This content is from: Local Insights

Colombia: Representative offices

Carlos Fradique-MendezAlejandro León Quiroga

After Colombia gained an investment grade rating in 2012, the offering of foreign securities-related products and services increased substantially. This was accompanied by a consistent intensification of the enforcement efforts on applicable regulations by the Colombian Superintendence of Finance (SFC) in order to control and supervise how the offering of such products and services was being made in Colombia or to Colombian residents. This has resulted in the imposition of sanctions.

In general, the marketing and promotion of foreign securities-related products and/or services in Colombia or to Colombian residents is a highly regulated activity. Advance authorisation by the SFC is required for either establishing a representative office or entering into a referral agreement with a local supervised entity.

The SFC has the authority to deliver non-compliance notices to foreign regulators whenever a foreign institution breaches the regime for marketing and promotion of foreign securities-related products and or/services. Additionally, the SFC has the authority to issue orders for the immediate suspension of promotional activities backed by successive fines, dissolve the entities used for illegal promotion, liquidate the illegally performed activities, and impose admonitions and fines on the entities and individuals breaching the regulations.

Representative offices have emerged as a more attractive alternative to referral agreements. Through a referral agreement, the foreign institutions would not be performing their promotional activities directly but through a local supervised entity, to which the foreign institutions are required to pay for services as a referral agent (placement fees). These fees range and vary depending on the type of products and/or services provided and usually correspond to a minimum percentage over the raised capital. On the contrary, representative offices allow foreign institutions to undertake promotional activities by themselves without such payments.

Representative offices are permitted to appoint as a legal representative a person who is not permanently domiciled in Colombia, who can visit occasionally for meetings with potential clients. They are also allowed to send staff members of the foreign entity to undertake marketing activities. Representative offices may also hire Colombian residents for these purposes.

The requirements for the authorisation of a representative office have been facilitated by the SFC and do not usually pose major difficulties for foreign institutions. At present, the authorisation process takes between four to eight months, depending on the additional information requested by the SFC and its understanding of the products and services to be promoted.

Carlos Fradique-Méndez and Alejandro León Quiroga

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