Argentine Securities Commission Amends General Regime Applicable to Financial Trusts

On February 15, 2024, the Argentine Securities Commission (CNV) issued General Resolution 992, modifying the regulation applicable to publicly offered financial trusts, as established in Chapter IV Title V of the CNV Rules.

The Resolution was preceded by Resolution 964, through which the preliminary General Resolution was submitted to public consultation.

The purpose of the Resolution is to adjust the regulations regarding financial trusts to the new market structures. In this sense, one of the main modifications is an increase in the liability of the trustees, who will no longer be able to release themselves from liability before third parties for not complying with the contractual legal obligations that participating agents had to fulfill.

Through this amendment, the CNV, following the recommendations made by the International Organization of Securities Commissions (IOSCO), incorporates a risk retention element in financial trusts that are constituted with credit rights.

According to the Resolution, during the term of the debt securities issued under the trust, a net economic interest for an amount of at least 5% of the nominal value of the debt securities issued and outstanding must be permanently retained.

The following may be considered risk retention mechanisms (this list is not exhaustive):

1. the settlor’s conservation of trust securities which, after being publicly offered, have not been placed among third parties for objective reasons,
2. the integration of special funds,
3. the gauging or over-collateralization of trust securities.

One or more risk retention mechanisms may be chosen to calculate said percentage.

Those trusts in which the public offering of their trust securities is intended for qualified investors or the settlors, or financial institutions regulated by the Argentine Central Bank are exempted from complying with this mechanism.

In addition, among the main modifications incorporated in the Resolution include:

1. Simplifying the documents to be filed during the public offering application process, delegating on the trustee the responsibility for their existence and legality.
2. Formalizing the obligation to publish, within 20 business days after each month closes, the monthly results of the control and review reports through the CNV's Financial Information Reporting System.
3. Exempting those financial trusts constituted with money or other liquid assets from the obligation to present the initial control and review reports.
4. Making it compulsory for companies to disclose on the prospectus the reasons behind the decision to not qualify the trust securities to be issued.
5. Regarding the term for rendering collections to the trustee, the possibility that, when the trust is made of obligations denominated in foreign currency or units of value paid exclusively in legal currency, a differential term is available for the deposit of the collections. These must be credited to the trust account at least on the business day immediately before the corresponding service payment date. This type of trust must be destined for qualified investors.
6. Establishing the applicable regulation for financial trusts to finance SMEs whose underlying asset is guaranteed by, at least, one guarantee entity.