3.1 The Board

The Basic Constitutional Act that governs the Central Bank establishes its management mechanisms, giving highest authority to a Board composed of five members and chaired by the Governor.

Board Members are appointed by the President of Chile by means of an Executive Decree, with preliminary approval by a simple majority of the Senate. Once approved, the appointed person serves as a Member of the Board for a period of 10 years.

The Members of the first Board, constituted in 1989, had staggered terms. The Governor, Andrés Bianchi, was appointed for a period of two years; Juan Eduardo Herrera, four years; Enrique Seguel, six years; Roberto Zahler, eight years; and Alfonso Serrano, ten years. This structure meant that there would be a new Board Member every two years, a design that has been maintained for nearly 30 years, with the exception of Members who resigned before completing their ten-year term.

The Bank’s Governor is appointed directly by the President of Chile, from among the current Board Members. The Governor holds office for five years or until his or her appointment as Board Member expires, whichever comes first. Along with chairing the Board, the Governor is responsible for representing the Central Bank on extrajudicial matters and directing institutional relations with public authorities, financial institutions, and international organizations.

The Board Members are, and have always been, experts in macroeconomics and finance, with extensive experience in academics or public service and representing a range of economic schools of thought. They must work exclusively for the Central Bank and are only allowed to participate in teaching or academic activities and nonprofit organizations.

The Central Bank operates essentially through resolutions and other agreements adopted by the Board.

The Basic Constitutional Act establishes that it is the Bank’s duty to report to the President of Chile and the Senate regarding the general rules and policies it approves in exercising its powers and to advise the President, when requested, on all matters associated with the Bank’s functions.

This is accomplished through regular coordination meetings with the Finance Minister, meetings with the President of Chile, and presentations of the Monetary Policy Report and the Financial Stability Report to the Senate.

The Finance Minister can attend Board Meetings or Monetary Policy Meetings and has the right to speak. He can also suspend any Board resolution, albeit for a limited period and subject to the subsequent decision by the Board.

3.1.1 Functioning of the Board

The Board must hold ordinary sessions at least once a week and special meetings when called by the Governor, either of his own volition or in response to a written request by two or more Board Members.

Board resolutions must be adopted by a quorum of three Members and must have the favorable vote of the majority of those present, except in cases in which the law requires a special quorum for specific resolutions, by reason of their importance or relevance. Meetings are recorded in the minutes.

The Board Member chairing the session will cast the deciding vote in case of a tie. The Board generally holds its meetings at its offices in Santiago, but it is empowered to meet and vote on legal resolutions, regulations, or other rulings anywhere within the territory of Chile. There are also internal operating mechanisms to ensure compliance with quorum requirements, in the event that a Board Member cannot be physically present at the meeting.

In preparation for Board Meetings, the Governor convenes weekly Pre-Board Meetings, where the Members undertake an exhaustive analysis of the issues to be covered and resolutions scheduled to be submitted for approval. At these pre-meetings, staff members give comprehensive presentations on the issues and the arguments for and against the respective decisions.

In 2018 the Economic, Financial, and Statistical Committee (EFSC) was created to optimize the working relationship between the Board and the monetary policy, financial, and statistical areas of the Bank. This initiative is part of the third priority of the Bank’s 2018–2022 Strategic Plan, which aims to fine-tune the institutional governance structure to streamline the decision-making and implementation processes.

3.1.2 Board Activities in 2018

Additionally, in preparation for each Monetary Policy Report and Financial Stability Report, the Board holds several meetings for coordination, analysis, and discussion, in order to outline, process, and approve the content of the reports.

Every Thursday throughout the year, the Board meets with the staff of the economic and financial areas to analyze the current national and international macroeconomic and financial scenarios. These are called Conjunctural Economic Meetings.

The rules governing the functioning of the Board are available on the Central Bank’s website:

https://www.bcentral.cl/web/guest/consejo

3.1.3 Advisory Bodies to the Board

3.1.3.1 Audit and Compliance Committee

The Board has an advisory body for the high-level oversight and supervision of the Bank, called the Audit and Compliance Committee. The Committee reports on the effectiveness of the Bank’s internal control systems and procedures; analyzes their equity and reputational effects; evaluates the reliability, integrity, and timely delivery of the information included in the financial statements; reviews the Annual Audit Plan and its execution; and makes proposals on independent auditors.

The Committee met eight times in 2018. The issues addressed at these meetings included assessing the services provided by the independent auditing firm; examining the main observations from the Internal Audit; and reviewing the Bank’s internal control and risk management systems.

Committee members:

1. José Luis Cea Egaña, Presidente (since 2014).
2. Anthony Dawes Martindale (since 2017).
3. Ramiro Mendoza Zúñiga (since 2018).
4. Ricardo Budinich Die (since 2018).

