4 challenges for financial institutions to register movable guarantees in SEGM

November 15, 2023

Authors: Máximo Melo and Sebastián Jiménez

The implementation of the Electronic System of Movable Guarantees (SEGM), by means of the regulations for the application of Law 45-20 on Security Rights, revolutionized how people with their personal property guarantee their credits, as well as the protection provided by such guarantee.

As technology continues to transform business processes and access to information, the SEGM has become an essential tool for formalizing loan guarantees. However, this system also presents some challenges that must be solved in order to guarantee users -especially those in the financial sector- its effectiveness and reliability in the long term, of which we have selected those that we consider most relevant to date and will present in this article.

1. SEGM does not present clear guidelines for registering generic assets.
The successful implementation of the SEGM will be subject -to a great extent- to the information provided by the parties interested in the formalization of the guarantees.

Although Law 45-20 allows the registration of various ranges of movable assets that may be affected under a security interest, the implementing regulations of Law 45-20 do not provide a clear guideline for registering generic assets. This would create the possibility of describing the same property in several ways.

To prevent this, it would be more convenient to create fields in the SEGM that allow for a better identification of generic assets. In this way, when the user consults this type of asset in the system, it will allow him/her to reliably identify the effects that this generic movable asset may have.

2. Lack of limitation of registration actions of sub-users.
The user in charge of advertising -through the registration notice- is solely responsible for the information entered in the SEGM database, incurring civil and criminal liability in accordance with Law 45-20.

On the other hand, based on the applicable regulations, the figure of sub-users is not considered as an individual user, but will be covered under the main user.

The challenge faced by financial intermediaries and law firms is that SEGM allows sub-users created by the lead user to modify and cancel notices of security interests created by other sub-user(s) or by the lead user.

Consequently, this would create insecurity in the management and control of the data provided.

To avoid this impasse, ideally, the SEGM should allow the main user to limit the registry actions within the SEGM to each sub-user created. In other words, empower the main user to determine which of the sub-users created can register, cancel or modify entries within the SEGM.

3. The information recorded in the SEGM is not validated, based on the loan contract.
The SEGM is a remotely accessible electronic file that operates with pre-established electronic forms. This system is implemented as an advertising requirement rather than a collateral registration requirement.

Currently, there is no competent body or authority that validates the information published in the SEGM, based on the loan contract through which the security interest is established. Therefore, creditors would have the sole responsibility to validate that the information uploaded to the system is in accordance with what their debtor granted as collateral for the loan.

4. The SEGM does not allow the mass registration of movable property granted as collateral.
A large number of investors in the Dominican Republic resort to financing granted by financial intermediation entities for the construction and operation of their projects, including hotels and renewable energy parks. In this type of financing, collateral is provided for movable assets that are of vital importance for the successful operation of the project, which usually comprise an extensive volume of movable assets.

Considering that registration is fundamental to guarantee the integrity, validity and enforcement of security interests, the SEGM does not facilitate or expedite the mass registration of movable assets granted as collateral in favor of a third party. This results in increased time and costs for users and law firms, as they have to individually register all movable assets granted as collateral in the SEGM.

For example, if in a hotel or alternative energy project, three or four thousand movable assets are granted as collateral in favor of its creditors, these must be entered one by one in the SEGM, recording all the details that allow the identification of such movable assets.

As the Ministry of Industry, Commerce and MSMEs (MICM) is the body in charge of implementing the SEGM, it would be ideal if the MICM could create a mechanism that allows the list of movable assets to be loaded into said system under pre-established specifications, as was previously done in the former portal of the Transition Registry to the Electronic System of Movable Guarantees (START).

An evolving system with challenges to overcome
The SEGM is a tool that seeks to promote the publicity of security interests and provide assurance of access to financing. However, in view of the current challenges and, given the lack of clarity in certain aspects of Law 45-20 and its implementing regulations, it is essential that the SEGM continues to evolve and apply efficient improvements that enhance its benefits.

Overcoming in the system some of these current challenges will allow users to take advantage of the innovation that SEGM brings with it, improve the system’s operability and streamline the time spent in the registration of collateral.