FINANCIAL SERVICES ADVISOR a PUBLICATION of the DIALOGUE April 11-24, 2019

LATIN AMERICA ADVISOR FINANCIAL SERVICES ADVISOR A PUBLICATION OF THE DIALOGUE www.thedialogue.org April 11-24, 2019

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Ernesto Armenteros Vice Chairman of the Board, BANKING Banco de Ahorro y Crédito Unión Can the Region New York Fed Pablo Barahona President & COO, Cracking Down on Global Retail Markets West, Liberty Mutual Group Get its Pension Puerto Rico Banks Felipe Carvallo The Federal Reserve Bank of New Vice President - Analyst York is cracking down on banks Latin America Banking Systems on Track? Moody’s Investors Service in U.S. territories over alleged violations of sanctions against Richard Child Venezuela. CEO, Mattrix Group Page 2 Michael Diaz Jr. Partner, ELECTRONIC PAYMENTS Diaz, Reus & Targ Ernesto Fernández Holmann Pagseguro to Chairman of the Board, Offer Merchants Ayucus Rich Fogarty Instant Payments Managing Director, The Brazilian card processor said Berkeley Research Group it will start offering instant pay- Desiree Green ments to merchants who use its Vice President, Governments in several countries in Latin America are weighing changes to pension systems. // Image: Rawpixel.com. machines. Itaú Unibanco recently International Government Affairs, said it would offer payment to Prudential Financial merchants within two days. Dissatisfaction with pension plans—sometimes leading to Earl Jarrett Page 2 Chief Executive Officer, violent protests and social unrest—stems largely from a The Jamaica National Group mismatch between what plan participants expect in benefits Thomas Morante BANKING Chair, Insurance Regulatory & Q and what governments or pension systems can provide, Regulators Eye Transactional Practice Group World Bank economist Truman Packard said at a recent event on Chilean Kaufman, Dolowich & Voluck pension reforms at the Inter-American Dialogue. Why have governments Scotiabank’s Plan Manuel Orozco Director, and companies fallen short in providing financial education and literacy? to Sell Assets Migration, Remittances & Development, in Caribbean Inter-American Dialogue What are some best practices from Latin America or elsewhere in fi- Caribbean regulators are scrutiniz- Adalberto Palma-Gomez nancial literacy? What stakeholders should be accountable for ensuring Senior Partner, individuals have accurate expectations and responsibility for planning ing Scotiabank’s plan to sell some Proxy, Gobernanza Corporativa of its assets in the Caribbean. for longer retirements? Rodolfo Pittaluga Scotiabank CEO Brian Porter said Adjunct Professor, recently that the asset sales are Florida International University part of the bank’s derisking plans. Fernando Larraín, director general of the AFP Association College of Law Page 2 Fabian Saide of Chile: “Defined contribution and defined benefit pension Founder, CEO and President, systems assume that participants contribute during their Paykii whole working career. Some international organizations say Jan Smith A Partner, that in order to have a complete pension, you must contribute for more KoreFusion than 30 years. For individuals to have accurate expectations, it is import- Roberto Teixeira da Costa Founder & Board Member Emeritus ant for all stakeholders to be involved. All the participants in a pension CEBRI system should plan for a long retirement. For example, pension plan Mario Trujillo providers must give accurate information; they might provide simulations CEO, DolEx Dollar Express for future pensions given different assumptions and in different stages of life. Individuals need to be aware that the amount of their savings and contributions directly affect the pension they will receive. Governments must give information through different channels to try to reach the entire population in providing financial literacy and raising awareness about Porter // File Photo: Scotiabank. Continued on page 3

