As part of ChileDay 2019, Chile’s Treasury Minister announces a bill to transform Chile into a regional financial center
Facilitating the registration of foreign securities in Chile and eliminating tax asymmetries between locals and foreigners that impact financing in the domestic market are some of the aspects that will be addressed by the bill.
The activities of ChileDay 2019 got underway in London today with a visit to the London Stock Exchange by the Chilean delegation, led by Treasury Minister Felipe Larraín.
Minister Larraín then participated in the ChileDay London 2019 Plenary at Guildhall. Speaking at the opening of the activity, Minister of State at the Department for International Trade, Conor Burns, praised Chile’s macroeconomic and tax management.
In his speech, the Chilean Treasury Minister announced that a bill will be sent to Congress with the goal of converting Chile into a Regional Financial Center.
The initiative, which since its inception has had the support of a public-private working group comprising the main regulators of the financial market and the Capital Markets Consultative Committee, will address ten areas. These will be included in a bill that will address matters such as facilitating the registration of foreign securities in Chile, thus contributing towards positioning the country as a platform for the transaction of foreign-issued securities, among other initiatives.
The Financial Analysis Unit (UAF), Financial Market Commission (CMF), the Superintendence of Pensions and the Internal Revenue Service (SII) will modify their regulations to the same end.
“Our goal is to position Chile at the same level as the most renowned international financial centers because this will have a positive impact on economic activity and employment and thus the wellbeing of all Chileans,” explained Treasury Minister Felipe Larraín. He added that the initiative will involve making changes to around 11 existing laws and the drafting of new autonomous texts.
The Minister highlighted that the idea of making Chile a financial center has been around for many years, but has not yet been implemented. However, the idea is now being progressed through concrete measures in this bill. “Good macroeconomic conditions and institutions are necessary, but are not sufficient by themselves. We want to become a world-class financial center. To do so we have looked at the experiences of countries like Hong Kong and Singapore,” said the Minister.
He added that, if in the next 15 years, the financial sector were to increase its share of GDP by half of the growth achieved in Singapore, employment in the financial sector would triple.
The following are the main aspects of the bill:
1. Simplify documentation procedures for non-resident investors, thereby facilitating entry by non-residents to the domestic market. One initiative that will be undertaken to this end is a change to Law No. 19,913, which set up the Financial Analysis Unit. This change will enable a local financial institution to request information about a customer from a financial institution located in Chile or abroad. This will prevent duplication of the documentation that has to be generated for each customer.
2. Adopt international practices on fixed-income markets, thereby enabling international investors access to the liquidity available to local stakeholders on the fixed-income market. To that end, Over-the-Counter (OTC) transaction platforms will be regulated to allow pension fund administrators (AFPs) to trade fixed-income instruments OTC, which means that transactions to buy or sell securities will be able to take place without going through a stock exchange. This is the international standard for fixed-income asset transactions. This will enable foreign investors to trade these assets with AFPs, who are the principal domestic participants on the fixed-income market.
3. Facilitate the registration of foreign securities in Chile, thereby contributing to positioning Chile as a platform from which foreign issuers can trade securities. The Securities Market Law will be changed to allow the Financial Market Commission (CMF) to eliminate the requirement for the securities from some jurisdictions to be registered in Chile, thereby significantly reducing the documentation required by the regulator.
4. Eliminate tax asymmetries between locals and foreigners that impact financing on the local market. This will enable local agents that seek financing on foreign markets to do so without facing tax disadvantages compared to those who seek financing on the domestic market. One initiative within this area will be standardizing the tax treatment of loans financed by foreign creditors and loans re-financed by foreign creditors.
5. Eliminate tax asymmetries for operations in the capitals market that are similar. This will contribute to increasing market efficiency. For example, the Income Tax Law will be amended so that securities loans related to short sale contracts and securities loans for other purposes receive the same tax treatment.
6. Simplify the bond issuance process. This will prevent market conditions from changing significantly in the period between the decision to obtain finance through issuing a bond and the moment when the bond is issued. To that end, the Securities Market Law will be changed so that the issuer need only submit to the regulator some of the documents currently required for the issue, thereby reducing the time that it currently takes to place bonds.
7. Improvements to legislation related to financial market infrastructure, thereby favoring the provision of securities liquidation services, payments and market information in accordance with the highest international standards. One of the proposed measures involves creating and regulating a transaction repository that will make it possible to increase transparency on the OTC derivatives market, encourage financial stability and position our market.
8. Continue making progress with the growth and development of the funds industry. One of the measures related to this target will include changing the Single Funds Act to bring flexibility to the limits on the maximum concentration for mutual funds, thereby enabling greater flexibility in the structure of fund contributors.
9. Perfect the legal framework for certain financial contracts so that the counterparties can duly mitigate the risks of these contracts. For example, legal recognition will be granted to the netting of derivatives by corporations in order to reduce counterparty risk for these contracts.
10. Make investment limits for institutional investors more flexible. One of the measures related to this target will be changing Law Decree 3,500 so that some pension fund limits, like those related to alternative assets, may be established in the Investment Regime. This will grant the regulator greater flexibility and positively impact financial market development and citizens’ pensions by enabling the regulator to gradually allow increased investment in assets that provide greater profitability for pensioners’ savings.