sem...

Central Bank of Colombia, "Informe de la Junta Directiva al Congreso de laRepública [Report by the Board of Directors to the Congress of theRepublic]," July 2005. Available from Central Bank of Colombia webpage.

Accessed on May 21, 2008. (CBC 2005)http://www.banrep.gov.co/documentos/junta-directiva/pdf/i...

Central Bank of Colombia, "El Sistema de Pagos [The Payment System],"Bogotá, Colombia, May 2008. Available from the Central Bank of Colombiawebsite. Accessed on May 20, 2008. (CBC 2008)http://www.banrep.gov.co/documentos/seminarios/2008/Banca...

Central Bank of Colombia website. Last updated on May 20, 2008.Accessed on May 20, 2008 (CBC website)http://www.banrep.gov.co/sistema-financiero/sip_cud_rg.ht...http://www.banrep.gov.co/reglamentacion/rg_index.htm

Economist Intelligence Unit, "Assessing Payments Systems in LatinAmerica," White Paper Sponsored by Visa International, May 2005.Available from Economist Intelligence Unit webpage. Accessed on May 15,2008. (EIU 2005)http://graphics.eiu.com/files/ad_pdfs/eiu_Visa_eng_WP.pdf

Ministry of Finance and Public Credit, "Exposición de Motivos: Proyecto deLey de Reforma Financiera [Exposition of Reasons: Financial Reform Bill],"n.d. Available from Colombian Stock Exchange website. Accessed on May28, 2008. (MHCP n.d.)http://www.bvc.com.co/bvcweb/administracion/editor/homeFi...

Nieto Olivar, G. E., and Torres Alvarez, N., "Participación del Banco de laRepública en el Sistema de Pagos Colombiano [Participation of the CentralBank of Colombia in the Colombian Payment System]," December 2000.Available from Central Bank of Bolivia webpage. Accessed on May 18,2008. (Nieto Olivar & Torres Alvarez 2000)http://www.bcb.gov.bo/pdffiles/iniciales/revistas/diciemb...

Presidency of Colombia website. Last updated on May 23, 2008. Accessedon May 23, 2008 (Presidency website)http://www.presidencia.gov.co/sne/2005/junio/23/04232005.htmhttp://www.presidencia.gov.co/sne/2005/noviembre/28/04282...

Unidad de Información y Análisis Financiero website. Last updated on May6, 2008. Accessed on May 6, 2008. (UIAF website)http://www.uiaf.gov.co/index.php?idcategoria=360&uiaf_uia...http://www.uiaf.gov.co

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Special Data Dissemination Standard

LEVEL OF COMPLIANCE: COMPLIANCE IN PROGRESS

SummaryColombia has been a subscriber to the International MonetaryFund's (IMF) Special Data Dissemination Standard (SDDS)since May 31, 1996. The country meets SDDS specificationsfor the coverage, periodicity, and timeliness of data and fordissemination of advance release calendars for most datacategories. Nonetheless, in 2008, the IMF noted the existenceof some weaknesses regarding the elaboration of real sectorand fiscal information. Also, the methodologies for estimationof certain data are not available on the IMF SDDS website. TheNational Administrative Department of Statistics is responsiblefor compiling the national accounts statistics; the Ministry ofFinance and Public Credit is responsible for fiscal figures; andthe Central Bank of Colombia compiles balance of payments,monetary, financial, and investment position statistics.

General OverviewAccording to the 2006 International Monetary Fund's (IMF)Report on the Observance of Standards and Codes (ROSC),Data Module, Colombia has been a subscriber to the IMF'sSpecial Data Dissemination Standard (SDDS) since May 31,1996. It meets the specifications for coverage, timeliness, anddissemination of advance release calendars, but uses flexibilityoptions in the release of the production index and theanalytical accounts of the banking system. According to theIMF SDDS website, the confidentiality of individual reportersis guaranteed. The IMF's 2007 Article IV report (publishedin 2008 and hereafter referred to as the 2008 IMF report),stated that the data provided by the authorities are consideredadequate for surveillance purposes. However, the reportnoted shortcomings in the estimation of gross investment andthe consolidation process for fiscal data.

The IMF's SDDS website discloses that the main laws andregulations governing data dissemination include Decree-LawNo. 3167 of 1968 and Decree No. 2118 of 1992, whichauthorize the National Administrative Department of Statistics(DANE) to prepare statistical information in order to fulfill its

objectives. In addition, Decree No. 111 of 1996 requires theFiscal Policy Council (CONFIS) of the Ministry of Finance andPublic Credit (MHCP) to monitor the non-financial sector, andDecree No. 85 of 1995 addresses domestic and external debtdata. Finally, Decree No. 1633 of 1960 and Law No. 31 of1992 regulate the collection of information by the Central Bankof Colombia (CBC).

According to the 2008 IMF report, DANE is responsible forthe compilation of the national accounts statistics. The DANEwebsite discloses that the agency is responsible for planning,processing, analyzing, and disseminating official information.The MHCP is in charge of the collection and disseminationof fiscal data while the CBC collects and disseminates dataon the financial sector and balance of payments. Data onbudget execution, debt, fiscal balance, and financing can beobtained from the MHCP website, and data on monetaryvariables, exchange rates, interest rates, the external sector,stock markets, and public finance as are posted on the CBCwebsite.

Principle: Comprehensive economicand financial data, disseminated on atimely basis.[Full Compliance]

According to the IMF's SDDS website, Colombia meets SDDSrequirements for the coverage, periodicity, and timeliness of alldata categories. However, Colombia uses the flexibility optionwith respect to the timeliness of the production index andthe analytical accounts of the banking sector. Notably, theperiodicity and timeless schemes for certain data exceed thoseprescribed by the SDDS.

Principle: Ready and equal access toofficial statistics.[Full Compliance]

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Per the IMF's SDDS website, Colombia meets therequirements for the advance dissemination of releasecalendars and for equal access to information. By and large, thedata are simultaneously disseminated through press releasesand bulletins. Subsequently the information is mainly publishedon the DANE, CONFIS, and CBC websites. Further, dailyinformation on exchange rates and interest rates is availablethrough telephone answering machines. The publication datesare mainly available through the magazine of the CBC and theIMF SDDS website.

Principle: Official statistics must havethe confidence of their users.Transparency of its practices andprocedures is a key factor.[Compliance in Progress]

According to the 2008 IMF report, the DANE is responsiblefor the compilation of the national accounts data, the CBCfor the financial and external sector statistics, and the MHCPfor information on public revenues, expenditures, and financing.Concerning real sector statistics, the IMF SDDS website assertsthat Decree-Law No. 3167 and Decree No. 2118 authorizeDANE to prepare statistical information in order to fulfill itsobjectives. Regarding fiscal data, there is no single law or formalarrangement that establishes specific responsibilities for thedifferent official agencies for preparing fiscal statistics. However,there are norms that are related to fiscal information. TheOrganic Budget Law (Decree No. 111) mandates the CONFISto monitor non-financial sector, and Decree No. 85 refers tothe information on domestic and external debt. Furthermore,the CBC compiles financial and external sector information asestablished by Decree No.1633 and Central Bank of ColombiaLaw No. 31. According to the IMF SDDS website, theconfidentiality of individual reporters is guaranteed, and accessto data (before their release) is restricted to the governmentofficials of the reporting entities. Nonetheless, the websitedoes not provide information regarding internal governmentaccess for the following variables: (1) consumer prices index;(2) producer prices index; (3) balance of payments; (4)merchandise trade; and (5) population. In general, data arepublished without ministerial commentaries. In addition,revisions of data are explained to the public. Major changes

in methodologies are generally released at the same timethe data is released, with the exception of data concerningnational accounts, producer index, international reserves, andthe exchange rate, whose methodological modifications areannounced in advance. According to the 2008 Arango report,some commentators have recently reported an increasing lossof credibility concerning official figures.

Principle: A set of standards thatdeals with the coverage, periodicityand timeliness of data must alsoaddress the quality of statistics.[Compliance in Progress]

The IMF's SDDS website discloses that Colombia has severalsources that detail information related to the methodologiesused to prepare the statistics. These include the New NationalAccounts Base: Data for 1994-1995, the Statistical Bulletin ofthe DANE, the Producer Price Index Methodology of theCBC; the CBC website, and working documents of the DANE.However, there is no public documentation related to themethodology of the central government debt data. Otherreports are being prepared detailing the methodology formonetary and international investment position statistics.Colombia does not provide summary methodologies on theIMF's SDDS website for data on exchange rate and interestrate. Overall, Colombia complies with the standards related todissemination of component detail, reconciliations with relateddata, and statistical frameworks that support statistical cross-checking. Nevertheless, there is no systematic balancing offiscal data with other macroeconomic figures. Also, centralgovernment borrowing cannot be crosschecked because it isnot published in different reports.

Sources of AssessmentInternational Monetary Fund, "Colombia: Report on the Observance ofStandards and Codes - Data Module," Country Report No. 06/356,Washington D.C.: IMF, October 2006. Available from InternationalMonetary Fund website. Accessed on June 24, 2008. (IMF 2006)http://www.imf.org/external/pubs/ft/scr/2006/cr06356.pdf

International Monetary Fund's Special Data Dissemination Standardwebsite. Accessed on June 20, 2008. (IMF SDDS website)http://dsbb.imf.org/Applications/web/sddscountrycategoryl...

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Relevant OrganizationsCentral Bank of Colombia - Banco de la República (CBC)http://www.banrep.gov.co/index.html

Colombian National Administrative Department of Statistics -Departamento Administrativo Nacional de Estadistica de Colombia(DANE) (website in Spanish only)http://www.dane.gov.co/

Ministry of Finance and Public Credit - Ministerio de Hacienda y CréditoPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co/

Relevant Legislation/RegulationDecree by which the National Administrative Department of Statistics isReorganized No.3167, 1968 - Decreto por medio del cual se reorganiza elDepartamento Administrativo Nacional de Estadística No. 3167, 1968 (inSpanish only)http://www.lexbasecolombia.com/lexbase/normas/decretos/19...

Decree by which the National Administrative Department of Statistics isRestructured No. 2118, 1992 - Decreto por medio del cual sereestructura el Departamento Administrativo Nacional de Estadística No.2118, 1992 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Central Bank Law No. 31, 1992 - Ley del Banco de la República No. 31,1992 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Decree establishing the Public Accounting Office within the Ministry ofFinance and Public Credit and other norms No. 85, 1995 - Decreto por elcual se organiza la Dirección General de la Contabilidad Pública en elMinisterio de Hacienda y Crédito Público y se dictan otras disposicionesNo. 85, 1995 (in Spanish only)http://www.presidencia.gov.co/prensa_new/decretoslinea/19...

Decree No. 1663, 1960 - Decreto No. 1663, 1960

Supplementary SourcesArango, M., "Cuentas Serias [Serious Figures],"June 11, 2008. Newspaperon-line. Available from Portafolio.com.co website. Accessed on July 7,2008. (Arango 2008)http://www.portafolio.com.co/opinion/columnistas/otroscol...

Central Bank of Colombia website. Last updated on June 26, 2008.Accessed on June 26, 2008. (CBC website)http://www.banrep.gov.co/index.html

International Monetary Fund, "Colombia: 2007 Article IV Consultation -Staff Report; and Public Information Notice on the Executive BoardDiscussion," Country Report No. 08/31, Washington, D.C.: IMF, January2008. Available from International Monetary Fund website. Accessed onJune 26, 2008. (IMF 2008)http://www.imf.org/external/pubs/ft/scr/2008/cr0831.pdf

Ministry of Finance and Public Credit website. Accessed on June 26, 2008.(MHCP website)http://www.minhacienda.gov.co/MinHacienda/haciendapublica...http://www.minhacienda.gov.co/MinHacienda/haciendapublica...http://www.minhacienda.gov.co/MinHacienda/haciendapublica...

National Administrative Department of Statistics website. Last updated onJune 26, 2008. Accessed on June 26, 2008. (DANE website)http://www.dane.gov.co/index.php?option=com_content&task=...http://www.dane.gov.co/

Oxford Analytica, "Fiscal Transparency Report - Colombia," Oxford: OA,December 2006. Available from California Public Employees' RetirementSystem website. Accessed on June 8, 2008. (OA 2006a)http://www.calpers.ca.gov/eip-docs/investments/assets/equ...

Oxford Analytica, "Monetary Transparency Report - Colombia," Oxford:OA, December 2006. Available from California Public Employees'Retirement System website. Accessed on June 9, 2008. (OA 2006b)http://www.calpers.ca.gov/eip-docs/investments/assets/equ...

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Code of Good Practices on Transparency in Monetary Policy

LEVEL OF COMPLIANCE: COMPLIANCE IN PROGRESS

SummaryIn its 2006 report on Monetary Policy Transparency inColombia, Oxford Analytica (OA) stated that Colombia'soverall score of "Compliance in Progress" remains unchangedfrom the previous year. The 1991 Constitution sets out theindependence of the Central Bank of Colombia (CBC),providing this institution with the authority to implementmonetary policy and regulate foreign exchange and financialmarkets. In turn, Central Bank Law No. 31 of 1992 details theCBC's functions and specifies its legal framework, while theCBC's bylaws determine internal procedures. The CBC has asolid technocracy and a strong reputation for independence.Its primary objective is price stability and, since 1999, thishas been implemented via an inflation-targeting framework.A 2005 Constitutional amendment allows the ColombianPresident to run for a second term. This has raised thepossibility that the President could appoint a majority of CBCboard members if he or she is elected to a second term, whichcould threaten CBC independence. To obviate this possibility,Congress is reviewing a draft bill that would change theconditions by which board directors are appointed. The CBCobserves the International Monetary Fund's Special DataDissemination Standard for monetary data and produces acomprehensive range of information on monetary policy andoverall macroeconomic conditions. OA also noted that therehave been gradual improvements concerning the publicdissemination of monetary information, but added that moresteps need to be taken to enhance transparency of monetarypolicy.