BANKING NEWS said last November that it had struck a deal to NEWS BRIEFS sell banking operations in nine “non-core” Ca- New York Fed ribbean markets to Trinidad and Tobago-based Liberty Mutual Insurance Republic Financial Holdings. The bank also Acquiring Some Units Cracking Down on said that it was selling insurance subsidiaries in Jamaica and Trinidad and Tobago to Barba- of AmTrust Financial Puerto Rico Banks dos-headquartered Sagicor Financial Corpo- Liberty Mutual Insurance said it plans to ration. However, the competition commission acquire AmTrust Financial Services’ global and The Federal Reserve Bank of New York is crack- of the Caribbean Community (or Caricom) last credit reinsurance operations, Insurance Jour- ing down on the offshore banking industry in month completed a preliminary review finding nal reported April 15. Under the terms of the Puerto Rico and the U.S. Virgin Islands over agreement, Liberty Mutual is to take control of alleged violations of sanctions on Venezuela, units including AmTrust Insurance Spain, which Reuters reported April 19. The government The proposed offers surety bonds in Spain and Latin America. agency, which acts as a financial supervisor for transaction or parts The deal includes three other AmTrust busi- several mid-Atlantic states as well as Puerto thereof could possibly nesses—AmTrust Surety, Nationale Borg and Rico and the U.S. Virgin Islands, has halted have anticompetitive Nationale Borg Reinsurance. Liberty Mutual approval of new accounts for offshore banks effects in at least said it is using the acquisition to help grow its and other financial institutions “in light of operations, while AmTrust said it is strengthen- three ... Member recent events, including the expansion of U.S. ing its focus on local markets. economic sanctions relating to Venezuela,” States.” according to the report. The action will prevent — Caricom’s competition commission the offshore banks from opening accounts with the Fed that give them direct access to the U.S. Pagseguro to Offer Instant financial system. The move follows two Puerto that “the proposed transaction or parts thereof Payments to Merchants Rican offshore banks that have accounts open could possibly have anticompetitive effects in for Card Transactions with the New York Fed being mentioned in at least three (3) Member States in the Commu- Brazil-based Pagseguro Digital said April 22 federal investigations into money laundering nity.” Scotiabank told the Financial Post that it that it will start offering merchants instant and sanctions evasion related to Venezuela. “acknowledges the Caricom Competition Com- payment for transactions with credit and debit Sixteen of Puerto Rico’s 80 offshore banking mission’s contribution to the regulatory approv- cards, the card processor said in a securities and financial services firms are owned by Ven- al process, and continues working closely with filing, Reuters reported. Pagseguro made the ezuelan individuals or companies, according Republic and all applicable regulatory authori- announcement after the card-processing unit to Reuters. Recent rounds of U.S. sanctions ties to provide all needed information related to of Itaú Unibanco said it would repay merchants on Venezuela have posed new compliance this transaction.” Republic Financial previously who use its machines within two days. risks for banks and international financial said the purchase price on the Caribbean bank institutions as they seek to understand how assets was approximately $123 million, while to comply with fast-evolving requirements. the purchase price on Scotiabank’s insurance [Editor’s note: See related Q&A in the Feb. operations in Jamaica and Trinidad is around Head of TransRe’s Latin 28-March 13 issue of the biweekly Financial $240 million. Speaking to shareholders at their American & Caribbean Services Advisor.] annual meeting on April 9, Scotiabank CEO Brian Porter cited recent divestiture plans, Business Unit Retiring such as those in the Caribbean, as evidence New York-based TransRe said April 10 that Regulators Scrutinize of efforts to derisk the bank. “Within our stra- Javier Vijil will retire in the third quarter of this Scotiabank’s Plan to tegic footprint, we have a particular focus on year after 26 years with the insurer. Vijil found- Canada, the United States, and the high-growth ed TransRe’s Latin America and the Caribbean Sell Caribbean Assets and stable countries of the Pacific Alliance division when he opened the company’s Miami trading bloc,” he said. “Broadly speaking, the office in 1993. He will hold a new position Previously announced plans by Canada’s Sco- Pacific Alliance countries have business-friend- as non-executive chairman of TransRe Latin tiabank to sell some of its Caribbean assets ly environments, healthy democracies and a America. Moving ahead, TransRe will merge its are facing scrutiny from regional regulators commitment to good governance, above-aver- North America and Latin America divisions into over potential “anticompetitive effects,” the age economic growth and, most importantly, a TransRe Americas, led by Ken Brandt. Former Financial Post reported April 9. Scotiabank rapidly expanding middle class.” Validus Re executive Jorge Beltran has been hired to lead the Latin America business.

