A 2007 World Bank report notes that Honduras has no active securities market. This is seconded by the U.S. Department of Commerce observation in 2007 that the market is almost exclusively comprised of short-term government bonds, with no secondary market. The National Banking and Insurance Commission (NBIC) is the primary supervisory agency supervising, monitoring, and inspecting securities institutions, brokerage firms, and stock exchanges in Honduras. The only securities exchange operating in Honduras is the Central American Securities Exchange (BCV) in Tegucigalpa. The NBIC supervises the BCV, but its supervision of the exchange has always been inadequate, despite the enactment of a 2001 law regulating security exchanges. A 2004 World Bank report mentions the joint World Bank-International Monetary Fund (IMF) Financial Sector Assessment Program (FSAP) review of Honduras in 2003. This FSAP identified institutional weaknesses hindering reforms in the financial sector and provided recommendations on strengthening the Honduran financial system. In 2004, the Honduran government embarked on a comprehensive financial system reform program, based on the recommendations contained in the FSAP. The reforms were undertaken with technical assistance from the World Bank, the IMF, and the Inter-American Development Bank. There is, however, little further information publicly available to make an assessment as to Honduras's overall level of compliance with Objectives and Principles of Securities Regulation of the International Organization of Securities Commissions.

General Overview

There is insufficient information publicly available to assess Honduras's overall level of compliance with the Objectives and Principles of Securities Regulation of the International Organization of Securities Commission (IOSCO). A 2004 World Bank report mentions a joint World Bank-International Monetary Fund (IMF) Financial Sector Assessment Program (FSAP) review of Honduras in 2003 that identified institutional weaknesses hindering reforms in the financial sector and provided recommendations on strengthening the Honduran financial system. A 2006 IMF report attests that "based on the FSAP findings, the government embarked on a comprehensive financial system reform that aims at strengthening the regulatory framework and ongoing supervision, enhancing the efficiency of the financial safety net, and improving mechanisms for anti-money laundering and financing of terrorism" (p. 54). The reform program received technical assistance from the World Bank, the IMF, and the Inter-American Development Bank. As the 2007 World Bank report observes, "Honduras presently has no active securities market" (p. 1). The National Banking and Insurance Commission (NBIC) is the primary supervisory agency supervising, monitoring, and inspecting securities institutions, brokerage firms, and stock exchanges in Honduras. The passing of the Law of Transparency and Public Access to Information in 2006 set the basis for the NBIC to provide open access to its information, through the "Transparency Portal" section of its website. The NBIC is listed as an ordinary member on the IOSCO website.

A 2007 U.S. Department of Commerce (DoC) report notes that the Honduran market offers only a limited number of credit instruments. Although instruments such as bankers' acceptances, reposition agreements, short-term promissory notes, government private debt conversion bonds, and land reform repayment bonds can theoretically be traded, in practice the primary market is almost exclusively composed of short-term government securities and there is no formal secondary market. The only securities exchange operating in Honduras is the Central American Securities Exchange (Bolsa Centroamericana de Valores, or BCV) in Tegucigalpa. Another securities exchange, the Honduran Securities Exchange operating out of San Pedro Sula, ceased operations in 2004. The DoC report observes that neither commercial paper nor corporate stock is sold by private firms on the BCV, although all private businesses are eligible to trade their financial instruments on the exchange. Firms that participate are subject to a rigorous screening process. Further, traded firms historically have had economic ties to the different business/financial groups represented as shareholders of the exchange, and this situation has resulted in lax risk management practices and protracted loss of public confidence in the BCV. The NBIC supervises the BCV, but "its supervision of the exchange has traditionally been inadequate" (p. 68), despite the enactment in 2001 of a law regulating securities exchanges.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

Per the 2004 World Bank report, the NBIC is the primary supervisory agency supervising, monitoring, and inspecting securities institutions, brokerage firms, and stock exchanges in Honduras. However, there is insufficient information publicly available as to Honduras's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

The 2006 IMF report avers that several laws and regulations enacted in 2004 increased the powers of the NBIC. However, there is insufficient information publicly available as to Honduras's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

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There is insufficient information publicly available as to Honduras's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

Per the 2007 U.S. DoC report, the NBIC supervises the BCV, the only security exchange operating in Honduras, but "its supervision of the exchange has traditionally been inadequate" (p. 68), despite the enactment in 2001 of a law regulating security exchanges. There is little further information publicly available as to Honduras's compliance with this principle.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

As the 2004 World Bank report notes, the NBIC has the sole authority to conduct on-site inspections of securities institutions in Honduras. There is little further information publicly available as to Honduras's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

II

The 2004 World Bank report recommends that the NBIC expand the scope of its preventive and corrective instruments, and enact regulations clearly stating the circumstances triggering the use of such instruments. There is, however, insufficient information publicly available as to Honduras's compliance with this principle.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

EN

The World Bank, in a 2007 assessment of Honduran accounting and auditing practices, commends Honduras's efforts to improve financial reporting standards and notes that continued national initiatives were required for further alignment with international standards. The Accounting and Auditing Standards Law (A&A Law) mandates the application of International Financial Reporting Standards (IFRSs) beginning January 1, 2008 and earlier adoption is permitted. The World Bank report, however, identified a number of deficiencies in the reporting framework. The January 2008 deadline for application of IFRSs and International Standards on Auditing was found to be "too ambitious," given the fact that Honduras is faced with inadequate human and financial resources. In the short term, the World Bank recommended amending the A&A Law to lay down a clear framework and extending the adoption deadline of IFRSs to 2011-2012. The Law also establishes the Accounting and Auditing Standards Technical Committee as the national standard-setter, primarily responsible for the adoption of international standards. Honduran accounting practices are primarily governed by the A&A Law, which requires public and private companies to prepare annual financial statements. In addition to the A&A Law, financial institutions must follow accounting requirements laid out by the NBIC, the main regulatory body for the financial sector. Financial institutions must also follow relevant Commercial Code requirements. When the legislation conflicts with NBIC rules, the latter takes precedence.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

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There is insufficient information publicly available as to Honduras's compliance with this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

27. Regulation should promote transparency of trading.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

There is insufficient information publicly available as to Honduras's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

NC

The 2004 World Bank report observes that the securities settlement infrastructure in Honduras "is very weak and undermines financial sector development in Honduras, especially in the capital markets and the interbank money market" (p. 68). The report recommends "establishing a depository function for securities settlement... in order to mitigate risks and allow for a collateralized interbank money market" (p. 68).