General OverviewOxford Analytica's (OA) 2006 Report on Transparency inMonetary Policy asserted that Colombia has a well-establishedlegal framework concerning monetary policy. According toOA, several official reports provide information related tomonetary issues, including a weekly newsletter titled ForeignExchange and Monetary Statistics; the Monthly Magazine ofthe Central Bank of Colombia (CBC), press releases covering

diverse topics and CBC regulations; the Issuer's Report, whichincluded information regarding policymaking; and the InflationReport, which explains monetary decisions and evaluatesprospective risks. In addition, Colombia releases monetary datafollowing the International Monetary Fund's (IMF) Special DataDissemination Standards (SDDS). OA reported that there isno formal public consultation mechanism regarding monetarypolicy and financial regulation, but - as of 2006 - the CBChas held semiannual seminars that are attended by a widevariety of analysts and policymakers. The OA report also notedprogress in other areas, such as advances in the diffusionof information on CBC Board of Directors meetings. Thedates and minutes of the meetings are publicly available onthe CBC website. However, OA suggested that "additionalinformation on the monetary policy framework would enhancetransparency" (p.85).

The 1991 National Constitution establishes the independenceof the CBC. According to the Constitution, the CBC's mainfunctions are the implementation of monetary policy, theregulation of foreign exchange, and the control of the financialsector. Additionally CBC Law No. 31 of 1992 details theCBC's responsibilities and determines its financial, operationaland technical autonomy. The Constitution also sets the keyobjectives for the CBC, prioritizing inflation control as mostimportant. To operationalize this goal, the CBC has adopted atraditional inflation targeting framework focused on controllingthe evolution of consumer price index in 1999. Annual inflationtargets and the instruments employed to fulfill these targetsare published on the CBC website. According to the IMF's2007 Article IV Consultations report, this framework couldbe strengthened by establishing 18- and 24-month forward-looking targets and by providing more frequent communicationabout the targeted inflation path, beyond immediate calendaryear targets.

OA noted that the CBC is widely regarded as independentand professional. The CBC board of directors comprises theMinister of Finance, five full-time members, and the CBC

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general manager. The CBC general manager is elected by theother board members. Full-time board members serve a four-year term that can be renewed twice. In 2005, a Constitutionalamendment was passed that permits the Colombian presidentto run for re-election to a second term. This could underminethe CBC's independence, given that two of the full-time boardmembers are presidential appointees, named to their posts inthe middle of the presidential term. With the right to run forre-election, the president could conceivably appoint a total offour board members, constituting a majority. Commentatorsdo not generally expect the current president, Mr. Uribe,to take advantage of this situation, but OA has suggestedthat the potential problem should be directly addressed. In2006, the opposition Liberal Party submitted a bill to Congressintended to lengthen the terms served by board members,thus mitigating the potential threat to the CBC's independencethat is implicit in the possibility of a second presidential term.An opinion piece by Rudolf Hommes disclosed that Congressstarted to debate this bill in October 2007 .

Colombia has a free floating exchange rate, although the IMF's2007 report noted that, in practice, the authorities operatea managed floating regime. The IMF staff suggested thatColombia should cease discretionary foreign exchangeintervention and allow more flexibility in order to "allow theexternal accounts to adjust rapidly to changes in theinternational environment without the buildup of largeimbalances" (p.22). Also, the CBC's 2008 inflation report notedthat, in order to prevent exchange rate appreciation, thegovernment established capital controls in 2007. The IMF hasrecommended that these controls be eliminated, stating thatcontrols are not effective in the long run and the impact onthe exchange rate is probably small. In addition, such controlsconflict with the government objective of increasing financialdepth.

Principle: Clarity of roles,responsibilities and objectives ofcentral banks.[Compliance in Progress]

The 2006 OA report rated Colombia's compliance with thisprinciple as "Compliance in Progress." The report remarksthat there is a well established legal framework for monetary

policy. The 1991 Constitution of Colombia establishes theindependence of the CBC, its functions for implementingmonetary policy and regulating the financial sector, and itsprimary objective of controlling inflation. The CBC Law detailsthe CBC's responsibilities, and the CBC's bylaws determineinternal procedures . Price stability is the primary objective ofthe CBC.

Both the Constitution and the CBC Law require thecoordination of fiscal and monetary operations, according toOA. Moreover, the harmonization of fiscal and monetary policyis reviewed each year in the Annual Macroeconomic Planreleased by the National Council for Economic and SocialPolicy (CONPES ). According to the CBC website,coordination is facilitated by the fact that the Minister ofFinance is a CBC board member. Furthermore, since the CBCLaw establishes price stability as the central bank's primaryobjective, it would take priority if conflicts between fiscal andmonetary authorities arise . Moreover, OA reported thatDecision C No. 481 of 1999 of the Constitutional Courtestablishes that the National Development Plan (NDP) "shouldprovide a broad scenario for the coordination of fiscal andmonetary policies among different state institutions" (p.79).The CBC's role as lender to the government is establishedunder Article No. 373 of the Constitution, which provides thatthe CBC can lend to the government only when there is aunanimous approval by the board. The CBC can carry outthe lender of last resort function for state-owned enterprises.Article No. 27 of the CBC Law sets out the proceduresgoverning the allocation of CBC profits, which are allocated toa reserve fund or transferred to the Treasury .

The CBC enjoys a strong reputation for independence andprofessionalism. However, the current rules governing theappointment of CBC board directors raise concerns aboutthe institution's independence going forward, given that thePresident of Colombia could conceivably appoint a majorityof board members if he or she is elected to two terms inoffice. In 2006, the opposition Liberal Party submitted a bill inCongress that sought to lengthen the terms of the membersof the board, thereby mitigating the potential threat to CBCindependence resulting from a second presidential term. RudolfHommes reported that, as of October 2007, the bill was underconsideration by Congress .

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Principle: Open process forformulating and reporting monetarypolicy decisions.[Compliance in Progress]

The 2006 OA report rated Colombia's compliance with thisprinciple as "Compliance in Progress." Policy making is theprovince of the CBC board of directors, whose proceduresfor election and removal are established in the CBC Law andthe Colombian Constitution. The seven-member board is ledby the Minister of Finance. The CBC website discloses thecomposition of the board and the schedule of its meetings.

Colombia has been implementing an inflation targeting regimesince 1999, focusing on the evolution of the consumer priceindex. OA asserted that the CBC has "adopted a two-yeartarget to better accommodate lags between policyimplementation and the effect on inflation, replacing the earlierpractice of an inflation point target that had been in use since1992" (p. 81). OA also noted that intervention rules are clearand that the CBC reports its interventions in the market ona daily basis . The annual inflation targets of inflation andthe instruments used by the CBC to fulfill those targets arepublished on the CBC website.

The CBC's March 2008 Inflation Report explains that inflationtargets are defined by the board of directors for the currentand the upcoming year. The long-run aim of the CBC is toachieve a 3 percent annual rate of inflation. However, OAnoted that, because Colombia employs a managed float forits currency, there are doubts about the effectiveness of theinflation targeting framework. According to the IMF's 2007Article IV Consultations report, this framework could bestrengthened by establishing 18- and 24-month forward-looking targets and by providing more frequent communicationon the targeted inflation path, beyond the immediate calendaryear targets . The CBC's 2008 Inflation Report disclosed that,in 2007, prompted by strong capital inflows, the central bankintervened in the exchange market in order to prevent theappreciation of the Colombian peso. This interventiongenerated inflationary pressures despite the adoption ofsterilization measures, and led to an increase in the CBC'spolicy interest rate that fostered capital inflows, exacerbatingthe initial condition that they sought to relieve. Consequently,

the CBC and the government established capital controls todiscourage capital inflows. According to the IMF's 2007 report,however, capital controls are not desirable in the long run,because their impact on the exchange rate is negligible and willnegatively impact the government's aim of increasing financialdepth.

The CBC's main monetary policy instrument is the interestrate repurchase and reverse repurchase operations, for whichthe board of Directors determines a minimum and maximumrate. Also, the Central Bank intervenes in foreign exchangemarkets and sells and purchases bonds aiming to provideliquidity. According to OA, "there has been a gradual narrowingof the range of policy rates as the monetary policy strategy hasbecome clearer. This has contributed to strengthening the linkbetween the policy rates, the overnight rate and longer termrates" (p. 81).

The CBC website publishes data on its monetary policydecisions. It also publishes a variety of reports that includeinformation on monetary policy, financial and foreign exchangeregulation, and open market operations. These reports includea weekly newsletter titled Foreign Exchange and MonetaryStatistics; the CBC's Monthly Magazine, which releases articlesreferred to several topics and details the regulations that areissued by the BanRep; the Issuer's Report, which includesrelevant information regarding policymaking; and the quarterlyInflation Report, which explains monetary decisions andevaluates future risks . The Inflation Report aims to make boarddecisions more transparent, increase public understanding ofmonetary policy, and enhance its credibility. Moreover, theCBC website provides access to the minutes of the board ofdirectors' monthly meetings, which contain information relativeto the policy measures decided in those events. OA furtherstated that the CBC provides Congress with informationregarding the balance of payments, monetary policy, andcoordination between fiscal and monetary policies. Accordingto OA, "changes in the setting of monetary policy instruments(other than fine-tuning measures) are publicly announced andexplained in a timely manner " (p. 82).

Principle: Public availability ofinformation on monetary policy.[Compliance in Progress]

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In its 2006 Report on Monetary Policy Transparency inColombia, OA rated Colombia's compliance with this principleas "Compliance in Progress." Colombia's monetary data complywith the IMF's SDDS, to which Colombia has been a subscribersince 1996. The OA report further noted that the CBCpublishes its balance sheet in three venues: the CBC's twice-annual reports to Congress, which include annual and semi-annual balance sheets; the Bank Review, which includesmonthly balance sheets for the last 24 months; and the CBCwebsite, which offers six-month updates of the balance sheets.Furthermore, in the Inflation Report, it provides information onmonetary policy decisions . OA added that the CBC websiteis "regularly updated with information, reports, legislation, andboard decisions, as well as economic and financial data" (p. 84).The website offers English language translations of the InflationReports and the board's report to Congress. However, OAsuggested that "additional information on the monetary policyframework would enhance transparency" (p. 85).

Principle: Accountability andassurances of integrity by the centralbank.[Compliance in Progress]

OA rated Colombia's compliance with this principle as"Compliance in Progress" in its 2006 report. The Constitutionand the CBC Law establish that the CBC is accountable toCongress. Also, Articles No. 46 and 48 of the CBC Lawstate that the Executive and the Attorney General function asexternal controllers of the CBC . In addition, the Presidentof Colombia appoints a CBC Auditor to audit the financialstatement. The Superintendency of Finance is in charge ofexecuting the external control and supervision of the CBC.Since 2002, the CBC has also been subject to monitoring by anindependent external auditor. The CBC's financial statementsare published in March and September on the CBC websiteand are subject to the control of the Attorney General,according to the OA report. The CBC's "Notes of the FinancialStatement" provide information on the audit process andaccounting practices of the CBC .

Articles No. 38-44 of the CBC Law requires CBC personnelto comply with provisions of the CBC Law and other bylawsand internal regulations. Also, Law No. 734 of 2002 establishes

some provisions regarding staff and official conduct. Moreover,the CBC has its own code of conduct that addresses issuessuch as conflicts of interest and the handling of confidentialdata. However, this code is not available to the public.Furthermore, there is a disciplinary code that sets outprovisions for all public officials, including members of theCBC. However, according to OA, "legislation does not explicitlyestablish the provisions under which BanRep [CBC] boardmembers can be removed,, except for the general guidelinesestablished in Article 35" (p. 87).

Sources of AssessmentOxford Analytica, "Monetary Transparency Report - Colombia," Oxford:OA, December 2006. Available from California Public Employees'Retirement System website. Accessed on June 9, 2008. (OA 2006)http://www.calpers.ca.gov/eip-docs/investments/assets/equ...

Relevant OrganizationsCentral Bank of Colombia - Banco de la República (CBC)http://www.banrep.gov.co/index_eng.html

Council of Economic and Social Policy - Consejo Nacional de PlanificaciónEconómica Social (CONPES) (website in Spanish only)http://www.conpes.org.ni/

Ministry of Finance and Public Credit - Ministerio de Hacienda y CréditoPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co/

Office of the Attorney General - Procuradoría General de la Nación(PGN) (website in Spanish only)http://www.procuraduria.gov.co/

Office of the National Comptroller - Contraloría General de la República(CGR) (website in Spanish only)http://www.contraloriagen.gov.co/html/home/home.asp

Relevant Legislation/RegulationConstitution of the Republic of Colombia, 1991 - Constitución Política deColombia, 1991 (amended through 2005) (in Spanish only)http://pdba.georgetown.edu/Constitutions/Colombia/col91.html

Central Bank Law No. 31, 1992 - Ley del Banco de la República, No. 31,1992 (in Spanish only)http://www.banrep.gov.co/junta/l31de1992.pdf

Sentence C No. 481, 1999 - Sentencia C No. 489 de 1999 (in Spanishonly)http://web.minjusticia.gov.co/jurisprudencia/CorteConstit...

Supplementary SourcesCano, C. G., "Current State of Colombian Monetary Policy [Estado Actualde la Política Monetaria Colombiana]," Colombian Cooperatives

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Confederation Conference, Bogotá, Colombia, May 16, 2008. Availablefrom Colombian Cooperatives Confederation website. Accessed on June17, 2008. (Cano 2008)http://www.portalcooperativo.coop/eventos/2008/credito/me...

Central Bank of Colombia, "Informe sobre Inflación [Inflation Report],"Bogotá, Colombia: Banco de la Republica, March, 2008. Available fromCentral Bank of Colombia website. Accessed on June 11, 2008. (CBC2008a)http://www.banrep.gov.co/documentos/publicaciones/inflaci...