3.1.3.2 Information Technology Advisory Committee (ITAC)

This Committee advises the Central Bank’s Board and General Manager on issues related to information technology (IT) corporate governance, such as the definition of guidelines for the IT Strategic Plan; validation of strategic initiatives in the same area; identification of risk mitigators; and the review of the costs and benefits of IT-related initiatives.

In 2018 the ITAC met four times and also held three working sessions with the Bank’s IT team. The issues addressed included information security awareness campaigns for Bank staff; cybersecurity principles and strategies; the creation of the new Cybersecurity Department; operational continuity solutions for the Bank; the technological model for implementing user initiatives; the 2019 IT project portfolio; and the implementation of cloud technology solutions.

Committee members:

1. Gonzalo Acuña Leiva. (since 2018).
2. Jaime Navon Cohen. (since 2013).
3. Alejandro Hevia Angulo. (since 2017).

3.1.3.3 Panel of Experts

Last December, the Board announced the appointment of a panel of experts, made up of five economists who will evaluate the Central Bank’s performance in fulfilling the two mandates assigned by the Basic Constitutional Act, namely, price stability and financial stability.

The panel is chaired by Karnit Flug, the former Governor of the Bank of Israel, and includes professors Petra Geraats, of Cambridge University, England; Guillermo Calvo, of Columbia University, United States; Enrique Mendoza, of the University of Pennsylvania, United States; and Donald Kohn, senior fellow at the Brookings Institution and former Deputy Chairman of the Board of Governors of the U.S. Federal Reserve.

The group, which has full independence in collecting information and interviewing local and foreign experts, will concentrate specifically on the Bank’s analytical framework and powers, its policy formulation process, communication, and results, with an emphasis on the last few years of operation.

The final assessment report will be presented during the Bank’s rendering of accounts to the full Senate in September 2019, which also marks the Bank’s 30-year anniversary as an autonomous institution.

3.2 Management Structure

The Basic Constitutional Act also grants the Board the authority to appoint the General Manager, the General Counsel, and the Comptroller and Auditor General, as well as to specify the responsibilities and powers of the respective positions.

The General Manager is responsible for the daily management and oversight of the Bank, based on the Board’s instructions and the powers conferred thereby.

The General Counsel is essentially in charge of ensuring the legality of the Bank’s agreements, resolutions, and contracts, thereby preventing the legal risks associated with its operations.

The Comptroller and Auditor General is responsible for the internal inspection and supervision of the Bank’s accounts, operations, and management practices.

The Bank’s upper management further includes seven division directors and two additional managers under the General Manager, in charge of operationalizing the fulfillment of the Bank’s role and functions and providing necessary corporate services. This structure includes the adjustments that were approved by the Board on 16 August 2018, which were in the process of being implemented at year-end. Also at year-end 2018, there are 22 managers who report to the division director¹/.

^1/ New management positions: Technology and Administration Division (vacant), Operations Division (vacant), Economic Research Management (vacant), International Analysis Management, Engineering Management (vacant), and Corporate Risk Management (vacant). Eliminated positions: Economic Research, Economic Analysis and Modeling, Corporate Management and Services, Logistical Services, Financial Risk Assessment and Management.

3.2.1 Composition of the Board and Upper Management

In recent years, the Central Bank has been incorporating more women on its management teams, as well as highly qualified foreign professionals, as reflected in the following tables.

^2/ Under the new structure approved in August 2018, upper management is defined as including the General Manager, the General Counsel, the Comptroller and Auditor General, the Division Directors, the Human Resources Manager, and the Corporate Risk Manager.

3.2.2 Internal Control Structure

3.2.2.1 Office of the Comptroller and Auditor General

The Office of the Comptroller and Auditor General is focused on assisting the Board, Management, and the Audit and Compliance Committee, in accordance with the mandate conferred on the Auditor General by the Central Bank’s Basic Constitutional Act. Through consulting and assurance activities, the office performs an independent, objective, and systematic evaluation of the design and effectiveness of the Bank’s risk management, governance, internal control, and management systems. This work adds value to the Bank and supports the achievement of its institutional objectives.

In 2018, the Office of the Comptroller and Auditor General maintained its quality assurance certification by the Institute of Internal Auditors, reaffirming that the Central Bank’s auditing activities “comply with international standards for the professional practice of internal auditing.” The Office also maintained certification of its process, “Internal Auditing Services for the Central Bank of Chile,” under ISO 9001:2015 standards.

