New Accounting Provisions Related to Administrative, Disciplinary and Criminal Sanctions

On April 1, 2016 the Central Bank of Argentina (the “Central Bank”) issued Communications “A” 5939 and 5940, which established new accounting provisions for foreign exchange agencies and financial institutions, respectively, regarding the provisions for administrative and/or disciplinary sanctions initiated or implemented by the Central Bank of Argentina, the Financial Information Unit, the Argentine Securities and Exchange Commission and the Argentine Insurance Superintendence, as well as criminal penalties imposed by Courts of First Instance. Such provisions will be applicable regardless of the significance of the sanctions, even when judicial or administrative stays are in force at any stage of the proceedings.

With regard to these provisions, foreign exchange agencies and financial institutions that still have amounts for such concepts registered in the account “Provisions - For administrative, disciplinary or criminal penalties” must analyze, in accordance with current legal reports, if the conditions for complete or partial accounting registrations of such penalties are fulfilled, according to the terms of the “Accounting Plan and Manual” (namely, that their realization is probable and that the amount may be reasonably estimated). 

If, as a result of this analysis, there are outstanding penalties that do not fulfill the conditions necessary to make the respective accounting provisions, these penalties shall be removed from such accounting entry, and entered into either “Adjustment of Results of Prior Fiscal Years”, or in the several losses account “Charges for administrative, disciplinary or criminal penalties”, as appropriate.

The following Shareholders’ Meeting – or its equivalent authority – must call for the constitution of a special legal reserve for non- provisioned amounts corresponding to the penalties, when the company has recorded non-assigned results. If such balance is not sufficient, a special legal reserve must be constituted to the extent the company has non-assigned positive results. This situation must be expressed in Note No. 13 “Sanctions applied to the foreign exchange entity” of the Semiannual/Annual Informative Accounting Regime for Foreign Exchange Agencies or in Note No. 25 “Sanctions applied to the financial institution and proceedings initiated by the Argentine Central Bank” of the Informative Accounting Regime for Quarterly/Annual Publication, as appropriate.

Therefore, the Accounting Plan and Manual was adapted as follows: (i) Incorporation of account: “Shareholders’ Equity – Earnings Reserve – Normative – Special for administrative, disciplinary and criminal penalties”; and (ii) Modification of the accounts “Liability – Provisions – for administrative, disciplinary and criminal penalties” and “Outcomes – Several losses – Charges for administrative, disciplinary and criminal penalties”.