Central Bank of Colombia, "Informe de la Junta Directiva al Congreso de laRepública [Report of the Board of Directors addressed to the Congress],"Bogotá, Colombia: Banco de la Republica, March, 2008. Available fromCentral Bank of Colombia website. Accessed on June 11, 2008. (CBC2008b)http://www.banrep.gov.co/documentos/junta-directiva/infor...

Central Bank of Colombia, "La Historia del Banco [The Bank's History],"n.d. Available from Central Bank of Colombia website. Accessed on June11, 2008. (CBC n.d.)http://www.banrep.gov.co/documentos/el-banco/pdf/historia...

Central Bank of Colombia website. Last update on January 17, 2008. (CBCwebsite)http://www.banrep.gov.co/junta-directiva/calendario_jd.htmlhttp://www.banrep.gov.co/board_directors/bd_calendar.htmhttp://www.banrep.gov.co/politica-monetaria/index.htmlhttp://www.banrep.gov.co/monetary_policy/index.htmlhttp://www.banrep.gov.co/el-banco/hs_3.htm

Hommes, R., "Si no está dañado, mejor no arreglarlo [If it's not broken,don't fix it]," El País, October 8, 2007. Newspaper online. Accessed onJune 12, 2008. (Hommes 2007)http://www.elpais.com.co/historico/oct082007/OPN/opi1.html

International Monetary Fund, "Colombia: 2007 Article IV Consultation -Staff Report; Staff Supplement; and Public Information Notice on theExecutive Board Discussion," Country Report No. 08/31, Washington,D.C.: IMF, January 2008. Available from International Monetary Fundwebsite. Accessed on May 7, 2008. (IMF 2008)http://www.imf.org/external/pubs/ft/scr/2008/cr0831.pdf

International Monetary Fund's Special Data Dissemination Standardwebsite. Accessed on May 7, 2008. (IMF SDDS website)http://dsbb.imf.org/Applications/web/sddscountrycategoryl...

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Code of Good Practices on Transparency in Fiscal Policy

LEVEL OF COMPLIANCE: ENACTED

SummaryOxford Analytica's (OA) 2006 Fiscal Transparency Reportstated that Colombia has made steady progress instrengthening its fiscal policy framework over the last years.The Fiscal Responsibility Law of July 2003 provides aframework for short- and medium-term fiscal planning. Thishas led to the improved evaluation of factors that generateexpenses across different budgeting periods, and the financialimpact of new laws. OA noted that the Medium Term FiscalFramework (MTFF) was improved in terms of the availabilityof information, forecasts, contingent liabilities, tax exemptions,and quasi-fiscal expenditures. In addition, a Medium TermExpenditure Framework (MTEF) was introduced as a sub-component of the MTFF. Consequently, OA rated Colombia'soverall score as "Enacted." Still, budget management on theregional and municipal level continues to be a challenge.However, AIn 2005, tTFFproposedDalso TEF,,urelesscomprehensive version of the .'sC statedreform ofintergovernmental transfers, approved in 2007, limit the growthin transfers from the central government to local and regionalgovernments. This reform attempts to avoid a significantwidening of the central administration's deficit and is meantto preserve the credibility of fiscal policy. This reform shouldhelp reduce the growth in central government expenditures.The International Monetary Fund also noted that privatizationefforts are moving forward, and the operations of the state-owned oil company, ECOPETROL, are becomingcommercialized now that investment will be financed by theissuance of shares to the private sector. This should reduce thecentral government's overall fiscal risk.

General OverviewOxford Analytica's (OA) 2006 Fiscal Transparency Reportstates that Colombia has continued to make steady progress inimplementing the 2003 Fiscal Responsibility and TransparencyLaw No. 819 (FRTL). The law establishes a Medium Term FiscalFramework (MTFF), which has been produced since 2005. Inaddition, the government issued Decree No. 4730, which set

up the Medium Term Expenditure Framework (MTEF) as asub-component of the MTFF. The MTEF includes expenditureprojections and targets for the coming four years. Thegovernment plans to integrate the MTFF and the MTEF withthe National Development Plan (NDP). OA asserted that thisintegration will increase fiscal transparency significantly. DecreeNo. 4730 sets out measures that were included in the 2005proposed Budget Code reforms that ultimately failed to pass inthe Congress. The Decree regulates the request of budgetaryadditions, establishing certain requirements for extra funding.As a result, there were no budgetary additions in 2005 and2006.

According to a 2007 study by Cárdenas et al, the FRTL requiresthe MTFF to specify primary fiscal targets for the upcomingten years, and must also set public debt targets. The MTEFdetails expenditure targets for the coming four years, classifiedby sectors and components (debt, investment, and operationalexpenditure). However, the authors point out that thelegislation lacks enforcement mechanisms. OA reports thatthe FRTL may have improved the planning framework but,beyond that, it lacks consistency. OA does note that there hasbeen progress in the monitoring of budget execution, however.Colombia is extending and implementing the IntegratedFinancial Information System (SIIF) at the national level - aprocess that was nearly completed in 2008. According to thewebsite of the Ministry of Finance and Public Credit (MHCP),the government plans to fully implement the system in 2009.A reform of the tax code was passed in 2006 through LawNo. 1111, but the legislation was not as comprehensive as theoriginal government proposal. Nonetheless, the InternationalMonetary Fund (IMF) reported in 2007 that the tax reformshave reduced some distortions that existed under the previousregime. Furthermore, Legislative Act No. 4 of 2007 institutedreforms to the system of transfers from the centralgovernment to the local and regional governments. Accordingto the IMF, "the reform of the intergovernmental transferssystem will help contain the growth of central governmentexpenditure" (p.27).

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Writing for the International Budget Project's Open BudgetInitiative, Gory Suarez compiled an Open Budget Index (OBI)for 2006 that rated Colombia's budget process, overall, at57%. The OBI tracks the production of seven key budgetdocuments: the Pre-Budget Statement, the Executive's BudgetProposal, the Citizens' Budget, In-Year Reports, the Mid-YearReview, the Year-End Report, and the Auditor's Report.Colombia produces four of these documents (it does notproduce a Pre-Budget Statement, a Citizens' Budget, or a Mid-Year Review) and makes all of the documents available to thepublic.

The IMF's 2007 report noted that the fiscal balances of theNon-Financial Public Sector (NFPS) have been positive.According to the June 2007 MTFF,the NFPS showedimprovement in its fiscal figures. The primary balance movedfrom a 1.2% deficit in terms of GDP in 1999 to a 1.4% surpluson average between 2000 and 2002, and rose again to a 3.5%surplus on average between 2003 and 2007. The net debt ofthe NFPS has been reduced from 47.9% of GDP in 2002 to31.2% in 2006. IMF staff noted that a stronger fiscal stancewould lead to public debt falling below 30 percent of GDPby 2011. The staff agreed with the authorities that there wasno distinct single public debt target (as a percentage of GDP)to anchor fiscal policy, although it noted that various studiesestimate that debt levels greater than 25 percent may provevulnerable. In addition, the IMF report noted that privatizationefforts are moving forward, and that operations of the state-owned oil company - ECOPETROL - are becomingcommercialized. Thus investment will be financed by theissuance of shares to the private sector. Fiscal risk stemmingfrom ECOPETROL's operations will thus be reduced, and IMFstaff agreed that, starting in 2008, "ECOPETROL could betaken out of the fiscal indicators used to measure the fiscalpolicy stance, such the overall public sector deficit" (p. 20).

Principle: Clarity of roles andresponsibilities.[Enacted]

OA's 2006 report rated Colombia's compliance with thisprinciple as "Enacted." The public sector is composed of thelegislative, executive, and judicial branches, which are allautonomous. The executive branch comprises the three

different levels of the government -national government,departmental governments, and municipalities. The structureand functions of the government are clearly specified in the1991 Constitution. The executive branch is responsible forpolicy formulation and implementation. The roles andresponsibilities of the government are defined in Law No.715. The 2003 IMF Report on the Observance of Standardsand Codes (ROSC), stated that the legal and administrativeframework for fiscal management, although well established inlaw, remains complex. According to the ROSC, an NDP mustbe submitted to Congress at the beginning of the government'sfour-year term, which roughly corresponds to the four-yearterm served by the legislature. The NDP provides theframework according to which the annual budget is prepared.Colombia's 2003 International Budget Report states that theNDP has a relevant role in the process to elaborate theGeneral National Budget (GNB), and this approach puts publicinvestment in a central role for implementing the NDP. TheGNB is divided into a current expenditure budget and aninvestment budget. However, the IMF's 2003 ROSC statedthat this system yields "a multiplicity of documents related tothe formulation, presentation, and execution of the budget,separately prepared by different entities, without a clearframework of coordination, and a consistency difficult to verify"(p.14),.

The 2006 OA report found that Colombia has showncontinued progress in clarifying the roles and responsibilitiesof the national and sub-national governments. However, aproposed Organic Law of Territorial Organization has notyet been passed, and ambiguities in the division of functionsbetween national and sub-national governments persist. Thewebsite of the Representatives' Chamber of Colombiadiscloses that, in February 2008, the central government andCongress agreed to withdraw the proposed Organic Law ofTerritorial Organization in order to reach consensus amongthe different levels of government. The legislative and theexecutive branches agreed to hold public hearings in order toconsult the opinions of different sub-national entities. In a 2003paper, Mendoza Morales argued that the current TerritorialOrganization Organic Law is incomplete because it excludesgeographic, environmental, and cultural aspects of territorialorganization.

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The IMF's 2003 ROSC noted that the MHCP prepares thecurrent expenditure budget. The NDP constitutes theinvestment budget. The Fiscal Policy Council (CONFIS) designsfiscal policy and plays a coordinating role. The process by whichthe NDP is formulated is set forth in Articles 345 through355 of the Constitution, and by the Organic Budget Statute.The 2006 OA report noted that the government continuesto make steady progress in implementing the FRTL. This Law,which was approved in July 2003, establishes principles of fiscaldiscipline across all levels of government with reference topublic debt, expenditure, and primary surplus and organizesthe budget process at the sub-national level. According to OA,Colombia has improved the fiscal discipline and transparency.With the implementation of the FRTL, a MTFF was adoptedas a tool for fiscal planning and evaluation in the short andmedium term. This has yielded improvements in the evaluationof factors that generate expenses across different budgetingperiods, such as contingent liabilities, and of the financial impactof new laws. According to the FRTL, municipalities mustproduce their own MTFF, providing multi-year projections ofrevenues and stating primary fiscal balance targets. OA notedthat progress in this area has been much slower at themunicipal level than it has been at the central government level.

OA also reported that the Colombian government initiateda plan to pass a Budget Code reform in 2003, but the draftwas rejected by Congress in 2005. However, the governmentissued Presidential Decree No. 4730 on December 28, 2005,which included elements of the rejected reform bill. ThisDecree prohibits the request of additional funding unless itis related to unforeseen expenditure or can be financed bycurrent revenues. If these conditions are not met, it is necessaryto estimate the impact of additional expenditure. Accordingto OA, prior to the Decree's passage, budget additions weresought at least once per year, but in 2005 and 2006 nosuch additions were sought. The 2007 report by Cárdenaset al.stated that this Decree has strengthened fiscal constraintwith the MTFF and its primary balance targets, and introduceda new budgetary classification which is more transparent andis in line with international standards. The Decree establishedthat the national government must develop a MTEF, includingexpenditure limits and projections for the following four years,classified by sectors and components (debt, investment andoperational expenditure. OA reported that some

commentators feel that the MTFF and MTEF have improvedthe planning framework but nonetheless lack consistency, sincethey only set indicative targets. OA points out that, after theimplementation of the FRTL, regional and municipalgovernments have had fiscal surpluses. Nonetheless, the centralgovernment has had deficits of about 5% of GDP, and thisraises concerns regarding long-term fiscal sustainability.However, Cardenas et al. argue that it is premature to assessthe effects of the FRTL. Nonetheless, since 2004, the MTFFhas served as a reference for analyzing the evolution of publicfinance.

Colombia has various autonomous and independentinstitutions which are defined by the Constitution and law.One of these is the Central Bank of Colombia (CBC), whichis independent. Together with the executive, the CBCcoordinates the design of the overall macroeconomicframework as part of the Annual Macroeconomic Plan. TheMinister of Finance chairs the CBC board of directors toreinforce the coordination mechanism, but cannot vetomonetary decisions. The Superintendency of Finance (SF) isanother independent institution created as a result of themerger between the Superintendency of Banks and FinancialInstitutions and the Superintendency of Securities. Accordingto the OA report, this institution enjoys administrative andfinancial independence from the government. As for non-financial public enterprises, OA notes that the "the relationbetween non-financial public enterprises and the governmentis clearly defined in law" (p.99). These enterprises are requiredto report to the Fiscal Policy Council about their financialsituation and activities.

With respect to government involvement in private sector,the IMF's 2003 ROSC states that "the public corporate sectoris present in many strategic sectors" (p. 11). Nonetheless, insome sectors - for instance, electricity, residential utilities, andtelecommunications - it competes on a level-playing field withprivate firms. In addition, the government can invest in privatecompanies. Its shareholdings are disclosed by the GeneralAccounting Office, although not in great detail. In 2004Colombia initiated a large scale privatization effort. Accordingto the OA report, assets to be privatized are estimated atUS$10 billion. The IMF's 2007 Article IV Consultations notedthat privatization efforts are moving forward, and the state-

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owned oil company ECOPETROL's operations are becomingcommercialized. Thus investment will be financed by theissuance of shares to the private sector. Fiscal risk stemmingfrom ECOPETROL's operations will thus be reduced and IMFstaff agreed that, starting in 2008, "ECOPETROL could betaken out of the fiscal indicators used to measure the fiscalpolicy stance, such the overall public sector deficit" (p. 20).

