Significant Amendments to Panama's Securities Law 

October, 2011 - Francisco Arias, Partner

Back in 1999, a law was adopted renovating an autonomous regulator and putting in place a modern regime to govern securities and capital markets in Panama, placing the local regulatory environment very much in line with legislation in force in more developed markets such as the United States (including, for example, the creation of the indirect holding system).  Last September significant amendments to the 1999 securities law were adopted, which materially change the internal governance structure of the regulator and introduced major changes in various specific areas. 

The main driver of the amendments to the internal regime of the regulator was to permit more expeditious action with respect to its day-to-day supervision and oversight of the industry and the market.  In addition to changing its name – previously “Comisión Nacional de Valores” and now “Superintendencia del Mercado de Valores”, the new law replaced the three-commissioner structure with a board of directors and a Superintendent, each with its own authority.  Five of the seven-members of the board of directors are appointed by the Executive Branch and must meet certain criteria regarding education and experience; the other two are designated by the boards of directors of each of the Superintendence of Banks and the Superintendence of Insurance and Reinsurance.   The Securities Superintendent is also appointed by the Executive Branch and is responsible for the day-to-day operations of the regulatory entity. Also a special council was created (“Consejo de Coordinación Financiera”) to coordinate actions amongst all financial regulators (securities, banks, insurance, coops, pension funds and finance companies) with the participation without vote of the anti-money laundering bureau of Panama and the Accounting Board.

In addition to modifying the fees that the Superintendence can collect from regulated entities and activities, in connection with, for example, the grant of brokerage licenses and registration of securities offerings, the amendment introduced certain substantive changes in licensing and registration.  For example, it is now clear that investment activities in foreign exchange (forex) for clients is a regulated activity in Panama that requires a brokerage license; persons currently undertaking such activities have six months to obtain the license or cease operations.  Also, only rating agencies registered with the Superintendence can operate as such locally.

A new activity for which registration is required is that of regularly offering the valuation of securities.  A license is also required to provide administrative services to entities regulated by the Superintendence, such as accounting, secretarial, intermediary with shareholders (including paying agents) and any other services unrelated to investment decisions. A major revamp of the provisions regarding violations of the securities law and the consequences thereof, including the procedure to be followed by the Superintendence and some of the penalties that may be imposed, has also been introduced by the amendment. Finally, a number of sensitive limitations and restrictions applicable to pension funds were modified. 

Juridical persons organized under the laws of Panama or operating locally that are using in its name terms such as “mutual fund”, “pension fund”, “brokerage house”, “broker dealer”, “investment advisor”, “investment fund manager”, “fund administrator”, “credit rating agency”, “price appraiser”, “liquidity provider”, “stock exchange”, “clearing house”, “registered issuer”, “forex” or “FX trading” (in any language), are given 180 days to obtain the applicable license or make the corresponding registration as required under the amended securities law, change its name or proceed with its voluntary dissolution and liquidation.  Otherwise, upon the expiry of such period the Superintendence shall instruct the Public Registry Office of Panama to make an annotation in the registry dissolving any juridical person using any of the foregoing terms without the corresponding license or registration.

All in all, this latest amendment to the securities law of Panama has brought about significant internal changes in the Superintendence of the Securities Market of Panama and all in the industry should look into the amendment to identify any changes applicable thereto.



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