Mexico: National Banking and Securities Commission (CNBV) employees ready to resign if AMLO law is passed

Since the beginning of López Obrador’s administration to date, one-fifth of the employees of the National Banking and Securities Commission have left, and a law ‘threatens’ that they are even more people

The banking regulator in Mexico, the National Banking and Securities Commission (CNBV), had already been affected by hundreds of resignations in their work ranks after President Andrés Manuel López Obrador cut wages. Now, one of its possible laws threatens to cause a greater exodus of the main officials of the agency.

The federal legislature is scheduled for next month to enact strict restrictions on the so-called ‘revolving door’ between the government and the private sector, thus seeking to eradicate what the president calls the “cancer of corruption.” With the proposed changes, high-level public servants would be prohibited from taking jobs in companies or institutions that were once regulated for a period of 10 years. If approved, it would be one of the strictest laws in the world on that subject.

For a financial regulator who often sees his officials take jobs in banks, perhaps too routinely, and has been criticized for his welcoming relationships with the institutions he intends to monitor, the idea of ​​such limits has not gone well. Many high-level workers have talked about quitting if the law takes effect, according to interviews with a dozen current and former employees.

A brain drain in the CNBV could further weaken an institution that oversees virtually everything, from bank liquidity rates to initial public offerings in the second-largest economy in Latin America.

More generally, the case also highlights the strong challenges for López Obrador in his adventure to fulfill his vision of eradicating misconduct in the government and ending an era in which public officials designed new private fortunes with government favors. .

“It would be devastating for the regulator,” said Mauricio Basila, a former senior CNBV official, who oversaw the stock market and now runs his own consulting firm. “The best people would leave instead of staying.”

The López Obrador government has already made payroll cuts and labor benefits since the beginning of its administration at the end of last year, as part of an austerity boost. That has led to a wave of resignations in government entities, from the Ministry of Finance to Pemex.

At the CNBV, approximately one-fifth of employees have left since the cuts were enacted, people with knowledge of the matter said. As a result, the pace of bank audits, the drafting of new regulations and licensing approvals have slowed down as less-experienced workers assumed the positions, said the people, who asked not to be named due to the delicate nature of the affair.

Workers are preparing for a further blow of the ‘revolving doors’ ban. Several employees have drafted their resignations and even carry them in their pockets, ready to present as soon as the bill is passed, but before it can be enacted, the people said.

Another wave of resignations could erode the CNBV’s ability to guarantee the stability of the banking system, as well as avoid fraud, cyber-attacks and money laundering schemes, they added. It could also delay technological innovation in the agency after the country saw a wave of cyberattacks last year.

“Immoral and a shame”

For López Obrador, the ‘revolving doors’ law is a key component of a promise to end cozy collaborations between public officials and private actors. He pointed to the technocrats who helped direct Mexico’s fiscal and monetary policy as corrupt allies of the capitalist cronies, and repeatedly mentioned examples of high-level officials taking jobs in the private sector.

Former government employees who held high positions supervising banks and other financial institutions were criticized after taking jobs in the same places they used to regulate.

José Antonio Meade, former secretary of the Treasury and who supervised the CNBV, is now a member of the HSBC board of directors. Meade was in charge of the CNBV when he fined that bank for $ 27.5 million for weak money-laundering controls, which officials at the time hailed as one of the biggest penalties so far in the country for financial irregularities. However, the fine paled in comparison to a record $ 1.9 billion deal with the US Department of Justice for money laundering charges.

Jaime González Aguadé, former director of the CBNV, held a position at Caja Libertad, a small credit grantor, less than two years after leaving the public sector. He resigned in July after the president of the Caja Libertad board, Juan Collado, a lawyer linked to Peña Nieto, was arrested on money laundering charges.

The 10-year ban in Mexico would be the strictest law so far, although “it is certainly not too harsh,” said Craig Holman, a Washington-based Public Citizen legislative expert who promotes stricter measures on the matter.

“The ‘revolving door’ is one of the most pernicious influence trafficking schemes that affect governments everywhere,” said Holman. The perspective of post-public service work “is an extremely powerful tool for influencing the official actions of a regulator.”

“After ten years, internal connections would fade enough to lift the ban. But ten years seem ideal to me, ”said the specialist.

Panista deputy Patricia Terrazas, president of the Treasury and Public Credit commission in the federal Congress, said that an exodus from other institutions can also happen, from the central bank to the Ministry of Communications and Transportation (SCT). “There are many institutions that have that specialty,” he said. Good talents take them to a company or private initiative or even abroad because it is a prepared talent. ”

Terrazas said she expected Morena lawmakers to approve the law in question without further changes.