In 2006 the government attempted to reform the tax system,with the aim of strengthening, simplifying, and unifying it. Theterms of the initial reform proposal underwent significantchanges, however. According to a 2007 report by the PoliticalScience Institute, the new version of the tax reform bill wasapproved by Congress on December 27, 2006. This lawreduced the rates of corporate income tax, modified otherrates, excluded some products from VAT payment liability,and created the wealth tax. The IMF's 2007 report statedthat "while less comprehensive than the original governmentproposal, the 2006 tax reform reduced some of the system'sdistortions" (p.27). Ethical standards for public servants areestablished by Law No. 90 of 1995. It states that servantsmust posses a non-conviction certificate and be under nodisciplinary sanctions. Also, Law No. 734 of 2002 establishesa disciplinary code. The Office of the Attorney General is incharge of enforcing the disciplinary code.

Principle: Open budget processes[Compliance in Progress]

OA's 2006 Report on Fiscal Transparency in Colombia ratesColombia's compliance with this principle as "Compliance inProgress". In 2003, the IMF's ROSC noted that there wasno law, regulation, or standard governing the content of thePresidential Message. Although the Organic Budget Lawestablishes that the General National Budget must beconsistent with the four-year National Investment Plan, thePresidential Message does not detail how the Budgetcontributes to accomplishing the objectives of the Plan.Furthermore, the Comptroller General's report on theGeneral Budget Account of 1999, stated that the Budget andthe Plan differ substantially. OA notes that fiscal policyobjectives are detailed in the Annual Financial Plan, which isavailable on the MHCP website. Also, these objectives areincluded into the annual financial macroeconomic plan

developed by CONPES. This plan is available on the websitesof the National Planning Department and the CBC. Thefinancial plan is revised in June. The FRTL requires that, whenactual outcomes differ from forecasts, an explanation beprovided in the Report of Fiscal and Macroeconomic Results,which evaluates whether the objectives established in theAnnual Financial Plan have been met.

The level of fiscal information provided by Colombia appearssatisfactory. The OA report stated that "Colombia providesbroad information for the current, forthcoming and previousbudget years" (p.104). Nonetheless, the Budget includes verylimited information about contingent liabilities and no datarelated to quasi-fiscal activities. However, there has been someimprovement in the publication of this type of data as a resultof the implementation of the MTFF, which shows informationreferred to quasi-fiscal activities and fiscal forecasts Cardenaset al. state that fiscal rules related to fiscal surplus and debtare published in the MTFF. The MTFF also includes differentscenarios for public debt. The IMF's ROSC stated that, by law,the Presidential Message must include an analysis of public debtrepayment capacity, which at a minimum must contemplatethe evolution of the balance and the ratios of debt to GDPand debt to exports. The Message must include annual debtindicators and their evolution over the previous two years. OAstated that although sub-national governments report someinformation to the national government, there is no systematicmonitoring and integration of fiscal information. However, theFiscal Support Department is working to provide morecomplete, high quality data. Traditionally, the Budget reportsrevenue and expenditure information, and data related toallocations and execution of government transfers.

As for the presentation of the final accounts to the legislative,the IMF's 2003 report noted that, as stated in the Constitution,"the government must send to the Congress the FinanceBalance Sheet audited by the Office of the GeneralComptroller in the six months after the end of the fiscal year,"after which "the General Budget and the Treasury Account -which covers the entities included in the [Budget] - must besubmitted to the Congress by the [Comptroller General] nolater than July 30 of each year" (p.33). Moreover, accordingto the law, the Comptroller General must submit a reportreflecting any deviations of each budgetary item from the

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amounts originally calculated. In addition, CONFIS produces afinal fiscal report in December that contains information on theevolution of the fiscal accounts during the year, including theconsolidated balance, the central government balance, and thebalance of the sub-national governments and state enterprises.The CONFIS website provides information on consolidatedfiscal results on a quarterly basis.

Regarding the evaluation of results of the budget programs,OA's noted that the government has pursued a more target-based approach. The central government uses the Systemof Evaluation of the Results of Public Management (SIGOB)to evaluate and monitor the results and impacts of its mainpolicies, programs, and investment projects. The SIGOBwebsite shows all the targets and the progress made related tothese items. Most targets refer to expenditures, so this systemenhances budgetary accountability.

With regard to the accounting system used by central publicadministration, the IMF's 2003 assessment stated that the SIIF"makes it possible to obtain timely information for evaluatingarrears" (p.29). The Fund noted that the SIIF "registers andincorporates timely and reliable information on the differentstages of the expenditure process (commitment, obligation,and payment), encompasses on a timely basis all externallyfinanced transactions, and maintains records of assistance inkind not associated with cash flows" (p.29). OA noted thatColombia was close to completing the extension of the SIIF tothe national level as of December 2006. This was mandatedby Presidential Decree No. 4730, and aims at collectinginformation about the execution of the budget. However, asof March 2008, the MHCP website disclosed that there arestill entities that have not yet entered the system. The MHCPplanned to conduct a pilot test with these entities during 2008,and fully implement the system in 2009. Lastly, OA notedthat "Colombia is only in the initial stages of developing aperformance-based system of monitoring and evaluation" andcited a World Bank report that described the budget processas lacking in the capability for "monitoring and evaluation totrack the use of public resources and to evaluate theperformance of those responsible for implementing it. TheNational Planning Department is constructing a Unified PublicFinancial Investment System (SUIFP) designed to evaluate and

monitor investment projects, but it is not yet operational"(p.107).

Principle: Public availability ofinformation.[Enacted]

OA rated Colombia's compliance with this principle as"Enacted" in its 2006 Report on Fiscal Transparency inColombia. Information related to the fiscal situation ispublished by different institutions with diverse coverage. As forthe information related to the budget, OA asserted that theMHCP website releases complete information on the sourcesand uses of the annual budget. Furthermore, data that iscomparable with that of the GNB is published for thepreceding two fiscal years. A projection for the upcoming tenfiscal years is available in the MTFF. The National InvestmentPlan, the NDP, and the macroeconomic plan are published bythe National Planning Department. The macroeconomic planrequires prior approval by the National Council of Economicand Social Policy (CONPES). The NDP shows the maininvestment and macroeconomic objectives of the governmentand includes an investment plan. In addition, the AnnualFinancial Plan contains the non-financial public sector balance ina modified accrual-based accounting methodology.

CONFIS, which is part of the MHCP, elaborates and publishesmonthly reports covering the central government'sexpenditures, revenues, and financing. According to OA "therehas been considerable improvement over the last several yearsin terms of the amount and quality of information presentedin the Presidential Message to Congress on the Annual BudgetLaw" (p.102). Reports containing consolidated public sectorinformation are published by CONFIS and are included inthe annual closing accounts and the Annual Financial Plan.These reports include sub-national governments, the CBC,the Collateral Fund of Financial Institutions (FOGAFIN), and agroup of state-owned companies. OA stated that "the GeneralAccounting Office of the Nation produces quarterlyinformation on the balance sheet of every institution of thegovernment and every municipality, although it is not entirelyeasy to understand" (p. 102).

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Colombia has been working to improve its municipal andregional budget systems. Leading this effort is the FiscalSupport Department (FSD). Data quality provided by sub-national governments has been enhanced, but disclosureremains untimely. According to OA, the Office of TerritorialDevelopment has also begun improving its reporting of fiscalbalance of regions and municipalities. According to the 2003International Budgeting Report, the results of its 2003 surveyon budgetary transparency indicate that Colombia ranksseventh of the 10 regional economies. The report noted thatthese results could indicate a lack of transparency in thebudgetary process. Colombia's macroeconomic information,budgetary control, and the capacity of the Office ofComptroller General are more transparent, according to thereport. OA further found that, "as part of its commitment tothe IMF Special Data Dissemination Standard (SDDS), to whichit subscribed in 1996, Colombia publishes data on domesticand public external debt. The [MHCP] website providesreports on debt composition and maturity terms" (p.103).Nonetheless, after a thorough analysis of the methodologiesused by the MHCP, the CBC and the Comptroller General, theCONFIS has concluded that they differ significantly.

As for the commitment to the timely publication of fiscalinformation, OA's report asserted that there is no legalobligation to disclose information to the public. Instead, thelegal framework only establishes that the Comptroller Generalmust submit fiscal information to Congress on an annual basis.However, the IMF's 2003 report disclosed that the Colombianauthorities and public servants acknowledge that thedissemination of information is important In addition, OAstated that "although Colombia is committed under the termsof the IMF SDDS to produce advance release calendars, theseare not available on the national websites. The calendar andcontact information for personnel responsible for posting theinformation are, however, available from the IMF SDDSwebsite" (p.103).

Principle: Independent assurances ofintegrity.[Compliance in Progress]

OA's 2006 Report on Fiscal Transparency rated Colombia'scompliance with this principle as "Compliance in Progress".

The OA report noted that data produced by the MHCP "arereliable and meet international standards" (p.109). However,sub-national government information is not fully reliable,despite the fact that the MHCP is undertaking a program toimprove upon this information. Overall, the administration hasshown a strong commitment to produce high quality fiscaldata. Law No. 716s passed in 2001, sets up a harmonizedaccounting methodology which all levels of government, allgovernment agencies, and all state-owned enterprises mustuse. Law No. 734 of 2002 establishes a unified disciplinarycode to promote accurate accounting practices and the timelyregistration of fiscal expenses and revenues. OA's report statedthat "the code also requires public servants to implementinformation dissemination and transparency practices set outby the national government, the Office of the GeneralAccountant, and the General Comptroller of the RepublicOffice. Some commentators indicated that there werecontradictions between some of the statistics of differentgovernment departments" (p.109).

In its 2003 assessment, the IMF pointed out that there aresome complexities in the process by which CONFIS compilesinformation. In this regard, OA indicates that a manual for thepreparation and reporting of the budget has been recentlydeveloped by the MHCP. This manual follows the IMF'sstatistical methodology - Government Financial StatisticsManual (GFSM) 2001-, and is currently being used by thegovernment. However, as indicated by the OA report,commentators noted that the GFSM standards are used forinternational comparisons of statistics, but not for theelaboration of the budget.

The Comptroller General is responsible for auditing fiscal affairsof the national government, including decentralized agenciesand state-owned enterprises. Regional and municipalgovernments are audited by their respective regionalcomptroller offices. The Comptroller General's Office isrequired to periodically report to Congress. It releases anannual fiscal report showing the evolution of the main fiscalaccounts and the fiscal situation of state-owned enterprisesand government agencies. The Comptroller General alsoelaborates ad hoc reports that refer to specific governmentagencies. According to the 2003 International Budget Report,the Comptroller General can penalize those entities that it feels

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have acted contrary to the principles of efficiency, efficacy,and justice. However, OA cautioned that "there have beenrecommendations from some institutions that the technicalcapacity of the Office of National Comptroller should bereinforced and that its political independence should beguaranteed, so that its recommendations can truly contributeto tackling corruption" (p.110).

The IMF's 2003 ROSC stated that external control agencies arethemselves controlled by the Auditor General's Office, whichis responsible for supervising the fiscal management of theComptroller General's Office and the regional comptrollers'offices. However, OA cited a World Bank report which statedthat the role of the Auditor General's Office needed to beclarified in order to avoid overlaps with the ComptrollerGeneral's Office. OA also reported that the National StatisticsDepartment is in charge of elaborating and publishing nationalstatistics, but has no legal obligation to produce and releasefiscal information. The entities that are responsible for releasingthis type of information are the Comptroller General's Officeand the General Accounting Office.

Sources of AssessmentInternational Monetary Fund, "Colombia: Report on the Observance ofStandards and Codes: Fiscal Transparency Module," Country Report No.03/128, Washington, D.C.: IMF, May 2003. Available from InternationalMonetary Fund website. Accessed on May 15, 2008. (IMF 2003)http://www.imf.org/external/pubs/ft/scr/2003/cr03128.pdf

International Monetary Fund's Special Data Dissemination Standardwebsite. Last updated on May 2, 2008. Accessed on May 5, 2008. (IMFSDDS Website)http://dsbb.imf.org/Applications/web/sddscountrycategoryl...

Oxford Analytica, "Fiscal Transparency Report: Colombia," Oxford: OA,December 2006. Available from California Public Employees' RetirementSystem website. Accessed on May 8, 2008. (OA 2006)http://www.calpers.ca.gov/eip-docs/investments/assets/equ...

Relevant OrganizationsAuditor General's Office - Auditoria General de la Republica (AGR)http://www.auditoria.gov.co/templates/english_version.asp

Central Bank of Colombia - Banco de la República (CBC)http://www.banrep.gov.co/index_eng.html

Colombian National Administrative Department of Statistics -Departamento Administrativo Nacional de Estadística Colombia (DANE)(website in Spanish only)http://www.dane.gov.co/

Fiscal Policy Council - Consejo Superior de Política Fiscal (CONFIS)(website in Spanish only)http://www.minhacienda.gov.co/MinHacienda/haciendapublica...

General Accounting Office - Contaduría General de la Nación (CGN)(website in Spanish only)http://www.contaduria.gov.co/

Ministry of Finance and Public Credit - Ministerio de Hacienda y CreditoPublico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co/MinHacienda

National Council of Economic and Social Policy - Consejo Nacional dePolítica Económica y Social (CONPES) (website in Spanish only)http://www.dnp.gov.co/PortalWeb/tabid/55/Default.aspx

National Customs and Taxes Office - Direccion de Impuestos y AduanasNacionales (DIAN) (website in Spanish only)http://www.dian.gov.co/

National Planning Department - Departamento Nacional de Planeación(DNP) (website in Spanish only)http://www.dnp.gov.co/PortalWeb/

Office of the Attorney General - Procuraduría General de la Nación(PGN) (website in Spanish only)http://www.procuraduria.gov.co/

Office of the National Comptroller - Contraloría General de la República(CGR)http://www.contraloriagen.gov.co/html/home/home.asp

Presidency of Colombia - Presidencia de la República (website in Spanishonly)http://web.presidencia.gov.co/

Representatives Chamber of Colombia - Cámara de Representantes deColombia (CRC) (website in Spanish only)http://www.camara.gov.co/

Superintendency of Finance - Superintendencia Financiera (SF)http://www.superfinanciera.gov.co/

Relevant Legislation/RegulationConstitution of the Republic of Colombia, 1991 - Constitución Política deColombia, 1991 (amended through 2005) (in Spanish only)http://pdba.georgetown.edu/Constitutions/Colombia/col91.html

Organic Budget Law No. 38, 1989 - Estatuto Orgánico del PresupuestoGeneral de la Nacion No. 38, 1989 (in Spanish only)http://www.dnp.gov.co/archivos/documentos/DDTS_Gestion_Pu...

