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21 Jun 18 Reforms introduced by the Law on Productive Financing No. 27,440

Posted at 22:20h in Publications by

By Agustin Cerolini and Tomas French. 

On May 9th, 2018, the House of Representatives passed the Productive Financing Law No. 27,440 (the «Law»). The Law introduces important amendments to the regulatory framework of the Argentine capital market aiming to foster its development

Following, we outline the main reforms:

• Modification of the powers of the Argentine Securities and Exchange Commission (CNV, after its acronym in Spanish): The Law eliminated certain prerogatives that the Capital Markets Law No. 26,831 had granted to the CNV, among them, the power to take control of publicly traded companies and appoint “supervisors” with veto power over the resolutions adopted by the board of directors or managers of those companies, and the power to declare irregular and ineffective acts, without initiating prior administrative proceedings. On the other hand, CNV has granted new regulatory prerogatives to: (i) set the maximum fees to be charged by the markets, clearing houses, registry entities and market agents; (ii) issue regulations aiming to promote transparency and integrity of the markets; and (iii) issue regulations aimed to mitigate scenarios of systemic risks. In addition, CNV can now require the markets and clearing houses to carry out certain supervision, inspection and auditing activities, without entailing a delegation of its powers.

• Promotion of financing to micro, small and medium-sized enterprises (MSME): The Law introduces the «MSME Electronic Credit Invoice» as a new instrument by means of which MSMEs can obtain financing by negotiating the MSMEs in the capital market. Its use shall be mandatory in all transactions where a MSME issues an electronic invoice or receipt to a large company, and optional in those transactions executed between MSMEs.

• Simplification of the regime for the issuance of Negotiable Notes (ONs, after its acronym in Spanish): The Law introduces a set of amendments to the Negotiable Notes Law No. 23,576 aimed at streamlining and simplifying the issuance and use of ONs. Among them, it is established that issuance can be approved by the board of the issuer, as long as it contemplated in the company’s bylaws, while entering into the public offering regime must be approved by a shareholders’ meeting. Moreover, it is established that ONs may be issued with limited recourse to certain assets of the issuer, with or without setting a guarantee over such assets. As a consequence, in case of default of the issuer, the creditors will have legal action only over such assets.

• Housing development: The Law introduces a set of amendments to the Housing and Construction Financing Law No. 24,441 aimed at fostering mortgage loans by means of the issuance of adjustable mortgage securities, which enables its securitization. Moreover, a differentiated tax treatment is established for financial trusts and mutual funds whose investment objectives are real estate developments for social housing, mortgage loans and/or mortgage securities, distributions originated in lease, or the results of the sale of such assets.

• Modifications in relation to Mutual Funds (FCI as per the Spanish acronym): With the purpose of fostering the FCI industry, numerous amendments were introduced to the FCI Law No. 24,083. Among them, the possibility of creating FCI that reproduce the behavior of a financial or stock market index or basket of assets; FCI for qualified investors who are willing to take on greater risks; and FCI with the objective of saving for voluntary retirement. On the other hand, it was established that Closed FCIs will not be subject to Income Tax in case they are placed by public offering and if their investments are made in Argentina.

In short, the Law has implemented a set of reforms aiming to modernize the regulatory framework of the Argentine capital market. Its objective is to promote that public savings be appropriated to the real economy and, as a correlate, Argentine companies find more efficient sources of financing than those available today.

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