The national government took a new step to launch the Labor Assistance Funds (FAL) created by the labor reform and regulated the financial assets in which resources destined for severance payments and voluntary retirements can be invested.
The measure was established through a resolution from the Ministry of Economy published in the Official Gazette and is key to completing the scheme that will begin to operate from November 1.
The regulation determines which instruments can be included in the funds, what levels of liquidity the managing entities must maintain, and what limits will be set to avoid excessive concentration of investments.
What the funds for severance payments can invest in
The FAL can invest exclusively in Argentine financial instruments or negotiable securities, always denominated and payable in pesos. The regulation excludes investments in foreign currency and instruments issued abroad.
The money can be placed in four major categories: national government debt, provincial debt and debt of the City of Buenos Aires, deposits in financial entities authorized by the Central Bank, and negotiable obligations of private companies issued in Argentina.
Additionally, the instruments must meet certain security requirements. In the case of negotiable obligations and provincial debt, they must have public offering authorization, be traded in markets authorized by the National Securities Commission, and have a AAA risk rating granted by at least two rating agencies registered with the CNV.
The regulation also allows for instruments with fixed-rate returns, wholesale TAMAR rates, inflation adjustments through CER, or mechanisms linked to the dollar, in addition to certain dual bonds.
The government established limits to diversify investments
The resolution sets specific limits to reduce concentration risks.
The FAL can place up to 15% of their assets in deposits from the same financial entity, while the investment in provincial debt and the City of Buenos Aires will have a general limit of 15%, with a maximum of 5% per jurisdiction.
In the case of negotiable obligations, the limit will be 20%, although no issuer can represent more than 10% of the fund.
The instruments denominated dollar-linked, tied to the evolution of the exchange rate, will have a limit of 10%.
Furthermore, the banks managing these funds cannot invest in instruments issued by themselves, their controlling entities, subsidiaries, or related companies, except for certain operational exceptions.
The FAL must maintain a liquidity floor
One of the central points of the regulation is the obligation to maintain at least 10% of the assets of each FAL in high liquidity and low market risk assets.
Among these instruments are sight deposits, pre-cancellable fixed terms, and short-term National Treasury bills.
