This content is from: Local Insights

Regulatory issues for El Salvador’s financial sector

El Salvador enacted its Competition Law (CL) by Legislative Decree No 528, which entered in effect as of January 1 2006. Reforms to the law were introduced in 2007 to grant the competition authority more powers for the enforcement of the legislation.

Conceptually speaking, the CL focuses more on anticompetitive behaviour than on market structures, and views mergers with a preventive focus. The CL does not punish market share or dominant positions, but attempts to avoid abuse of dominant positions. The CL regulates all economic agents, a term that is defined in the law as 'any person, natural or juridical, public or private, dedicated directly or indirectly to an economic activity, be it for profit or not'.

The CL dedicates a chapter to the issue of concentrations or monopolistic mergers: mergers that substantially lessen competition or tend to create monopolies in either a product market or a geographic market.

Regarding the financial sector, the Superintendence of the Financial System oversees mergers of pension funds, insurance companies, banks and other companies in the financial system. According to the CL, when the intended concentrations are to be implemented by companies subject to the supervision of other regulatory authorities (such as the ones we have mentioned), the Superintendence of the Financial System will issue a binding opinion on the compatibility of the transaction. There is no overlap in jurisdiction, since at the end, the Superintendence of Competition will be the authority that issues the final decision regarding the merger.

The CL sets out the rules that companies must follow in case of a concentration. The Superintendence of Competition is the only authority for merger enforcement from a competition point of view, and its decisions are binding for all the other regulators.

The competition law provides for merger control, including pre-merger notification. The notification thresholds were set at high levels; this has had the effect of limiting the number of notifications, thus avoiding the situation in which the new agency would have to devote too many resources to reviewing such filings. To date the Superintendence has not opposed any mergers or acquisitions of companies within the financial sector under the law. The CL and the Regulation require that the Superintendence consider, among other things, possible efficiencies generated by the proposed transaction.

By law, it is mandatory to request merger or acquisition authorisation for all of those who pretend to perform a merger, acquisition, consolidation, integration or combination of their businesses, among others, totally or partially, without prejudice that this may be done by any of the economic agents who participate in the transaction.

Any person may consult the authority on a no-names basis for guidance on notification requirements, if desired, but no legal obligation regarding this issue is established in the law.

In case the parties do not file a notification, the merger will not be subject to registration with the Registry of Commerce and therefore the merger will not produce any effects. Parties that fail to meet the filing process can also be subject to fines according to article 38 of the CL. The maximum fine that can be imposed is 5,000-times the minimum urban monthly wage in the industry sector (approximately $1.12 million).

The CL provides that the Superintendence has 90 calendar days after the notification to issue a decision; if no decision is issued within that period, the merger is deemed to have been approved. If the Superintendence requires additional information about the transaction or it considers that the notification is deficient, it must make its request to the parties within 50 days after notification. The running of the 90-day period is suspended by such a request, resuming when the information requested is supplied.

At the end, the antitrust authority's decision may: (i) establish ex-ante conditions that must be complied with before authorising the merger/concentration; (ii) authorise the intended concentration, with or without any ex-post conditions; or, (iii) refuse to authorise the intended concentration. Nonetheless, in cases in which the acquisition of an economic agent is done by another economic agent that does not have operations in El Salvador, this change of control is not required to obtain previous authorisation from the Superintendence of Competition, and in this case, the authority will declare the application inadmissible and the transaction can proceed without authorisation. This was the case in the most recent acquisition of the assets and operation of HSBC in El Salvador, by the Colombian bank Banco Davivienda.

Dr Diego Martín Menjívar

© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.

Instant access to all of our content. Membership Options | 30 Day Trial