Antitrust Regulator FEATURED Q&A / Continued from page 1

Investigating Four longer retirement. Employers should work more time planning their next vacation than Brazilian Banks with their employees in providing financial planning their retirement year after year. In literacy. Independent workers and entrepre- Mexico, we found that even those who say neurs also must be aware that their future they want to save for retirement do very little The Administrative Council for Economic pension is related to their contributions when it comes to actually saving for retire- Defense (CADE), Brazil’s antitrust regulator, and savings. Associations and chambers ment. A large proportion of respondents to said April 22 it is investigating four banks should work with them. Countries must for allegedly creating competition hurdles to start working on a protection system for the digital banking newcomer Nubank, Reuters elderly; the quality of life of retired people Most people ‘live reported. Some of the largest banks operating cannot depend entirely on the amount of in the country, such as state-run Banco do for the moment’ pension benefits they receive. There is an Brasil and Caixa Econômica Federal and private and do very little plan- opportunity for different public policies to be banks Santander Brasil and Bradesco, have ning for the future...” designed and implemented, taking an older been denying requests to schedule automatic — Tapen Sinha population into account. When it comes to payments from Nubank clients who also were saving for the future, individuals have cog- account holders at those banks, according to nitive biases that make traditional financial a survey declared that ‘God will provide’ for the filing. In a statement, Nubank said it hoped teaching hard to implement. Therefore, it is their retirement. A survey in Mexico also “regulatory authorities will continue to protect important to use tools related to psychology showed that the vast majority of recent re- and stimulate industry competitiveness by and behavioral economics to design plans, tirees found that they were getting a smaller ensuring that new entrants will continue to teaching materials and other components state pension than they had expected. There have room to innovate.” CADE said the banks to reach individuals. In the case of Chile, are several ways that the agenda can be would be given a chance to defend themselves Ahorra desde Ahora, a program developed moved forward. First, any pension system ahead of a final ruling. Last year the Brazilian by the association of pension funds, showed should aim for a floor value of the pension. Blockchain and Cryptocurrency Association positive results in an impact evaluation by For example, it can aim to provide a full-time (ABCB) filed a complaint with CADE over banks the Inter-American Development Bank.” worker with 30 years of work history to get blocking new fintech, cryptocurrency and other at least 30 percent of the last drawn salary. new market entrants from doing business. Tapen Sinha, professor of risk This kind of information should be provided Established banks maintain that they are management at the Instituto to all employees the day they start working. concerned about the origin of money that flows Tecnológico Autónomo de Méx- It should also be reinforced through future through accounts, and that their motivations ico and professor at the Univer- communications to the affiliates. It should are to comply with anti-money laundering reg- A sity of Nottingham Business School: “The raise red flags if they are lagging behind. ulations, not curbing competition. Regulators lack of financial literacy is a global phenom- Second, governments could levy a small fee across Latin America have been experimenting enon—especially in the matter of retirement. on privatized funds and use that money to with ways to address new market entrants. Most people ‘live for the moment’ and do educate affiliates about their future benefits. very little planning for the future—especially Some attempts have been made in Chile and far into the future. For example, Shlomo Be- Brazil in the past. But they have not been DIGITAL CURRENCY NEWS nartzi and Richard Thaler have demonstrated enough to make much difference. Voluntary that even in Western countries, people spend saving has never been high.” Rising Inflation Leads Continued on page 6 to Higher Trading Times reported April 16. The recorded trading government to adopt alternative currencies volume in the country surpassed 100,000 such as Bitcoin as a way to overcome tradition- in Bitcoin: Report Bitcoins earlier this month to reach a new al problems with inflation. U.S.-based venture Latin American record, according to data from capital investor Tim Draper, an advocate Economic uncertainty and rising inflation have the CoinTrader Monitor. Argentina’s trading for digital currencies, reportedly met with led to a flurry of digital currency trading that volumes in bitcoin have also spiked higher Argentine President Mauricio Macri last month, has reached an all-time high in several South recently, according to the report. Blockchain advising him to embrace emerging technolo- American countries, particularly Brazil, The Rio advocates have been calling for Argentina’s gies such as blockchain and cryptocurrencies

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 3 FINANCIAL SERVICES ADVISOR April 11-24, 2019 as a means of improving problems in Argen- tina’s economy, including the devaluation of the Argentine peso, Cointelegraph reported. A Bitcoin’s value peaked at nearly $20,000 in De- cember 2017 but has since plummeted, closing April 22 at $5,381.

