QCOSTARICA — The situation of the Cooperativa de Ahorro y Crédito de los Servidores Públicos, R.L. (Coopeservidores) – savings and loans – has put on the table a mirage that all people who invest see as a reality.
And, since there are regulatory and supervisory entities such as the Superintendencia de Entidades Financieras (Sugef) – Superintendence of Financial Entities (Sugef) or the Consejo Nacional de Supervisión del Sistema Financiero (Conassif) – National Council for Supervision of the Financial System, it is believed that there are sufficient precautions to avoid the risk of financial loss.
Nothing could be further from reality and, although the country has extensive regulations regarding regulation and control over the operation, accountability and functioning of financial entities, the supervisors are lax, slow and not very proactive in making appropriate decisions to safeguard the investments of Costa Ricans.
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The regulatory scheme has not managed to prevent financial embezzlement, as in the case of Aldesa or, more recently, Coopeservidores, as well as many others that Costa Ricans remember, despite the fact that the supervisory entities have a very broad law that allows them to have access to privileged information about the behavior, almost in real time, of loans, investments and actions carried out by financial entities under supervision.
There are billions of colones that were never recovered of many individual and institutional investors, solidarity associations and even pension funds that invested and lost resources due to failed actions by financial entities.
Of course, there are always risks when investing, but it is evident that something is not working in the supervisory institutions and it is time to address it.
The university newspaper, SemanarioUniversidad.com consulted with several economists to analyze in depth the deficiencies that directly affect financial consumers.
According to economist and researcher, Leiner Vargas, the superintendencies have become accustomed to carrying out very bureaucratic management that is absolutely delayed in time, having the possibility, for example, of accessing audits, the minutes and documents of the cooperatives.
“It seems that they do not take the pertinent actions, almost irresponsibly,” said Vargas.
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“The superintendencies, as an element of control or supervision, are lacking a modernization of their supervisory instruments; they have remained in the last century, in relation to warnings about the behavior of the supervised entities. Our regulation has not changed for many years, we are in a small, very oligopolistic market, dominated by a group of institutional actors and, therefore, we are creating a kind of self-confidence that generates greater risks for us,” Vargas questioned.
Read more: Costa Rica’s financial system registers 14 interventions in 3 decades: almost 1 every 2 years
Prevent embezzlement: failed task
For economist and former Deputy Minister of Finance, Fernando Rodríguez, the supervisory entities have not managed to prevent financial embezzlements, and the situation of Coopeservidores is a reliable example, but not exclusive, since several similar cases have occurred in the past.
In his opinion, the cooperative should have transparently reported the problems it had with its loans and it is even questionable what happened with the external audits that financial entities are required to present, knowing who that external auditor was, the notes that were made, because if the problems had been identified in time, other solutions would have been possible. That was another weakness in this case.
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“The issue is that the actions of the superintendencies did not allow us to foresee the chaos that was and we know, deep down, that this could happen again. Worse still, the financial system is based on trust and people leave their money in a certain entity with the purpose of investing it, but trusting that the resources will be paid eventually,” Rodríguez argued.
When people’s trust in financial institutions is broken, the system can falter and the possibility of investing savings with peace of mind is no longer the same, the great risk: that this distrust is spread to other entities, even affecting the entire cooperative (savings and loans) sector.
Obviously, Rodríguez added, the system is not infallible, but the stronger the regulation, the less likely it is that these embezzlements will occur. However, recent history shows a tendency in the world to make regulatory processes more flexible, each time generating more and more complex problems.
Insufficient controls require a replacement
“The work of inspection and control was owed, especially considering that we are a small, shallow market with information asymmetries, with participants who have market power, who continue to demonstrate collusive practices and with revolving doors that slap supervision in large-scale issues, which in the end are detrimental to the people who lost their money,” acknowledged economist Luis Carlos Olivares.
Because the controls and actions of the superintendencies and the Conassif have been lax and insufficient, the economist argues that it is time to think about a change, not only in the government of the supervisory entities, but to delve into the scaffolding and construction of the market, which has its flaws.
The country has a regulatory scheme that has had variations and that on paper complies with international regulations, such as the financial safety net, financial reporting and accounting standards for the public and private sector, investment committees and others, but it has not resulted in in timely detections, nor to mitigate risks.
It is urgent to close the gaps in terms of the revolving doors – the passage of some people through high positions in the public and private sectors at various times in their work career, generating conflicts of interest – because there are powerful participants in the market who, at the same time, have an impact on price formation schemes and regulatory policies.
“It is not possible that we see audited financial statements of a company, and that its members then appear in prudential supervision institutions and then as managing partners of supervised entities. This generates great opacities and does not promote effective competition, while there are no ex officio actions by the supervisory entities that, incidentally, when a situation like that of Coopeservidores occurs, restrict the use of information to the public,” said Olivares.
At the same time, the situation of Coopeservidores is a wake-up call to cooperatives, especially the largest ones, because they offer incentives that often create wrong conditions, and the effect of loss of trust could be transferred to others that offer financial services. .
Domino effect for solidarity associations
According to figures provided by the Federación Costarricense de Asociaciones Solidaristas (Fecasppri) – Costa Rican Federation of Solidarity Associations, some 350 solidarity associations invested close to US$75 million in Coopeservidores, money that is definitely at risk of being lost.
They are organizations of solidarity workers who entrusted their savings to the cooperative, because it had a good reputation and an analysis of good financial health and, although they have investment committees, these are based on the qualifications previously made by the entities. supervisors.
Leiner Vargas indicated that it becomes a domino effect because institutional funds, such as those of workers’ associations, or even pension funds that have been lost in the past (although not in the case of Coopeservidores), can only invest in entities that are supervised, which supposedly assures them that there are lower risks.
“That is where the role of the superintendencies has been lax, they have lost quality because, time and again, goals are scored against them (referring to embezzlement), and, in many cases, there have been major capital flight where millions are at stake of dollars. But the institutional entities that invest also have to be reviewed, so that they diversify their investment risks and do not put so much money in a single entity,” said Vargas.
Translated and adapted from SemanarioUniversidad.com. Read the original, in Spanish, here.
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