IIEffective Insolvency and Creditor Rights Systems
There is paucity of information available to the public that addresses the extent of Ecuador's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. A 2004 report by the IMF recommended that Ecuador enact reform legislation that would strengthen its insolvency and creditor rights regime, but as of the publication of the IMF's 2005 Article IV Consultations report for Ecuador, no such legal reform had yet been enacted. A 2004 World Bank report authored by Johnson and Alonso called the existing legislation "obsolete" and "highly inefficient," and noted that there was little public confidence in the insolvency regime. The authors added that the existing institutional structure is inadequately staffed and trained in the intricacies of insolvency work. The 2005 Article IV Consultations report did note that a draft bankruptcy and creditors' rights bill was expected to be presented to Congress in 2006. Later that year a new Law on Reorganization Proceedings was passed; however it is unclear whether this is a final version of the draft law cited in the 2005 IMF report.
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NCInternational Financial Reporting Standards
According to a 2004 World Bank assessment of Ecuadorian accounting and auditing practices, domestic companies follow the Ecuadorian Accounting Standards (NECs), which are based on the International Financial Reporting Standards (IFRSs) as they existed in 1999-2000. IFRSs have been revised since then and, consequently, the Ecuadorian standards fail to provide guidance in a number of sensitive accounting areas, thus undermining the quality of the available financial information. Banks and insurance companies follow accounting requirements set by the Superintendency of Banks and Insurance (SBS). These requirements, according to the World Bank, differ from IFRSs. It was therefore recommended that all public interest entities adopt and require mandatory application of IFRSs, and that the accounting principles for financial institutions and insurance companies be harmonized with the rest of the corporate sector. Furthermore, the World Bank suggested providing simplified accounting standards for small and medium sized enterprises. As far as the enforcement of accounting and auditing standards is concerned, the World Bank observed that both the Superintendency of Companies and the SBS, each of which is tasked with ensuring compliance with the financial reporting requirements, need to improve their practices in this regard.
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ENPrinciples of Corporate Governance
Ecuador is increasingly recognizing the significance of corporate governance practices, according to a 2006 Inter-American Development Bank (IDB) donors' memorandum. However, a significant portion of Ecuador's corporate sector is made up of family enterprises, which seem reluctant to change. Nonetheless, in 2005, Ecuador became the first country in the Andean region to adopt the Andean Corporate Governance Code (CAGC) as national standard. The CAGC constitutes a framework and compilation of policies, standards, systems, and guidelines based upon the 2004 Organization for Economic Co-operation and Development's (OECD) principles and the 2003 Latin American White Paper on Corporate Governance. It includes a set of systematically arranged basic rules, with 51 specific measures that define internationally accepted standards of corporate governance. Part of an ongoing IDB-funded project is to disseminate the code and train professionals in understanding and implementing the CAGC. Overall, Ecuadorian capital markets remain underdeveloped, and trading on the stock exchanges of Quito and Guayaquil primarily consists of fixed-income government bonds.
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NCInternational Standards on Auditing
A 2004 World Bank assessment of Ecuadorian accounting and auditing practices finds that Ecuadorian Auditing Standards (NEAs) are based on the International Standards on Auditing (ISAs) promulgated by the International Auditing and Assurance Standards Board (IAASB) as they existed in 1999, when Ecuador adopted ISAs. Since 1999, however, the IAASB revised many of the standards and also issued new ISAs, and these changes have not been adopted in Ecuador due to the lack of established due process for updating the national standards. The World Bank, therefore, recommended full adoption of ISAs for public interest entities in Ecuador. Given the fact that auditors of financial institutions and insurance companies are already required to apply ISAs in statutory audits, the World Bank specifically called for the adoption of the international standards for audits of listed companies and entities regulated by the Superintendency of Companies. The World Bank found that the enforcement of existing financial reporting requirements was inadequate and noted that the most important factors hindering effectiveness of the audit process are the lack of implementation guidance, quality control, and audit committees.
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NCAnti-Money Laundering/Combating Terrorist Financing Standard
In 2007, the Financial Action Task Force for South America (GAFISUD) published a mutual evaluation on Ecuador's compliance with the Financial Action Task Force's (FATF) 40 plus 9 recommendations. The report concluded that Ecuador is noncompliant with 28 of the recommendations, including all nine special recommendations on terrorist financing. Ecuador has no law criminalizing the financing of terrorism, and with respect to the FATF recommendation on the criminalization of money laundering, Ecuador earns only a partially compliant rating. The mutual evaluation identifies shortcomings in the Ecuadorian anti-money laundering framework, one of which is the lack of clarity regarding what constitutes money laundering offenses. Another is the inefficiency of the sanctioning process. At the time of the mutual evaluation, the Ecuadorian financial intelligence unit (UIF) had not yet become operational. However, a 2008 U.S. Department of State (DoS) report notes that the UIF became operational on December 1, 2007. Ecuador is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption.
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IICore Principles for Systemically Important Payment Systems
The Ecuadorian National Payments System (SNP) comprises mainly three systems, the Interbank Payment System (SPI); the On- line Payment System (SPL); and the Check Clearing System (SCC). The SPI is a low-value interbank retail payment system with a deferred net settlement. The SPL is a large-value real-time gross settlement system which processes transfers electronically and settles payments in real-time. The SCC, as the name suggests, clears checks. The creation of a reformed and modernized national payment system was made imperative by the dollarization of the Ecuadorian currency in 2000, notes a 2004 report jointly published by the Center for Latin American Monetary Studies and the World Bank. The reform process initiated in 2000 aimed at increasing the efficiency and security of payment mechanisms, reducing costs and time involved, integrating all the payment systems at the national level and standardizing their procedures, and introducing new payment instruments and financial mechanisms, thereby achieving compliance with international standards. However, none of the systems mentioned above have been clearly designated as systemically important by the country's central bank, which is responsible for administering, regulating, and overseeing the SNP. There is also scant recent information publicly available that directly addresses Ecuador's compliance with the Core Principles for Systemically Important Payment Systems promulgated by the Committee on Payment and Settlement Systems.
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