POLITICAL NEWS

Mexican Authorities s Detain Migrants

Mexican authorities on April 22 detained hundreds of Central American migrants in the 2019 southern state of Chiapas in the largest raid on The SWIFT Latin American a migrant caravan since the groups began moving last year through the country toward the Regional Conference United States, the Associated Press reported. Police and immigration agents forcibly pushed men, women and children who were in isolated groups at the end of a caravan containing SPEAKERS 3,000 migrants into patrol vans and trucks, the wire service reported. Reporters on site heard Maristella Aldana Sanin Claudio Irigoyen screams from the group, and after the detained Chief Compliance Officer, Head of Latin American Eco- migrants were driven away, clothes, shoes, Bancolombia nomics and Foreign Exchange strollers and suitcases were left strewn at the and Fixed Income Strategy, scene. As many as 500 people were detained Irene Arias Bank of America Merrill Lynch CEO, IDB Lab in the raid, which happened near the city of Pi- J.F. Legault jijiapan. The agents encouraged migrants who Cesar Cernuda Global Head of Cybersecurity had been walking in the heat for hours to stop President, Microsoft LatAm Operations, JP Morgan and rest, and when they regrouped to continue trekking north, officers detained them. One George Doolittle Humberto Lopez EVP-Head of Global migrant, 27-year-old Kevin Escobar, avoided Director of Strategy and Payments, Corporate & Invest- Operations for Latin America, being detained by fleeing onto private property ment Banking, Wells Fargo World Bank nearby. A Honduran, Escobar vowed never to return to his hometown, San Pedro Sula. “The James H. Freis, Jr. Margaret Myers gangs are kidnapping everyone back there,” he Chief Compliance Officer and Director of the Asia & Latin told the wire service. Officials of Mexico’s Na- Managing Director, America Program, Deutsche Börse Group tional Human Rights Commission observed the Inter-American Dialogue raid from some distance away. “We cannot tell Monica Garcia Beatriz Quevedo, authorities in charge what to do, but yes, we Vice President of Finance, Regional Head of Client Man- are documenting and we will investigate,” said Banco Bisa agement Global Liquidity and commission official Jesús Salvador Quintana. Cash Management for Latin The raid followed a series of detentions last America, HSBC Friday in which Mexican agents took migrants into custody as they awaited the normaliza- To learn more about the conference tion of their migration status in the town of and to register, click here Mapastepec. The detentions followed demands by U.S. President Donald Trump that Mexico

NEWS BRIEFS do more to stop migrants from trekking to the The former foreign minister is also accused United States, where they have overwhelmed of having ties to Ola Bini, a Swedish computer Twenty-Five Killed agents at some border crossings. Trump programmer whom Ecuadorean authorities recently threatened to shut down the entire arrested last week on hacking charges. Bini in Bolivia Bus Crash U.S.-Mexico border. denies the allegations, the Washington Times Twenty-five people were killed in western reported. “I’m confident it will be obvious Bolivia on April 21 when the bus they were that there’s no substance to this case, and traveling in crashed while trying to pass Ecuadorean Judge that it will collapse into nothing,” Bini said in another vehicle and fell down a ravine. Writing Orders Ex-Foreign a statement released by his lawyer. Moreno’s on Twitter, President Evo Morales urged bus government accuses Patiño and Bini of having drivers to take more care, saying he was “very Minister Detained taken trips to London to visit with Assange sad about the terrible accident.” Some 1,000 while he was taking refuge at the embassy, people die and 40,000 are injured in accidents A judge in Ecuador has ordered former Foreign Reuters reported. Ecuador’s interior minister on Bolivia’s roads every year, EFE reported. In Minister Ricardo Patiño to be detained on a has accused Patiño of trying to “destabilize” Latin America, road crashes are the leading charge of “instigation,” El Universo reported Moreno’s government. cause of death for people aged 15 to 44. April 18. The order against Patiño, who served under former President Rafael Correa, came 22 hours after the former foreign minister left the ECONOMIC NEWS Venezuela’s Maduro Calls country, and his whereabouts were unknown, for Massive May Day the newspaper reported. In a video statement released via Twitter, Patiño said there was no Brazil’s Participation Counterprotests order against him at the time that he depart- in Global Economy Venezuelan President Nicolás Maduro on April ed from Ecuador and that he had no idea 22 called for two marches to counter massive “what was about to happen.” He said, “I left Falls to 38-Year Low May Day rallies being organized by opposition the country absolutely legally,” and vowed to leader Juan Guaidó, Agence France-Presse defend himself. The administration of current Brazil’s level of participation in the global econ- reported. One of the marches, on Saturday, President Lenín Moreno has accused Patiño of omy has fallen to the lowest level in 38 years, will mark Venezuela’s official exit from the involvement with WikiLeaks, Reuters reported. Folha de S.Paulo reported April 19. According Organization of American States, two years Moreno’s government recently withdrew the to data from the International Monetary Fund, after Maduro made the decision to leave the asylum of WikiLeaks founder Julian Assange, Brazil’s share of the world’s production of bloc, accusing it of being a puppet of the who had been holed up in Ecuador’s embassy goods and services fell to 2.5 percent last United States. On April 9, the OAS recognized in London since 2012, allowing police to arrest year. The data marks the seventh consecutive opposition leader Gustavo Tarre as Venezuela’s him. Moreno has accused Assange and the year of loss for Brazil, South America’s largest representative to the group until new elections website of publishing private photographs economy. One of the main reasons for the are held in the South American country. of his family, violating his privacy. Moreno drop has been China’s relative outperformance has also accused Correa of planting a hidden of other developing nations, according to camera in his office in order to spy on him. the report. As with Brazil, other countries of Peru’s García Led WikiLeaks and Correa have denied the alle- Latin America have also been outrun by rising gations, and the whistleblowing website has Eastern economies such as India, Turkey, the Crime Ring: Official said Moreno is attempting to deflect attention Philippines, Vietnam and Malaysia, which have Former Peruvian President Alan García, who from corruption allegations against him. An increased their share of the global economy committed suicide April 17 after police arrived economist, Patiño has called on his supporters over the same period. Economists say one at his home to arrest him, led a criminal group to engage in “combative resistance” against of the biggest factors behind Brazil’s drop that accepted millions of dollars in bribes Moreno’s government, Ecuador’s attorney has been continued problems with growth, as from Brazilian construction conglomerate general’s office said in a statement. “The attor- repeated boom-bust cycles since the 1980s Odebrecht, said a top official in Peru’s attorney ney general’s office began a criminal process have proven difficult to break. After struggling general’s office, The Wall Street Journal report- against Ricardo Patiño for the alleged crime of with its deepest recession in history in recent ed. Odebrecht has admitted to paying bribes instigation,” the office said, adding that Patiño years, Brazil’s economic growth could acceler- to officials in several countries in order to “had given a speech in which he instigated ate to a 3.5 percent annual rate in the second acquire lucrative contracts. García had denied people to take over public institutions and half of the year with the approval of economic wrongdoing. close roads.” Patiño has denied the allegations. reforms, said Economy Minister Paulo Guedes.