3.2.2.2 Office of the General Counsel

The Office of the General Counsel of the Central Bank is responsible for ensuring the legality of the Bank’s agreements, resolutions, and contracts and advising the Board and the various units within the Bank on legal matters, with specialized support from the corporate and normative legal services staff.

In 2018, the corporate legal services department worked, in particular, on strengthening the Bank’s standards of integrity and transparency, which translated into the issuance of new rules and the modification of the Personnel Regulations, as well of the adoption of good practices and criteria for making sworn statements and the provision of legal consulting services for international reserve management and the performance of the Bank’s fiscal agency functions.

The normative legal services department, in turn, concentrated on the analysis, review, and development of regulatory proposals related to the implementation and communication of monetary policy (the new scheme for Monetary Policy Meetings and the provision of information to authorities and the public); and provided legal consulting services to the Financial Policy Division, the Financial Markets Division, and the Statistics Division, which resulted in proposals to the Board on the issuance or improvement of financial regulations applicable to various areas. These included the adoption of the PFMIs in the large-value payment systems (LVPS), the implementation of the new contingency protocol for the LVPS, and improvements to the regulations governing payment cards. In addition, this department is responsible for continuously monitoring and reporting on legislative and regulatory initiatives associated with the Central Bank’s institutional character and jurisdiction.

3.2.2.3 Risk management

Fulfilling the mission, vision, and strategic objectives of the Central Bank of Chile requires having in place a comprehensive risk management system, in order to minimize and contain risk. The system adopted by the Bank establishes the following key processes within its scope: preventive risk management, business continuity management, and insurance management. Furthermore, the Bank’s organizational structure is based on clearly defined roles and responsibilities, with an emphasis on strategic, financial, operational, legal, and reputational risk.

In 2018, as part of the comprehensive risk management approach and in the framework of the third priority of the Central Bank’s Strategic Plan—namely, to strengthen corporate governance—the Corporate Risk Management was created to identify the most significant internal and external strategic risks, while the Cybersecurity Department was established to monitor IT risks. In addition, to balance risk tolerance and business process efficiency, progress was made on defining a methodology for developing a risk appetite statement applicable to the Bank’s processes, which is expected to be completed in 2019.

To consolidate the comprehensive risk management system, the Central Bank of Chile in 2018 achieved the establishment and certification of its comprehensive management system, incorporating standards such as ISO 9001:2015 Quality Management Systems: Accounting, Security, Maintenance, Services, and Procurement management processes; ISO 27001:2013 Information Security Management System: Highly Sensitive and Confidential Information; ISO 22301:2012 Business Continuity Management System: Large-Value Payment System, IT security systems, Physical Security, Electronic Security Monitoring, Telecommunications Systems, Operational Electrical Systems, Publication and Updating on the website and technical support for Critical Business Processes; and OHSAS 18001:2007 Occupational Health and Safety Management System.

3.3 Strategic Plan 2018–2022: Everybody´s Project

Each new Governor of the Central Bank develops a Strategic Plan in the first year of his term, which is applied during the rest of his governorship and the first year of his successor’s term. In 2017, the first year under Governor Mario Marcel, the 2018–2022 Strategic Plan was developed under the title, An everybody´s Project. The plan was developed using a new mechanism, involving a consultative, participatory, and inclusive process that took into consideration the people and institutions with which the Bank regularly interacts, as well as the Bank’s own staff.

The planning process included internal and external interviews with representatives of the Bank’s stakeholder groups, a national opinion poll, surveys of regional and international focus groups, workshops with active participation by Bank staff, Board Members, and managers, with ongoing communication on the progress and results of the process.

Implementation began in 2018. The plan is structured around five strategic priorities, each with identified initiatives, lines of action, point people, and specific timelines. Bank management is responsible for closely following progress on the implementation.

One of the actions was the definition of a new management and process structure, aimed at streamlining decision-making, increasing process optimization, and contributing to the sustainability of the institution.

The changes were guided by three fundamental objectives: to facilitate the implementation of the initiatives contained in the 2018–2022 Strategic Plan; to strengthen leadership and direction at the management level; and to strengthen awareness and capabilities for managing the Bank’s strategic risks.

The adjustments, announced in August, incorporated full representation of all the key areas of the Bank at the divisional level. Thus, the line of responsibility is headed by the General Manager, with the next tier made up of the seven division directors: Monetary Policy, Financial Policy, Financial Markets, Statistics, Administration and Technology, Operations, and Institutional Affairs.

The Corporate Risk Management, which also reports directly to the General Manager, was created to improve the organization’s strategic risk management capacity.

The organizational changes required the simultaneous execution of various hiring processes in the last quarter of the year, so as to implement the new organizational structure as quickly as possible.

The strategic priorities, the associated initiatives, and progress made in 2018 are detailed in the following tables.