Fiscal Responsibility and Transparency Law No. 819, 2003 - Ley dePresupuesto, Responsabilidad y Transparencia Fiscal No. 819, 2003 (inSpanish only)http://www.secretariasenado.gov.co/leyes/L0819003.HTM

Government Procurement Law No. 80, 1993 - Ley de Contratación de laAdministración Publica No. 80, 1993 (in Spanish only)http://www.armada.mil.co/index.php?idcategoria=262#

Tax Reform Law No 1111, 2006 - Ley por la cual se modifica el EstatutoTributario de los Impuestos Administrados por la Dirección de Impuestos yAduanas Nacionales No.1111, 2006 (in Spanish only)http://www.parramoreno.com/normas/Ley1111.pdf

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Legislative Act reforming Articles 356 and 357 of the Constitution No. 4,2007 - Acto Legislativo por el cual se reforman los Artículos 356 y 357 dela Constitución Política No.4, 2007 (in Spanish only)http://www.secretariasenado.gov.co/leyes/ACL04007.HTM

Contingent Liabilities and Public Indebtedness Law No. 448, 1998 - Ley deManejo de las Obligaciones Contingentes de las Entidades Estatales y otrasDisposiciones en Materia de Endeudamiento Público No.448, 1998 (inSpanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Decree parcially regulating Law No. 448 of 1998, No. 1489, 1999 -Decreto por el cual se reglamenta parcialmente la Ley 448 de 1998,No.1489, 1999 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Decree regulating Organic Budgetary Norms No. 4730, 2005 - Decretopor el cual se reglamentan Normas Orgánicas del Presupuesto No. 4730,2005 (in Spanish only)http://www1.minambiente.gov.co/ministerio/presupuesto/doc...

Law on Public Sector Accounting Information, Tax and other norms No.716, 2001 - Ley para el Saneamiento de la Información Contable en elSector Público y se dictan disposiciones en Materia Tributaria y otrasdisposiciones No. 716, 2001 (in Spanish only)http://juriscol.banrep.gov.co:8080/cgi/normas_buscar.pl

Supplementary SourcesCárdenas, M. et al, "La Economía Política del Proceso Presupuestal: El Casode Colombia [Political Economy of the Budgetary Process: The Case ofColombia]," New York: IADB, January 2007. Available from Inter AmericanDevelopment Bank website. Accessed on May 10, 2008. (Cárdenas et al2007)http://www.iadb.org/res/publications/pubfiles/pubCSI-104_...

International Budget Project, "Índice Latinoamericano de TransparenciaPresupuestaria 2003: Una Comparación entre Diez Países (Colombia)[Latin-American Index of Budgetary Transparency 2003: A Comparison ofTen Countries (Colombia)]," Washington: IBP, 2003. Available fromInternational Budget Project website. Accessed on May 14, 2008. (IBP2003)http://www.internationalbudget.org/themes/BudTrans/Report...

International Monetary Fund, "Colombia: 2007 Article IV Consultation -Staff Report; and Public Information Notice on the Executive BoardDiscussion," Country Report No. 08/31, Washington, D.C.: IMF, January2008. Available from International Monetary Fund website. Accessed onMay 7, 2008. (IMF 2008)http://www.imf.org/external/pubs/ft/scr/2008/cr0831.pdf

Junguito, R., and Ortega, J. R., "Ley de Responsabilidad y TransparenciaFiscal [Fiscal Responsibility and Transparency Law]," Bogotá: Fedesarrollo,February 2006. Available from Fedesarrollo website. Accessed on May 10,2008. (Junguito & Ortega 2006)http://www.fedesarrollo.org.co/includes/scripts/open.asp?...

Ministry of Finance and Public Credit, "Marco Fiscal de Mediano Plazo[Medium Term Fiscal Framework]," Bogotá: MHCP, June 2007. Availablefrom MHCP website. Accessed on May 5, 2008. (MHCP 2007)http://www.minhacienda.gov.co/portal/page/portal/MinHacie...

Ministry of Finance and Public Credit website. Last updated on February26, 2008. Accessed on May 15, 2008 (MHCP website)http://www.minhacienda.gov.co/MinHacienda/haciendapublica...

Mendoza Morales, A., "Ordenamiento Territorial: Oportunidad paraOrganizar a Colombia como un Estado Regional [Territorial Organization:an Opportunity for Organizing Colombia as a Regional State]," 2003,Available from Geographic Society of Colombia website. Accessed on May14, 2008. (Mendoza Morales 2003)http://www.sogeocol.edu.co/documentos/3otc.pdf

Institute for Political Science, "Legislative Activity Balance," Bulletin No. 60,2007. Available from Institute for Political Science website. Accessed onMay 20, 2008. (IPS 2007)http://www.icpcolombia.org/archivos/observatorio/boletin_...

Representatives Chamber of Colombia website. Last updated on May 15,2008. Accessed on May 15, 2008 (CRC website)http://abc.camara.gov.co/camara/site/artic/20080219/pags/...

Suarez, G. "Open Budget Index 2006: Colombia," 2006. Available fromOpen Budget Project website. Accessed on May 20, 2008. (Suarez 2006)http://www.openbudgetindex.org/CountrySummaryColombia.pdf

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International Financial Reporting Standards

LEVEL OF COMPLIANCE: INTENT DECLARED

SummaryThe World Bank's 2003 assessment of Colombia's accountingand auditing standards reports that the country's GenerallyAccepted Accounting Principles (GAAP), established byDecree No. 2649 in 1993, are based on InternationalAccounting Standards (currently International FinancialReporting Standards, or IFRSs) and the U.S. GAAP. However,the assessment adds that Colombia's GAAP fail to incorporatemany areas covered by the international standards and havenot been updated since 1993 to reflect developments in eitherthe IFRSs or the U.S. GAAP. Moreover, the World Bank pointsout that there is no concept of general-purpose financialreporting. Instead, multiple agencies issue separate accountingrules for the entities falling under their jurisdictions. The WorldBank recommends the full adoption of IFRSs, the establishmentof a High Council to oversee this adoption process, and thecreation of an enforcement body focused on accounting andauditing standards within these professions. A 2008 article inDinero Magazine discloses that, as of March 2008, Colombia'scongress was considering Bill No. 165, submitted in 2007,which would require all large companies in Colombia to fullyadopt IFRSs by 2010 and which would impose an adoptiondeadline for 2012 for full adoption by small and mediumcompanies.

General OverviewAccording to the 2003 World Bank Report on the Observanceof Standards and Codes (ROSC) on Accounting and Auditing,the legal framework for accounting in Colombia is comprisedof several laws and regulations: (1) the Code of Commercethrough Decree No. 410 of 1971, which sets forth generalaccounting requirements for commercial enterprises; (2) LawNo. 43 of 1990, which provides the government with theauthority to set accounting standards; and (3) the ColombianGenerally Accepted Accounting Principles (GAAP),promulgated through Decree No. 2649 of 1993. Law No.222 of 1995 empowers several entities to issue accountingregulations for companies under their respective jurisdictions.

Specific accounting standards for banks and listed companiesare issued by their respective supervisors. Until 2005, thesewere the Superintendency of Banks (SB) and theSuperintendency of Securities (SV) but, according to thewebsite of the Columbian Presidency, these two entities weremerged to form the Superintendency of Finance (SF). Banksuse the same accounting standards for reporting to theregulator and external users. Listed companies are required toprepare quarterly consolidated financial statements and reportchanges in accounting policies. The National Tax and CustomsOffice (DIAN) issues accounting regulations for tax purposes,and these generally are not aligned with the Colombian GAAP.The World Bank report notes that the Superintendency ofCorporations (SS) reviews the financial statements of allcommercial legal entities. In addition, the SB and the SS(currently, the SF) supervised banks, insurance companies,pension funds, and listed companies. However, the "regulatorsconcentrate more on issuing than on enforcing accountingstandards" (p.8), noted the World Bank report. The reportadds that the regulatory entities are incapable of monitoringand enforcing the accounting rules they set. Overall, the WorldBank assessment concludes that the legal and regulatoryframework for accounting and auditing is inconsistent, unclear,and fails to promote high quality financial reporting. Therefore,the World Bank suggests that Colombia enact new legislationcovering the accounting and auditing professions. It furtherrecommends the creation of a High Council and a regulatorybody specifically charged with both establishing accounting andauditing standards and enforcing them.

In 2007, the National Institute of Public Accountants (INCP)reported that, per provisions of the Colombian Constitution,only the Congress has the authority to issue Colombian GAAP,although it can delegate this authority to the executive branch.The World Bank reported in 2003 that Law No. 43 of 1990gave the Technical Council for Public Accounting (CTCP) theauthority to develop Colombia's GAAP, which were finallyapproved by Decree No. 2649 in 1993 and were applicableto all enterprises in Colombia. Historically, the Colombian

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GAAP were modeled on the U.S. GAAP and the InternationalAccounting Standards. A number of comparisons ofColombian GAAP and their international counterparts carriedout by the CTCP, the Javeriana Universty, and Nestor Jimenezreveal that there are differences with respect to internationalstandards, as stated in the CTCP's report of 2004 entitled"Analysis of the Implementation of Accounting and AuditingStandards in Public Interest Companies in Colombia." However,Dinero Magazine reported in 2008 that, as of March of thatyear, the Colombian Congress was analyzing Bill No. 165,first proposed in 2007, which requires under Article 1 thatall companies in Colombia must adopt International FinancialReporting Standards (IFRSs). Large firms are required to fullyadopt the standards by 2010, whereas small and mediumenterprises will be required to do so by 2012.

The Central Accounting Board is in charge of regulating theaccounting profession. However, the World Bank found thatthis board has insufficient funds to perform its functionsefficiently. The World Bank further found that accountantswere not subject to a Code of Conduct consistent with theone established by the International Federation of Accountants(IFAC). The INCP's 2007 report notes that the INCPpromotes the adoption of IFRSs. The INCP is listed as amember on the IFAC website.

Principle: IFRS 1: First-timeAdoption of International FinancialReporting Standards (effective 2010)[No Compliance]

According to the 2008 Múnera report, there are differencesbetween Colombian GAAP and IFRS 1. The report asserts thatthe adoption of this principle would have a relatively importantfinancial impact, but that implementation would entail a highdegree of difficulty when compared to other standards.

Principle: IFRS 2: Share-basedPayment (effective 2010)[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: IFRS 3: BusinessCombinations (effective 2010)[No Compliance]

The 2004 CTCT and 2008 Múnera reports reveal that thereare differences between Colombian GAAP and IFRS 3. Bothreports note that the adoption of this international standardwill have a significantly high financial impact. In addition, theCTCP mentions that its adoption would require substantialmodifications to Colombian regulations, especially to theprocedures for valuing acquisitions.

Principle: IFRS 4: InsuranceContracts (effective 2006)[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: IFRS 5: Non-current AssetsHeld for Sale and DiscontinuedOperations (effective 2010)[No Compliance]

According to the 2008 Múnera report, Colombian GAAPdiffer from IFRS 5. Implementation would involve anintermediate level of complexity, and a moderate financialimpact is expected from converging with this IFRS.

Principle: IFRS 6: Exploration for andEvaluation of Mineral Resources(effective 2006)[Insufficient Information]

There is insufficient information publicly available as toColombia's compliance with this principle.

Principle: IFRS 7: FinancialInstruments: Disclosures (effective2009)[No Compliance]

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According the 2008 Múnera report, there are differencesbetween Colombian GAAP and IFRS 7.

Principle: IFRS 8: OperatingSegments (effective 2010)[No Compliance]

According to the 2003 report by the World Bank and theJiménez and Nestor report, the Colombian GAAP do notestablish requirements for accounting for segment reporting.Jimenez also notes that it is only required that companies revealincome from their three main clients only if the sum of thoseincomes is higher than 50 percent of total revenues, or ifthe incomes coming from a single main client is higher than20 percent of total revenues. Jimenez further notes that theSuperintendency of Public Services requires the presentation offinancial statements, with results classified by service, business,or activity. However, this requirement is not applied to thegeneral publication of information.

Principle: IAS 1: Presentation ofFinancial Statements (effective 2010)[No Compliance]

According to the 2008 report by Múnera, there are differencesbetween the Colombian GAAP and IAS 1. The CTCP reportnotes that one of the differences between IAS 1 and theColombian standard is related to the "fair presentation"requirement. Further, the adoption of this standard wouldenhance transparency and change the way in which financialstatements are prepared and revised.

Principle: IAS 2: Inventories (effective2005)[No Compliance]

According to the 2007 report by Macías Acuña et al and the2004 CTCP document, the provisions of Decree No. 2649of 1993 related to inventory valuation are less detailed andcomprehensive than international standards. Furthermore, theCTCP report mentions that the Colombian approach divergesfrom IAS 2 with regard to the recognition of inventory lossesto determine the net realizable value. The 2003 World Bank

report also points out that the rules on valuation of inventoriesare contradictory. In fact, a review of the financial statementsof 20 listed companies shows that some did not detail themethod used for inventory valuation. The World Bank statesthat "the provision for obsolete and slow-moving inventory wasnot reported" (p.10).