FEATURED Q&A / Continued from page 3 FINANCIAL SERVICES ADVISOR is published biweekly by the Inter-American Dialogue, Copyright © 2019 Carmelo Mesa-Lago, profes- Uruguay, Chile, Argentina, Costa Rica and sor emeritus of economics Brazil. As a result, many countries in the Erik Brand and Latin American studies at world have been increasing retirement ages, Publisher [email protected] the University of Pittsburgh: mainly for women, because they often retire A Gene Kuleta “In recent years, there have been public five years younger and live five years longer Editor demonstrations against pension reforms in than men. Most Latin American countries [email protected] France, Greece (which almost toppled the Anastasia Chacón González government) and Russia. In Latin America, Reporter the Chilean government’s delay in acting Most Latin American [email protected] on the 58 recommendations in 2015 from countries need to President Michelle Bachelet’s Presidential raise retirement

Commission on Pensions provoked national ages, particularly Michael Shifter, President protests by as much as one million people for women...” Genaro Arriagada, Nonresident Senior Fellow demanding, among other things, the termi- — Carmelo Mesa-Lago Sergio Bitar, Nonresident Senior Fellow nation of private pension administrators Joan Caivano, Director, Special Projects (AFPs). In Nicaragua, facing the imminent Michael Camilleri, Director, Peter D. Bell Rule of Law bankruptcy of the public pension program, need to raise retirement ages, particularly for Program President Daniel Ortega enacted a decree women, and also confront strong opposition. Kevin Casas-Zamora, Nonresident Senior Fellow in 2018, raising contributions by 1 percent This requires educational campaigns. If this Ariel Fiszbein, Director, Education Program and reducing pensions by 5 percent, which is not done, actuarial deficits will worsen Peter Hakim, President Emeritus led to a popular rebellion that threatened and some countries will face financial im- Claudio Loser, Senior Fellow his regime, forcing the withdrawal of the balances (the latter is already happening in Nora Lustig, Nonresident Senior Fellow decree; after strong repression that partially some countries), the system will go bankrupt Margaret Myers, Director, Asia and Latin America Program controlled the situation, he enacted another and won’t be able to pay pensions.” Manuel Orozco, Director, Migration, even tougher decree in 2019. A major reason Remittances & Development for pension problems is an aging population The Advisor welcomes comments on its Q&A Jeffrey Puryear, Senior Fellow in developed countries, which now affects section. Readers can write editor Gene Kuleta Tamar Solnik, Director, Finance & Administration the oldest countries in Latin America: Cuba, at [email protected]. Lisa Viscidi, Director, Energy Program Denisse Yanovich, Director of Development and External Relations

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