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Honduras: Financial System Law reforms

José Ramón Paz Morales

On December 29 2016, the Financial System Law (FSL), which is the law that regulates banks and financial institutions that perform financial intermediation in the Republic of Honduras, was substantially reformed. This is the first time since the FSL's enactment in 2004 that such important reforms have been made to legislation in this area of the law.

The amendments, which include the complete amendment of chapter 7 of the FSL, are a direct response to the events that occurred towards the end of 2015, when the National Banking and Insurance Commission (NBIC) declared the forceful liquidation of a local Honduran bank whose shareholders were and continue to be investigated for alleged violations of US anti-money laundering and drug trafficking laws.

Some of the amendments in chapter 7 include an increase in correction measures from six to a total of 26. New correction measures include: (i) the creation of additional reserves, (ii) prohibiting the distribution of dividends, (iii) ordering the increase of social capital, (iv) new resources via credit or debt instruments, (v) limiting or prohibiting the execution of existing or new agreements, (vi) shutting down branches or offices, (vii) ordering the total or partial sale of assets or businesses, (viii) requesting additional reports from an institution's internal and external auditors, (ix) reducing expenses, and, (x) ordering the company in charge of the financial group to take these corrective measures.

The reforms to the FSL are the product of discussions between the financial sector and the NBIC, along with the help of lawyers with expertise in this area. The reforms will now provide clear guidelines for all parties involved in cases where an entity, for whatever reason, suffers from financial and administrative insolvency.

José Ramón Paz Morales

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