Principle: IAS 7: Cash FlowStatements (effective 2010)[No Compliance]

According to the Jiménez and Nestor report, Guideline No.8 of the Nation's General Accounting Office (CGN) providesa methodology for the preparation of cash flow statementsthat include many requirements for IAS 7. However, in practicesome provisions are not being followed by Colombiancompanies. The CTCP 2004 report mentions that sinceColombian accounting norms have already established thatcash flow statements must provide information according tooperating, investing, and financing activities, implementation ofIAS 7 will not require important modifications to Colombianaccounting norms

Principle: IAS 8: Accounting Policies,Changes in Accounting Estimatesand Errors (effective 2005)[No Compliance]

The Múnera report of 2008 notes that there are differencesbetween Colombian GAAP and IAS 8. Implementation of thisstandard involves a relatively low financial impact andimplementation complexity. The 2003 World Bank reportstates that although listed companies must inform theauthorities about any change in accounting policies, a review ofa sample of 20 financial statements of Colombian companiesshowed that many of them did not release accounting policiesrelative to various issues.

Principle: IAS 10: Events after theReporting Period (effective 2005)[Insufficient Information]

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As per the 2003 report by the World Bank, a review of 20financial statements of Colombian companies revealed thatmost companies did not report information related to eventsthat occur after the presentation of the balance sheets.Nonetheless, there is insufficient information publicly availableas to Colombia's compliance with this principle.

Principle: IAS 11: ConstructionContracts (effective 1995)[No Compliance]

The 2003 report by the World Bank and the Jiménez andNestor report state that Colombian GAAP do not establishspecific rules concerning construction contracts.

Principle: IAS 12: Income Taxes(effective 2001)[No Compliance]

According to the 2003 report by the World Bank, "ColombianGAAP provides contradictory approaches to recognizingdeferred taxation" (p.9). Actually, a review of 20 financialstatements of Colombian companies showed that mostfinancial statements did not include information on deferredtaxes. The 2002 Cardona et al. report, and the 2004 report bythe CTCP also confirm that the Colombian norms related todeferred taxes are not in concordance with the internationalstandards, and that the methodology to be used is not defined.The CTCP 2004 report recommends a gradual adoption ofIAS 12, since its implementation along with other IFRSs couldcause impacts on the sustainability of companies.

Principle: IAS 16: Property, Plant andEquipment (revised 2009)[No Compliance]

According to the KPMG report of 2005 and the Múnerareport of 2008, there are differences between ColombianGAAP and IFRS 16. The accounting treatment for increasesof property, plant and equipment values differs from IFRS.The 2004 CTCP report remarks that there are differencesconcerning the definition of property, plant and equipment,initial valuation and measurement criteria, subsequent

valuations, and the recognition of value losses. The CTCPasserts that implementation of IAS 16 will not affect thefinancial viability of organizations. However, the adoption ofthis standard will require modifications to tax legislation.

Principle: IAS 17: Leases (effective2010)[No Compliance]

The 2004 CTCP report asserts that there are differencesbetween IAS 17 and the Tax Statute that regulates theaccounting treatment of leases. In particular, the maindifference is related to the classification of leases as operativeor financial. In this aspect, the CTCP notes that the mainchange in the implementation of IAS 17 is that some leasingcontracts currently treated as operative will be considered asfinancial.

Principle: IAS 18: Revenue (effective1995)[No Compliance]

The 2004 CTCP and 2008 Múnera reports note that there aredifferences between IAS 18 and Colombian GAAP. The formerreport mentions there are differences concerning the followingaspects: (1) measurement of revenue; (2) sale of goods; and(3) rendering services. The CTCP is of the opinion that theadoption of this international standard will not significantlyimpact Colombian companies, but it could potentially conflictthe requirements of the Colombian fiscal authorities.

Principle: IAS 19: Employee Benefits(revised 2009)[No Compliance]

The 2004 CTCP report mentions that international standardson employee benefits are far more developed and systematicthan Colombian principles, which are deemed ambiguous. The2008 Múnera report also identifies differences between theColombian requirements and IAS 19, and notes that theimplementation of this standard would entail a high level ofcomplexity.

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Principle: IAS 20: Accounting forGovernment Grants and Disclosureof Government Assistance (revised2009)[No Compliance]

The Jiménez and Nestor report states that the Colombianaccounting norms do provide guidance on accounting forgovernment grants and assistance. The report asserts that,with the exception of some legal definitions that could causeconfusion concerning the scope of government grants, IAS 20can be adopted or incorporated to Colombian legislation.

Principle: IAS 21: The Effects ofChanges in Foreign Exchange Rates(effective 2005)[No Compliance]

According to the 2003 World Bank report, Colombian GAAPdo not include provisions concerning clear-cut accounting rulesand detailed requirements with relation to foreign currencytransaction and conversion. In addition, the analysis of 20financial statements of different Colombian companiesindicated that several companies did not specify differences onsettlement of monetary items that may arise as a result ofexchange rates variations. According to the 2008 report byVasquez Tristancho, Decree No. 4918 and External CircularNo. 64 of the Superintendency of Finance established someprovisions contained in IAS 21. Still, the 2008 Múnera reportnotes that the Colombian GAAP differ from the IAS 21, andthat the implementation of these accounting rules is ofintermediate complexity compared with the other standards.and may have a high financial impact.

Principle: IAS 23: Borrowing Costs(revised 2009)[No Compliance]

The 2004 CTCP and 2008 Múnera reports note that there aredifferences between IAS 23 and Colombian GAAP. The 2004CTCP document remarks that IAS 23 uses a broader conceptof borrowing costs than Colombian norms. The report further

notes that Colombian norms do not establish clear proceduresfor registering borrowing costs, and consequently could causeinadequate interpretations.

Principle: IAS 24: Related PartyDisclosures (effective 2005)[Insufficient Information]

According to the KPMG and Felaban report of 2003,Colombian financial entities must present individual andconsolidated financial statements at the end of the fiscal year,and "In the individual financial statements, the only informationthat is required to be disclosed refers to investments(ownership) or inter-company transactions or transactions withaffiliates or with related parties" (p.54). The definition ofrelated parties includes: (1) main shareholders; (2) membersof the board of directors; (3) companies in which the financialentity has considerable investments; (4) parties with aneconomic, management, or financial interest; and (5)companies in which shareholders or directors haveconsiderable interest. According to the World Bank reportof 2003, the results of an analysis of 20 financial statementsof different Colombian companies indicate that only fewcompanies provided in their financial statements completeinformation regarding related parties relationships andtransactions, including volumes, amounts, and pricing policies.However, there is insufficient information publicly available asto Colombia's compliance with this principle.

Principle: IAS 26: Accounting andReporting by Retirement BenefitPlans (effective 1998)[No Compliance]

According to the Jiménez and Nestor report, the requirementsfor accounting for retirement plans in Colombia are not ascomprehensive as those of the international standard, althoughthe reporting requirements are basically the same. The 2004CTCP report remarks that the alignment of Colombianprinciples concerning retirement benefit plans withinternational standards would not entail important impacts onfinancial statements and on the process of registration andcompilation of information. Moreover, the CTCP recommends

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the implementation of IAS 26 since it would generate benefitsin terms of transparency and will not significantly changeColombian accounting regulations.

Principle: IAS 27: Consolidated andSeparate Financial Statements(effective 2010)[No Compliance]

The 2004 CTCP and 2008 Múnera reports reveal that thereare differences between IAS 27 and Colombian GAAP.Specifically, there are important differences related to theobligation of presenting consolidated financial statements,according to the CTCP. Furthermore, the concepts ofsubsidiary, joint control and associated differ betweenColombian GAAP and IAS 27. As indicated by the 2003 reportby the World Bank, the Code of Commerce Decree No. 410of 1971 and Law No. 222 of 1995 establish that companiesmust present consolidated financial statements when they ownmore than 50 percent of the capital of other enterprises.Communication No. 100 of 1995 issued by the SB andCommunication No. 1 of the SS establish the requirements forpreparing consolidated financial statements. However, due tolegislative shortcomings, the banks do not consolidate financialstatements of non-banking companies, the report furthernotes.

Principle: IAS 28: Investments inAssociates (revised 2009)[No Compliance]

The 2004 CTCP and 2008 Múnera reports note that thereare divergences between Colombian GAAP and IAS 28. Infact, the CTCP remarks that although there are no significantdifferences concerning the concept of "significant influence," inColombia the definitions of "associated," "subsidiary," and "jointcontrol" present divergences from international standards.Further, as stated in the CTCP report, there are divergencesconcerning the acquisition of an investment in associates sincein Colombia the differences between the cost of acquisitionand the investor's share in the associate are computeddifferently compared to IAS 28. According to the 2003 WorldBank report, the Colombian accounting principles do not

establish provisions related to clear-cut accounting anddisclosure concerning investments in associates.

Principle: IAS 29: Financial Reportingin Hyperinflationary Economies(revised 2009)[No Compliance]

The 2002 Cardona et al. report states that, unlike IAS,Colombian standards do not require firms to adjust financialstatements when inflation occurs. Also, there is no uniformityin the adjustment of comparative figures, and the cash-flowsstatements are not fully adjusted. Moreover, the 2003 reportby the World Bank notes that there are inconsistenciesbetween the different norms that set out provisions concerninginflation adjustments. In this respect, the report states that theColombian tax accounting rules require accounting treatmentsthat are not in line with financial reporting rules.

Principle: IAS 31: Interests in JointVentures (revised 2009)[No Compliance]

According to the 2004 CTCP and 2008 Múnera reports,Colombian GAAP differ from IAS 31. Also, as noted in the2003 World Bank report, "Colombian GAAP lacks clear-cutaccounting rules and detailed disclosure requirements in thearea of joint ventures" (p.9). The CTCP also remarks thatthe concept of "joint control" established in Colombian normsdiffers from that of IAS.

Principle: IAS 32: FinancialInstruments: Disclosure andPresentation (effective 2010)[No Compliance]

The 2004 CTCP and 2008 Múnera reports show thatColombian GAAP differ from the IAS 32. According to theWorld Bank 2003 report, Colombian GAAP do not establishclear-cut accounting and disclosure rules concerning financialinstruments. Moreover, a review of financial statements ofColombian listed companies showed that there were several

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companies that did not provide detailed information regardingrecognized and unrecognized financial assets and thecompany's exposure to credit risk. Also, there wereshortcomings related to other disclosure requirements forfinancial instruments.

Principle: IAS 33: Earnings per Share(effective 2005)[No Compliance]

According to the World Bank 2003 report, Colombian GAAPdo not contain clear accounting and disclosure rules forearnings per share. Furthermore, the results of a review ofthe financial statements of some Colombian listed companiesrevealed that several enterprises did not publish theinformation about their earnings per share

Principle: IAS 34: Interim FinancialReporting (effective 1999)[No Compliance]

As detailed by the 2004 CTCP report, the principlesconcerning interim reporting are established by: (1) theCommerce Code Decree No. 410 of 1971; (2) Law No.222 of 1995, the Colombian GAAP; and (3) other resolutionsand communications issued by regulators. There are severaldifferences between Colombian legislation and theinternational standards, including divergences related to theclassification, information users, cost benefit relation,estimations, dissemination, comparability, regulators, and stockmarket size.

Principle: IAS 36: Impairment ofAssets (revised 2009)[No Compliance]

Although some of the requirements of IAS 36 are coveredunder Colombian GAAP and other rules, there is no standardthat specifically regulates the impairment of assets, accordingto the CTCP report of 2004. Also, the report remarks thatthe Colombian GAAP do not include the concept of cash-generating unit for estimating the impairment of certain assets.

The CTCP notes that impairments are classified as reversibleor irreversible, while the approach in IAS 36 is different.

Principle: IAS 37: Provisions,Contingent Liabilities and ContingentAssets (effective 1999)[No Compliance]

As indicated by the 2003 World Bank report, ColombianGAAP do not set out rules concerning accountingtransparency and disclosure related to provisions andcontingencies. Moreover, the results of a review of the financialstatements of 20 Colombian listed companies revealed thatmost companies did not provide information on contingentliabilities and provisions. Furthermore, IAS 37 provides a betterconceptual classification regarding provisions than thatprovided by Colombian standards, according to the 2004CTCP report. Although in theory Colombian GAAP and IAS37 are similar, in practice the international standard is notcomplied due to the presence of other fiscal norms. TheCTCP further indicates that in practice there is no adequateinformation on contingencies in Colombian financialstatements. The CTCP remarks that the main difficulty ofimplementing IAS 37 is related to the computation of theprobabilities of contingent events, since Colombianorganizations do not measure them and do not use them intheir accounts.

Principle: IAS 38: Intangible Assets(effective 2010)[No Compliance]

According to the 2002 Cardona et al report, Articles No. 66and 67 of the Colombian GAAP establish some provisionsrelated to intangible assets. The 2004 CTCP and the 2008Múnera reports reveal that there are differences between theColombian principles and IAS 38. In this respect, the CTCPmentions that the main differences are related to: (1) theuse of the concept of fair value; (2) the inclusion of researchand development expenditures; (3) the option of choosing arevaluation model instead of a cost model as accounting policy;and (4) the calculation of the amortization of some intangibleassets, including commercial credits.

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Principle: IAS 39: FinancialInstruments: Recognition andMeasurement (effective 2010)[No Compliance]

As indicated by the 2003 World Bank report, ColombianGAAP do not establish clear accounting and disclosure rules inthe area of financial instruments.

Principle: IAS 40: InvestmentProperty (effective 2009)[No Compliance]

The CTCP 2004 report notes that Colombia does not have aspecific standard that regulates accounting practices related toinvestment property.

Principle: IAS 41: Agriculture(effective 2009)[No Compliance]

According to the report by Jiménez and Nestor and the 2004CTCP report, Colombia has no specific requirements foraccounting for agriculture. In fact, the Jiménez and Nestorreport notes that agricultural assets sometimes are treated asinventories and in other cases are registered as expenditures.In this sense, the CTCP further remarks that the adoption ofIAS 41 would entail considerable consequences for companyvaluation.