Even so, there are gaps in the bill, which does not explicitly prohibit ex-regulators from working in private consulting firms or pressuring the government from those trenches. The latest draft of the project is addressed to general and senior managers, which would be equivalent to more than 50 officials in the CNBV.

‘Too hard’

The CNBV is just a model regulator. He has a bad reputation for acting in cases of market manipulation and conflicts of interest. However, it has been acclaimed for its commitment to implement the latest trends in financial regulations. International organizations have maintained the country’s money-laundering rules and financial technology law as examples for other emerging markets.

The agency is located in two of the four towers managed by the Ministry of Finance and that sprout from a shopping center in the south of the capital. Since last year, dinners at Chili’s tables and lunches at the mall, or in the elegant canteens in the surrounding neighborhoods, have been filled with discussions about when to leave the ship, people with knowledge of the matter said. The discussion climaxed while lawmakers discussed the bill in early July, they said.

This summer, the government courted a candidate for a key position in the supervision of new regulations at the CNBV, who was unaware of the scope of the ban to come. The employees of the area even got to be informed of the arrival of their new boss, however, the candidate withdrew his interest from the offer once he was informed of the invoice he would have to pay if he took office.

Nalleli Arias, former deputy director of money laundering prevention at the CNBV, knows one or two things about walking around the office with a resignation letter ready on her desk. He left his job a little over a year ago, even before López Obrador won the elections. By then, rumors said that his new federal government would not allow him to work as a private consultant, so he prepared his letter and as soon as he had the opportunity, he resigned from the government after a decade of public service.

“I was already thinking about leaving the CNBV, but the 10-year restriction threat was the momentum I needed to make the leap,” he said. “I understand that they want to avoid crimes, but 10 years is too hard.”

Arias is now managing director of a private law firm that advises companies on compliance with money laundering prevention measures. She and her team of young lawyers are certified by the CNBV, and some used to work in the public sector.

“I heard that some former classmates who still work there are waiting for the right opportunity to jump out of the boat,” he added. “They are all really talented people.”

Bank stability

Losing key personnel could come at a precarious time. Next year, Mexico faces an evaluation by the International Monetary Fund and the World Bank on the stability of its banking system. If the country is doing badly, it could deepen investors’ concerns about the health of banks and increase the cost of borrowing, a former official said.

After leading the adoption of stricter liquidity measures under the Basel III agreement, the CNBV is now lagging behind in the drafting of the laws recommended by the Bank for International Settlements. More resignations could push Mexico further back than other countries and increase the perception of risk associated with its financial institutions.

The brain drain could also stop the approval of new companies and Fintech regulations to promote financial innovation.

Officials are also in the process of implementing a new platform backed by artificial intelligence to monitor deficiencies in money laundering protocols. An exodus of senior officials could sabotage their deployment.

Iván Alemán, who was vice president of Supervision of Preventive Processes during the first three years of the administration of Enrique Peña Nieto and now has his own consultancy, said he has not noticed a noticeable decline in the work of the CNBV yet. But, he said that it will be key to see the figures on the number of inspection visits they have set up that year. He added that there is a strong culture of compliance in many financial institutions, but not in others.

“At the time that financial institutions perceive that supervision via inspection has had a relaxation, because to that extent they also relax their controls,” said German. “As soon as you see this relaxation, the processes of institutions are probably relaxed within you and this, tomorrow, we can carry out some problems of regulatory and operational compliance, in the extreme of the cases, which affect the users of the financial system ”.

Meanwhile, the exodus from the CNBV has also allowed some public officials who had lived a lifetime in the body to rise to higher ranks and are really happy for the opportunity, even if they earn less than their predecessors.

As the economy weakens, public officials said there is a concern that there are not enough jobs in the private sector to absorb more resignations.

“The market is not open to everyone, the law of supply and demand,” said Alemán. “At the end of the day, if there is a lot of exit from public servants, we will see if they have a place in the private sector or not. They are not required to have a place and is not associated with wishes. ”

While eliminating corruption is key, establishing effective controls would be better than imposing general prohibitions, said Jacobo García Villarreal, an expert on public integrity and procurement at the Organization for Economic Cooperation and Development (OECD).

“Good talents take them to a company or even abroad because it is a prepared talent” “If there is a lot of exit from public servants, let’s see if they have a place in the private sector”

Source: el financiero, bloomberg

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