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Update: Amendments to the Pension Funds Systems Law
On September 30, 2019, the Mexican Senate (Cámara de Senadores) approved the legislative proposal introduced by the Federal Executive Branch of the Mexican Government, (the “Proposal”), which was approved by the House of Representatives (Cámara de Diputados) on April 30, 2019, to amend various provisions of the Pension Funds Systems Law (Ley de los Sistemas de Ahorro para el Retiro) (the “SAR Law”). The Senate in turn reverted its comments to the House of Representatives. If the Proposal is approved by the House of Representatives, the President must promulgate the Proposal and order its publication in the Official Gazette.
The following are the main amendments to the SAR Law proposed by the Mexican Congress:
New operating model for Afores
The Retirement Fund Administrators (Administradoras de Fondos para el Retiro) (“Afores”) will operate through Specialized Retirement Fund Investment Funds (the “Fiefores”) which will replace the Specialized Retirement Fund Investment Companies (“Siefores”). Furthermore, the Proposal contemplates that the Pension Funds System Commission (Comisión Nacional del Sistema de Ahorro para el Retiro) (“Consar”), with the prior opinion of the Ministry of Finance (Secretaría de Hacienda y Crédito Público) (“SHCP”), the Securities and Banking Commission (Comisión Nacional Bancaria y de Valores) (“CNBV”), and the Mexican Central Bank (Banco de México) (“Banxico”), shall determine the investment regime, the levels of liquidity and market risk for the Fiefores. However, if the opinion of SHCP, CNBV and/or Banxico is not favorable, Consar may approve the investment regime as long as it justifies its decision in its quarterly report before the Mexican Congress.
Siefores will have a 12 month period from the date the publication date of the amendment to request approval from Consar to convert the Siefores into Fiefores, including the amendment to their bylaws to comply with the corporate governance provisions applicable to Fiefores pursuant to the revised SAR Law. If the application is not timely submitted or the authorization of Consar is not obtained within such 12 month period, the respective Siefore will enter into a state of dissolution and liquidation.
New investment opportunities
Fiefores will have access to greater investment opportunities than Siefores had, including the possibility of investing directly in securities registered in the National Securities Registry not offered through a public offering, as long as the Afore obtains its prior board approval with the affirmative vote of all of its members, in accordance with general provisions to be issued by Consar.
Fiefores will be able to (1) receive money deposits used as collateral in repo transactions, secured lending and derivative financial instruments, (2) carry out securities lending transactions and repurchase agreements, including over securities issued by companies, as well as credits or loans only in their capacity as creditors, (3) receive cash deposits as long as they are used as collateral in repurchase transactions, securities lending and derivative financial instruments, (4) acquire international securities authorized by Consar, (5) carry out loan, credit and repurchase transactions to satisfy the liquidity levels established by Consar, (6) carry out short transactions with securities used as collateral under pledge agreements, and (7) grant guarantees corresponding to repo agreements, loans, credits and derivative transactions, in accordance with the provisions issued to such effect by Banxico.
It is not yet possible to define the scope in the changes to the investment regime or if it will represent a more flexible investment regime. This scope will be defined in the secondary regulation issued by Consar.
Fees charged by Afores will have an additional component that will be calculated on the basis of the investment returns received by pension holders through their investments in the Fiefores. Consar will publish a specific calculation methodology for such new component. Such performance component may serve to align the interests of investment managers, pension holders and Afores.
Withdrawal of voluntary deposits
Pension holders will be allowed to withdraw their voluntary deposits from their retirement funds at any time.
Consar, SHCP and Banxico must issue secondary regulation in this regard. As soon as the secondary regulations are published, we will follow up on this release. Additionally, in a period not exceeding six months from the date of the amendment, the Federal Executive Branch must summon the assembly of a National Working Group for the Diagnosis and Proposal of the Amendment of the Pension Systems. Such Group will be composed of and function in accordance with the guidelines dictated by SHCP, incorporating experts in financial, social security, legal or pension matters, representatives of workforce, employees, and a representative of each Parliamentary Group in the House of Representatives and Senators of the Mexican Congress. The Working Group must submit a report to the head of the Federal Executive Branch and to the Mexican Congress.
For further information with respect to the Proposal and applicable regulation, please get in touch with your regular contacts at Nader, Hayaux & Goebel.