Sources of AssessmentInternational Monetary Fund, "Colombia: Financial System StabilityAssessment Update, including Reports on the Observance of Standardsand Codes on the topics: Securities Regulation, Insolvency and CreditorRights Systems, and Payment Systems," IMF Country Report No. 05/287Revised, Washington, D.C.: IMF, August 2005. Available from InternationalMonetary Fund website. Accessed on May 6, 2008. (IMF 2005)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

Múnera, J. E., "Lecciones Aprendidas en la Implementación de las IFRS enColombia [Lessons Learned in the Implementation of IFRS in Colombia],"April 2008. Available from NIC-NIIF website. Accessed on June 30, 2008.(Múnera 2008)http://www.nicniif.org/foro2008/memorias/Lecciones_aprend...

Technical Council of Public Accounting, "Análisis de la Implementación deEstándares de Contabilidad y Auditoría en Empresas de Interés Público en

Colombia [Analysis of the Implementation of Accounting and AuditingStandards in Public Interest Companies in Colombia]," November 2004.Available from Central University Foundation website. Accessed on August20, 2008. (CTCP 2004)http://www.ucentral.edu.co/pregrado/cienciaseconomicas/co...

World Bank, "Colombia: Report on the Observance of Standards andCodes - Accounting and Auditing," July 2003. Available from World Bankwebsite. Accessed on July 1, 2008. (World Bank 2003)http://www.worldbank.org/ifa/rosc_aa_col.pdf

Relevant OrganizationsCentral Board of Accountants - Junta Central de Contadores (JCCONTA)(website in Spanish only)http://www.jccconta.gov.co/

Ministry of Finance and Public Credit - Ministerio de Hacienda y CréditoPúblico (MHCP) (website in Spanish only)http://www.minhacienda.gov.co/

National Institute of Public Accountants - Instituto Nacional de ContadoresPúblicos (INCP) (website in Spanish only)http://www.incp.org.co

National Tax and Customs Office - Dirección de Impuestos y AduanasNacionales (DIAN ) (website in Spanish only)http://www.dian.gov.co/

Superintendency of Corporations - Superintendencia de Sociedades (SS)(website in Spanish only)http://www.supersociedades.gov.co/ss/drvisapi.dll?MIval=s...

Superintendency of Finance - Superintendencia Financiera (SF) (website inSpanish only)http://www.superfinanciera.gov.co

Superintendency of Public Services - Superintendencia de ServiciosPúblicos Domiciliarios (SSPD) (website in Spanish only)http://www.superservicios.gov.co/siteSSPD/index.jsp

Technical Council for Public Accounting - Consejo Técnico de laContaduría Pública (CTCP) (website in Spanish only)http://www.jccconta.gov.co/consejot/news.php

Relevant Legislation/RegulationColombian Political Constitution, 1991 (with amendments through 2005) -Consititución Política de Colombia, 1991 (con reformas al 2005) (inSpanish only)http://www.georgetown.edu/LatAmerPolitical/Constitutions/...

Law adding Law No. 145 of 1960 regulating the public accountingprofession and other provisions No. 43, 1990 - Ley por la cual se adicionala ley 145 de 1960, reglamentaria de la profesión de contador público y sedictan otras disposiciones No. 43, 1990 (in Spanish only)http://actualicese.com/normatividad/2001/leyes/L43-90/1L4...

Law by which Book II of the Code of Commerce is modified, a newbankruptcy proceedings regime is issued and other provisions areestablished No. 222, 1995 - Ley por la cual se modifica el libro II delCódigo de Comercio, se expide un nuevo régimen de procesosconcursales y se dictan otras disposiciones No. 222, 1995 (in Spanish only)http://www.supersociedades.gov.co/ss/drvisapi.dll?MIval=s...

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Presidential Decree by which accounting is regulated in general and theColombian General Accounting Principles are issued No. 2649, 1993 -Decreto Presidencial por el cual se reglamenta la contabilidad en general yse expiden los principios o normas de contabilidad generalmenteaceptados en Colombia No. 2649, 1993 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Code of Commerce Decree No. 410, 1971 (last amended 1999) - Codigode Comercio Decreto No. 410, 1971 (última enmienda 1999) (in Spanishonly)http://www.microfinancegateway.com/files/24806_file_law_C...

Decree by which the National Tax and Customs Office issues the TaxStatute No. 624, 1989 (last amended 2007) - Decreto por el cual seexpide el Estatuto Tributario de los Impuestos Administrados por laDirección General de Impuestos Nacionales No. 624, 1989 (últimaenmienda 2007) (in Spanish only)http://www.secretariasenado.gov.co/leyes/ET.HTM

Decree adding a paragragh to articles No. 69 and 102, respectively, fromDecree No. 2649 of 1993, No. 4918, 2007 - Decreto por el cual seadiciona un parágrafo a los artículos 69 y 102, respectivamente, ambos delDecreto 2649 de 1993 No. 4918, 2007 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Draft Law by which Colombia adopts International Financial ReportingStandards for the preparation of finacial statements No. 165, 2007-Proyecto de Ley por la cual el Estado colombiano adopta las NormasInternacionales de Información Financiera para la presentación de informescontables No. 165, 2007 (in Spanish only)http://www.actualicese.com/normatividad/2007/10/24/proyec...

Superintendency of Banks External Circular No. 100, 1995 - CircularExterna de la Superintendencia Bancaria No. 100, 1995

Superintendency of Banks External Circular No. 67, 2001 - CircularExterna de la Superintendencia Bancaria No. 67, 2001

Supplementary SourcesDinero Magazine, "Hacia una Contabilidad Global [Towards GlobalAccounting]," March 28, 2008. Available from Dinero Magazine website.Accessed on June 5, 2008. (Dinero Magazine 2008)http://www.dinero.com/wf_InfoArticulo.aspx?IdArt=46084

International Federation of Accountants website. Accessed on July 3, 2008.(IFAC website)http://www.ifac.org/About/MemberDetails.tmpl?MemID=65484845

Jiménez N. A., "Análisis de los Estándares Internacionales de Contabilidad ylas Normas Contables Colombianas [Analysis of the InternationalAccounting Standards and the Colombian Accounting Principles]," AGNInternational, n.d, Available from Adecum website. Accessed on June 30,2008. (Jiménez n.d.)http://www.adecum.org/internacional/comparativos/agn.doc

KPMG, "La información Financiera se Internacionalizó! [The FinancialInformation was Internationalized!]," January - July 2005. Available fromKPMG website. Accessed on July 3, 2008. (KPMG 2005)http://www.kpmg.com.co/publicaciones/bol_n&r/n&r05/bol_ne...

KPMG and Felaban, "Accounting Practices adopted by Financial Institutionsin Latin America," 2002. Available from KPMG website. Accessed on July 4,2008. (KPMG & FELABAN 2002)http://us.kpmg.com/microsite/FSLibraryDotCom/Docs/felaban...

Macías Acuña, M. C. et al., "Comparativo entre la NIC 2 'Existencias' y elDecreto No. 2649 de 1993 [Comparative Analysis between IAS 2'Inventories' and Decree No. 2649 of 1993]," 2007. Available fromAdecum website. Accessed on July 1, 2008. (Macías Acuña et al. 2008)http://www.adecum.org/globalconta/trabajos/inventarios_ue...

National Institute of Public Accountants, "Response to the IFAC Part 2,SMO Self-Assessment Questionnaire," Self-assessment prepared as a partof the International Federation of Accountants' Member Body ComplianceProgram, March 2007. Available from International Federation ofAccountants website. Accessed on July 4, 2008. (INCP 2007)http://www.ifac.org/ComplianceAssessment/part_2_survey/CO...

Presidency of Colombia website. Last updated on August 20, 2008.Accessed on August 20, 2008. (Presidency website)http://www.presidencia.gov.co/sne/2005/junio/23/04232005.htmhttp://www.presidencia.gov.co/sne/2005/noviembre/28/04282...

Vasquez Tristancho, G., "Magia Financiera con inversiones en el Exterior[Financial Magic with Investments Abroad]," January 2008. Available fromInstituto Nacional de Contadores Públicos de Colombia website. Accessedon June 30, 2008. (Vasquez Tristancho 2008)http://incp.org.co/Site/2008/Documentos/GVT/CEF/magia.pdf

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International Standards on Auditing

LEVEL OF COMPLIANCE: INTENT DECLARED

SummaryIn its 2003 assessment of accounting and auditing practicesin Colombia, the World Bank commended the Colombianauthorities for initiating a number of reforms aimed atimplementing international best practices in Colombia,including the reform of corporate financial reportingframework. The World Bank noted, however, that there is nolegal requirement for external audit in Colombia, no auditingstandards, and no concept of independent audit. It thereforerecommended that Colombia fully adopt InternationalStandards on Auditing (ISAs), establish a Higher Councilresponsible for the adoption of ISAs, promulgate a new lawto improve auditing requirements and regulate the functions ofthe auditor, and create a body for enforcing auditing standardsand regulating audit profession. In a 2005 report, theInternational Monetary Fund observed that Colombia still didnot comply with international best practices in the area ofauditing. It, too, recommended adopting ISAs. According to a2007 publication by the Superintendency of Companies andthe Ministry of Commerce, Industry and Tourism, theColombian Congress passed Law No. 1116 in 2006. Article122 of this Law requires the government to review accountingand auditing standards in order to align them with internationalstandards.

General OverviewIn 2003, the World Bank conducted a review of accountingand auditing practices in Colombia in order to evaluate theirweaknesses and strengths, compare the reportingrequirements with actual practices, and providerecommendations to improve actual compliance. InternationalFinancial Reporting Standards and International Standards onAuditing (ISAs) were used as the benchmarks for assessingnational standards. Overall, the World Bank commended thecountry's authorities for initiating a number of reforms aimedat implementing international best practices in Colombia,including the reform of the financial reporting framework.However, it recommended that several additional measures be

implemented: (1) establish a Higher Council with the functionof adoption of accounting and auditing standards; (2) issue anew law to improve auditing norms and regulate the functionsof the auditor; (3) create a body for enforcing auditingstandards; and (4) develop the auditing profession by improvingthe licensing process, providing training programs on ISAs, andcreating a professional organization for independent auditors.

According to the World Bank report, under the Code ofCommerce and Law No. 43 of 1990, the following types ofcompanies must appoint an auditor to conduct an annual audit:(1) registered corporations; (2) branches of foreign companies;(3) companies in which the owners that have at least 20percent equity do not take part in management; and (4)commercial entities with total assets exceeding a certainthreshold. In addition, Article 20 of Law No. 45 of 1990stipulates that all entities under the supervision of theSuperintendent of Banking and the Superintendent ofSecurities (which agencies were later merged to form theSuperintendency of Finance) must appoint an auditor.However, the functions of the auditor differ from those of anindependent auditor, because they also include controllershipfunctions which should be carried out by the management.Moreover, Law No. 43 requires the auditor to conduct itsaudits in accordance with the generally accepted auditingstandards (GAAS), which are not further specified. Overall,the World Bank concluded that, in Colombia, "the legislativerequirements on auditing contradict the modern concept offinancial statements audits. In fact, there is no external financialstatements audit requirement in Colombia" (p.1). A 2004publication by the Technical Council for Public Accounting(CTCP) also observes that the Colombian auditing model iscontradictory because it combines administrative, operational,and auditing responsibilities.

Realizing the need to improve the corporate financial reportingframework, the Colombian authorities, at the time of theWorld Bank report, proposed a new law that would adoptinternational accounting and auditing standards and reform the

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auditing profession. A 2007 publication by the Superintendencyof Companies and the Ministry of Commerce, Industry andTourism notes that Article 122 of Law No. 1116, passed bythe Congress in 2006 states that the government must reviewits auditing standards in order to align them with internationalstandards. A 2007 editorial by R.M. Castro asserted that thegovernment planned to propose legislative reforms of theauditing practice for consideration by Congress.

According to the World Bank report, there is no statutorybody to regulate the audit profession. The National Instituteof Public Accountants (INCP) is a national professionalorganization, but it does not have the mandate to monitorcompliance of its members with auditing standards and ethicsrules. In fact, the review of selected audited financial statementsperformed by the World Bank as a part of its 2003 assessmentrevealed that Colombian auditors generally did not complywith the existing requirements. According to the InternationalFederation of Accountants (IFAC) website, the INCP is amember of IFAC.

Principle: ISA 200 Overall Objectivesof the Independent Auditor and theConduct of an Audit in Accordancewith International Standards onAuditing (effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Principle: ISA 210 Agreeing theTerms of Audit Engagements(effective 2009)[Insufficient Information]

A 2004 report by the CTCP recommended full adoption ofISA 210. However, the CTCP noted that the functions ofthe auditor cannot be curtailed since they are established bylaw. The CTCP added that this modification would not bedesirable since it would affect public confidence. No further

information as to Colombia's compliance with this principle ispublicly available.

Principle: ISA 220 Quality Controlfor an Audit of Financial Statements(effective 2009)[Insufficient Information]

In a 2004 report, the CTCP recommended full adoption of ISA220 for all firms and professionals that have the responsibilityof issuing audit reports. The CTCP further suggests that, inthe short run, Colombia should control internal and externalquality of auditing firms. No further information as toColombia's compliance with this principle is publicly available.

Principle: ISA 230 AuditDocumentation (effective 2009)[Insufficient Information]

The CTCP's 2004 report recommended full adoption of ISA230 but also mentioned the importance of retaining provisionsof Law No. 43 concerning the obligation of storing auditdocumentation for at least 5 years. No further informationas to Colombia's compliance with this principle is publiclyavailable.

Principle: ISA 240 The Auditor’sResponsibilities Relating to Fraud inan Audit of Financial Statements(effective 2009)[Insufficient Information]

According to the CTCP's 2004 report, Article 207 of theCode of Commerce establishes that the auditor must reportany irregularity in the functioning of companies. However, thisprovision cannot be fulfilled in practice since it requires theauditor to know all operations of the company. The reportstates that the Commerce Code should be modified in orderto incorporate the requirements of ISA 240. The 2003 WorldBank report noted that many external audit reports that weresurveyed did not comply with ISAs since they "lack... proper

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focus on fraud and error" (p.12). No further information as toColombia's compliance with this principle is publicly available.

