Guatemala: Will the ‘iuris tantum’ principle reach the banking sector?

Written by:

Álvaro Castellanos and Diego Alejos


In 2002 the so-called ‘third monetary and financial reform’ was undertaken in Guatemala, which resulted in the issuance, among other important regulations, of the Law of Banks and Financial Groups, (the ‘Law’) (Congressional Decree 19-2002), which came to modernize the legal regime in this matter, which had been unmodified since 1946.


In 2012, the first amendments to this Law were introduced, through Congressional Decree 26-2012, seeking to strengthen the banking regulatory regime. Said amendments could not necessarily be deemed as a ‘fourth monetary and financial reform in the country’.


However, in 2016, the Ministry of Economy of Guatemala submitted to the Congress of the Republic, a bill that contains various reforms to the Law of Banks and Financial Groups that seeks to meet certain requirements set forth under Basel III, which, as it is well known, is a set of internationally agreed measures and which the Basel Committee on Banking Supervision developed in response to the 2007-2009 financial crisis.


The objective of these measures is to strengthen the regulation, supervision and risk management of banks.

Perhaps the  package of legislative reforms  proposed in 2016  and others that could follow under Basel III criteria or standards, can be brought closer to a ‘fourth monetary and financial reform’ given the scope of supervision and control that are sought to be implemented, to avoid to the maximum possible extent of crises such as those mentioned above.


This bill is identified as No. 5157, and despite the years that have passed since it formally entered the Legislative Agency, it has not yet entered parliamentary debate.


It already has a favourable opinion from the Committee on the Economy and Foreign Trade, issued since 2017, but since then, according to the legislative sources consulted, it has not had a further movement, which draws strong attention given the importance of the international commitments in banking regulatory matters that Guatemala has made.


In other words, the Congress of the Republic does not seem, until now, to be very interested in supporting the bill through diligent and opportune actions, in order to gradually comply with Basel III standards.


The content of the bill is, unsurprisingly, extensive and seeks to strengthen banking supervision capabilities to regulators (Superintendency of Banks and Monetary Board, the latter, higher than the other), in order to preserve the financial stability of the country, something that even has constitutional status, since the Guatemalan ‘magna carta’    considers such stability as a legal good that must be protected by the State.


Among the different aspects contained in this extensive draft or law initiative, provisions are visualized for the strengthening of banking supervision, the inclusion of macroprudential criteria for risk management, the strengthening of the banking safety net, a novel financing regime for the capitalization of banks by the Central Bank of Guatemala (among others, through acquisition of shares or assets) and the removal of directors, administrators or managers of banks in order to mitigate ‘moral risks’ associated with the implementation of any of the extraordinary measures contemplated in these reforms.


For all that, a reform is proposed to Article 77 of the Law on Banks and Financial Groups which seeks to consolidate the legality of administrative acts, based on the presumption ‘iuris tantum’ as to the legitimacy that such acts are covered, which means, legally speaking, that once issued or adopted by competent authority and observing due process, administrative acts acquire full validity.


Therefore, any measure on suspension of operations or any other extraordinary measure such as those referred to in this reform package is presumed ‘in accordance with law’ and therefore, unless otherwise provided for by legal proceedings, the relevant regulatory authorities are exempted, ‘by legal presumption of legal validity’, of legal actions that are intended to be brought against such persons or the regulatory institutions themselves.


In other words, unless a competent judge, after due process and all instances, declares that an authority abused its legal powers, and until then, no legal action can be brought against the officials of the regulatory bodies.


Until today, we believe that this presumption of legality (unless proven otherwise later), would be of high risk in the hands of other authorities in the country, will be handled prudently and ethically by the officials of the Superintendency of Banks and the Monetary Board, as they are of the strongest institutions, if not, the most solid in the country.

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