Principle: ISA 250 Consideration ofLaws and Regulations in an Audit ofFinancial Statements (effective 2009)[Insufficient Information]

In 2004, the CTCP recommended implementation of ISA 250.In order to comply with the requirements of ISA 250,Colombia should introduce modifications to the Code ofCommerce, particularly, in some provisions on the functionsof the auditor so as to guarantee her or his independence.No further information as to Colombia's compliance with thisprinciple is publicly available.

Principle: ISA 260 Communicationsof Audit Matters with Those ChargedWith Governance (effective 2009)[Insufficient Information]

In 2004, the CTCP recommended full implementation of ISA260. However, the adoption of this standard should take intoconsideration the requirements included in the Code ofCommerce. No further information as to Colombia'scompliance with this principle is publicly available.

Principle: ISA 300 Planning an Auditof Financial Statements (effective2009)[Insufficient Information]

The 2003 World Bank report asserted that many Colombianexternal audit reports that were surveyed did not comply withISAs because they exhibited weaknesses regarding the planningof audit procedures. In 2004, the CTCP recommended fullimplementation of ISA 300. No further information as toColombia's compliance with this principle is publicly available.

Principle: ISA 315 Understanding theEntity and Its Environment and

Assessing the Risks of MaterialMisstatement (effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Principle: ISA 320 Materiality inPlanning and Performing an Audit(effective 2009)[Insufficient Information]

In 2004, the CTCP recommended full implementation of ISA320. No further information as to Colombia's compliance withthis principle is publicly available.

Principle: ISA 330 The Auditor’sProcedures in Response to AssessedRisks (effective 2009)[Insufficient Information]

In 2004, the CTCP recommended full implementation of ISA330. No further information as to Colombia's compliance withthis principle is publicly available.

Principle: ISA 402 AuditConsiderations Relating to an EntityUsing a Service Organization(effective 2009)[Insufficient Information]

In 2004, the CTCP recommended full implementation of ISA402. No further information as to Colombia's compliance withthis principle is publicly available.

Principle: ISA 500 Audit Evidence(effective 2009)[Insufficient Information]

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In 2004, the CTCP recommended full implementation of ISA500. No further information as to Colombia's compliance withthis principle is publicly available.

Principle: ISA 501 AuditEvidence—Specific Considerationsfor Selected Items (effective 2009)[Insufficient Information]

In 2004, the CTCP recommended full implementation of ISA501. No further information as to Colombia's compliance withthis principle is publicly available.

Principle: ISA 505 ExternalConfirmations (effective 2009)[Insufficient Information]

In 2004, the CTCP recommended full implementation of ISA505. No further information as to Colombia's compliance withthis principle is publicly available.

Principle: ISA 510 Initial AuditEngagements—Opening Balances(effective 2009)[Insufficient Information]

In 2004, the CTCP recommended full implementation of ISA510. No further information as to Colombia's compliance withthis principle is publicly available.

Principle: ISA 520 AnalyticalProcedures (effective 2009)[Insufficient Information]

The CTCP in its 2004 report recommended fullimplementation of ISA 520. No further information as toColombia's compliance with this principle is publicly available.

Principle: ISA 530 Audit Sampling(effective 2009)[Insufficient Information]

The CTCP recommended full implementation of ISA 530 in its2004 report. The report noted that the Code of Commerceshould be modified in order to limit the functions of theauditor. Further, the Code does not clearly establish that theauditor's task is based on controls of samples. No furtherinformation as to Colombia's compliance with this principle ispublicly available.

Principle: ISA 540 Audit ofAccounting Estimates (effective2009)[Insufficient Information]

In 2004, the CTCP recommended full implementation of ISA540. No further information as to Colombia's compliance withthis principle is publicly available.

Principle: ISA 550 Related Parties(effective 2009)[Insufficient Information]

According to the 2003 World Bank report, many externalaudit reports that were surveyed did not comply with ISAs.They exhibited shortcomings concerning the auditing ofrelated-parties transactions. In 2004, the CTCP recommendedfull implementation of ISA 550. No further information as toColombia's compliance with this principle is publicly available.

Principle: ISA 560 Subsequent Events(effective 2009)[Insufficient Information]

The CTCP recommended in its 2004 report that Colombiaadopt ISA 560. No further information as to Colombia'scompliance with this principle is publicly available.

Principle: ISA 570 Going Concern(effective 2009)[Insufficient Information]

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The CTCP recommended in its 2004 document that Colombiaadopt ISA 570. No further information as to Colombia'scompliance with this principle is publicly available.

Principle: ISA 580 WrittenRepresentations (effective 2009)[Insufficient Information]

The CTCP's 2004 report asserted that Colombia shouldimplement ISA 580. The report noted that Law No. 222requires the managers of the company to certify the financialstatements that are audited by the auditor. However, theCTCP added that, in line with the requirements of ISA 580,some cases require specific, written representations. Nofurther information as to Colombia's compliance with thisprinciple is publicly available.

Principle: ISA 600 SpecialConsiderations—Audits of GroupFinancial Statements (Including theWork of Component Auditors)(effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Principle: ISA 610 Using the Work ofInternal Auditors (effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Principle: ISA 620 Using the Work ofan Auditor’s Expert (effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Principle: ISA 700 Forming anOpinion and Reporting on FinancialStatements (effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Principle: ISA 705 Modifications tothe Opinion in the IndependentAuditor’s Report (effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Principle: ISA 710 ComparativeInformation—Corresponding Figuresand Comparative FinancialStatements (effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Principle: ISA 720 The Auditor’sResponsibilities Relating to OtherInformation in DocumentsContaining Audited FinancialStatements (effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

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Principle: ISA 800 SpecialConsiderations—Audits of FinancialStatements Prepared in Accordancewith Special Purpose Frameworks(effective 2009)[Insufficient Information]

There is insufficient information publicly available that directlyaddresses this principle.

Sources of AssessmentNational Institute of Public Accountants, "Response to the IFAC Part 2,SMO Self-Assessment Questionnaire," Self-assessment prepared as a partof the International Federation of Accountants' Member Body ComplianceProgram, March 2007. Available from International Federation ofAccountants website. Accessed on July 4, 2008. (INCP 2007)http://www.ifac.org/ComplianceAssessment/part_2_survey/CO...

International Monetary Fund, "Colombia: Financial System StabilityAssessment Update, Including Reports on the Observance of Standardsand Codes on the Following Topics: Securities Regulation, Insolvency andCreditor Rights Systems, and Payment Systems," IMF Country Report No.05/287 Revised, Washington, D.C.: IMF, August 2005. Available from theInternational Monetary Fund website. Accessed on July 29, 2008. (IMF2005)http://www.imf.org/external/pubs/ft/scr/2005/cr05287.pdf

Technical Council of Public Accounting, "Análisis de la Implementación deEstándares de Contabilidad y Auditoría en Empresas de Interés Público enColombia [Analysis of the Implementation of Accounting and AuditingStandards in Public Interest Companies in Colombia]," November 2004.Available from Central University Foundation website. Accessed on August20, 2008. (CTCP 2004) (in Spanish only)http://www.ucentral.edu.co/pregrado/cienciaseconomicas/co...

World Bank, "Colombia: Report on the Observance of Standards andCodes - Accounting and Auditing," 2003. Available from World Bankwebsite. Accessed on July 1, 2008. (World Bank 2003)http://www.worldbank.org/ifa/rosc_aa_col.pdf

Relevant OrganizationsMinistry of Commerce, Industry and Tourism - Ministerio de Comercio,Industria y Turismo (MCIT) (website in Spanish only)http://www.mincomercio.gov.co/eContent/home.asp

National Institute of Public Accountants - Instituto Nacional de ContadoresPúblicos de Colombia (INCP) (website in Spanish only)http://www.incp.org.co

Superintendency of Companies - Superintendencia de Sociedades (SS)(website in Spanish only)http://www.supersociedades.gov.co/ss/drvisapi.dll?

Superintendency of Finance - Superintendencia Financiera (SF) (website inSpanish only)http://www.superfinanciera.gov.co

Technical Council for Public Accounting - Consejo Técnico de laContaduría Pública (CTCP) (website in Spanish only)http://www.jccconta.gov.co/consejot/news.php

Relevant Legislation/RegulationCode of Commerce Decree No. 410, 1971 (last amended 1999) - Códigode Comercio Decreto No. 410, 1971 (última enmienda 1999) (in Spanishonly)http://www.microfinancegateway.com/files/24806_file_law_C...

Law adding Law No. 145 of 1960 regulating the public accountingprofession and other provisions No. 43, 1990 - Ley por la cual se adicionala ley 145 de 1960, reglamentaria de la profesión de contador público y sedictan otras disposiciones No. 43, 1990 (in Spanish only)http://actualicese.com/normatividad/2001/leyes/L43-90/1L4...

Law by which Norms Concerning Financial Intermediation Are Issued,Insurance Activity Is Regulated, Some Faculties Are Conceded and OtherDispositions Are Approved No. 45, 1990 - Ley por la cual se expidennormas en materia de intermediación financiera, se regula la actividadaseguradora, se conceden unas facultades y se dictan otras disposicionesNo. 45, 1990 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Law establishing the Corporate Insolvency Regime in the Republic ofColombia and other dispositions are issued No. 1116, 2006 - Ley por lacual se establece el Régimen de Insolvencia Empresarial en la República deColombia y se dictan otras disposiciones No. 1116, 2006 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...http://www.elabedul.net/San_Alejo/Leyes/Leyes_2006/ley_11...

Securities Market Law No. 964, 2005 - Ley del Mercado Público deValores No. 964, 2005 (in Spanish only)http://juriscol.banrep.gov.co:8080/CICPROD/BASIS/infjuric...

Supplementary SourcesActualicese, Informacion Contable y Tributaria al Dia, "La Ley 1116 de2006 faculta al Gobierno para futura aplicacion de las NIC [Law 1116 of2006 authorizes the Government for future aplication of NIC]," June 3,2007. Available from Actualicese website. Accessed on July 28, 2008.(Actualicese 2007)http://www.actualicese.com/actualidad/2007/06/03/la-ley-1...

Baker and McKenzie, "Doing Business in Colombia," Bogotá: Raisbeck, Lara,Rodríguez & Rueda, 2005. Available from Baker and McKenzie website.Accessed on July 31, 2008. (Baker & McKenzie 2005)http://www.bakernet.com/NR/rdonlyres/3B938B40-D216-4C22-A...

Castro V., R. M., "Hacia Estándares Internacionales [Toward InternationalStandards]," National Institute of Public Accountants, 2007. Available fromNational Institute of Public Accountants website. Accessed on July 28,2008. (Castro 2007)http://incp.org.co/index.php?option=com_content&task=view...

International Federation of Accountants website. Accessed on July 3, 2008.(IFAC website)http://www.ifac.org/About/MemberBodies.tmpl

Oxford Analytica, "Shareholder and Creditor Rights in key EmergingMarkets 2006," Oxford: Oxford Analytica, January 2007. Available fromCalifornia Public Employee Retirement System website. Accessed on June

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2, 2008. (OA 2007)http://www.calpers.ca.gov/eip-docs/investments/assets/equ...

Superintendency of Companies and Ministry of Commerce, Industry andTourism, "Cartilla: Nuevo Régimen de Insolvencia Empresarial, Ley 1116 de

2006 [Chart: New Corporate Insolvency Regime, Law 1116 of 2006],"Superintendence of Companies, 2007. Available from Legislación yJurisprudencia website. Accessed on July 23, 2008. (SC&MCIT 2007)http://www.legislacionyjurisprudencia.com/temas/2007/Cart...

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Methodology Note

For a more thorough discussion of our methodology, pleasevisit our website. Below you find an explanation of qualifyingcriteria for information used in eStandardsForum's standardreports as well as a definition of the Levels of Compliance.

SourcesSources used in this report are information that is objectiveand freely available to the public that pertain to a country'scompliance with the requirements of any given standard. Thedefining characteristics of eStandardsForum's sources arepublic availability and objectivity. For example, third-partyassessments of a country will take precedence overselfassessments. Nevertheless, in the absence of third-partyassessments, self-assessments form an important source ofinformation.

Levels of ComplianceThe compliance categories assess information on two levels.On the first level, it measures the public availability ofinformation on a country's compliance with the 12 KeyStandards. If the level of information is unsatisfactory, a rating of"Insufficient Information" is assigned. If the level of informationis deemed sufficient, a rating ranging from "No Compliance"to "Full Compliance" is assigned, depending on how well thepublicly available sources have evaluated the country'sregulatory framework for the respective standard. Theseparticular categories have been selected because they mirrorthe process a country follows when implementing standardsand codes.

FULL COMPLIANCE: There is publicly availableinformation indicating that the country has incorporated theprinciples of the relevant standard into laws or regulations, andthat these principles are currently being applied and followedin an effective, consistent, and transparent manner.

COMPLIANCE IN PROGRESS: There is publicly availableinformation indicating that the country has incorporated theprinciples of the relevant standard into laws or regulations andthat there has been significant progress made towards theeffective enforcement of the laws or regulations by regulatorsand supervisors, albeit with minor shortcomings.

ENACTED: There is publicly available information indicatingthat the country has incorporated most of the principles ofthe relevant standard into laws or regulations. The Enactedcategory does not address the actual enforcement of the lawsor regulations.

INTENT DECLARED: The country has made a formal,public, and authoritative declaration that it will incorporate theprinciples of the relevant standard into laws or regulations andwill adhere to the standard.

NO COMPLIANCE: There is publicly available informationindicating that the country has not incorporated the principlesof the relevant standard into laws or regulations or has takenany steps to comply with the relevant standard.

INSUFFICIENT INFORMATION: There is not enoughinformation publicly available to make an assessment as to thecountry's level of compliance with the relevant standard.

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