CONASEV Resolution No. 047-2011

Lima, June 17, 2011

HAVING SEEN:

File No. 201003718 and Memorandum No. 877-2011-EF/94.04.1 dated April 15, 2011 from the Legal Advisory Office;

CONSIDERING:

That, by Resolution of the CONASEV Administrative Tribunal No. 250-2010-EF/94.01.3 of August 19, 2010, it was resolved: (i) To declare that INTERCAPITAL Sociedad Agente de Bolsa S.A. (hereinafter, INTERCAPITAL) has committed a serious infringement typified in Annex I, item 2.12 of the Sanctions Regulation, approved by CONASEV Resolution No. 055-2001-EF/94.10 (hereinafter, the Sanctions Regulation) for violating the Financial Information Regulation and Manual for the Preparation of Financial Information, approved by CONASEV Resolution No. 103-99-EF/94.10 (hereinafter, the Financial Information Regulation), the Conceptual Framework for the Preparation and Presentation of Financial Statements (hereinafter, the Conceptual Framework), International Accounting Standard No. 1, and the Regulation of Intermediation Agents, approved by CONASEV Resolution No. 045-2006-EF/94.10 (hereinafter, the RAI), by preparing financial information without observing International Accounting Standards (hereinafter, the IAS); (ii) To sanction INTERCAPITAL with a fine of S/. 180,000.00 equivalent to 50 UIT for the aforementioned infringement and (iii) To dismiss the interim financial statements and the audited financial statements presented by INTERCAPITAL, both as of December 31, 2009, which must be presented with an adjustment of the amount of S/. 914,520.00;

That, by writing submitted to CONASEV on September 20, 2010, INTERCAPITAL filed an appeal against the Resolution of the CONASEV Administrative Tribunal No. 250-2010-EF/94.01.3 (hereinafter, The Resolution) requesting that its nullity be declared, for violating the principle of legality (tipicidad), constituting the nullity cause provided for in Article 10, paragraph 1 of the General Administrative Procedure Law, Law No. 27444 (hereinafter, the LPAG). The appeal states briefly that: (i) According to recitals 15, 18, 23, 24, and 25, the act or situation considered as an infringement is the failure to prove that an accounting record is supported, however, in the operative part of The Resolution, INTERCAPITAL is sanctioned for deficiencies in the presentation of financial information; (ii) The principle of legality has been infringed, which determines the correlation between the violated norm and the sanctionable scenario, without admitting an extensive application of the latter, which would be occurring in the present case;

That, the appeal filed meets the requirements established in Articles 113, 207, 209, and 211 of the LPAG[1], since it was filed within the 15-day period notified of the administrative act, is founded, and was authorized by a lawyer;

That, regarding the arguments of the appeal, INTERCAPITAL maintains that there is an inconsistency between the motivation and the operative part of The Resolution. To correctly evaluate the arguments raised by INTERCAPITAL, it is necessary to analyze the facts subject to sanction, as well as the applicable regulatory framework;

That, in the present case, INTERCAPITAL submitted to CONASEV on February 1, 2010 its Individual Interim Information as of December 31, 2009. This information was reviewed by CONASEV as part of its market supervision duties. In this regard, by Letter No. 639-2010-EF/94.06.1 dated February 8, 2010, CONASEV requested INTERCAPITAL to provide information and documentation proving the reasonableness of the accounting item "Cash and Banks" regarding the financial information presented, specifically the record designated as "others" whose amount amounted to S/ 918,384.00. On that occasion, CONASEV required the regulated entity to present a copy of the corresponding bank statement. Additionally, an inconsistency was detected between the amount recorded in the accounting item "Cash and Banks" amounting to S/. 1,803,115.00 and the amount recorded in Note 3 of S/. 1,742,242.00 referring to the same item in the financial statement as of that date, and the corresponding support was requested;

That, by writing dated February 22, 2010, the regulated entity stated that the amount of S/. 918,384.00 under the designation "others" of the accounting item "Cash and Banks" was composed of deposits made abroad for future investments. To substantiate its statements, it sent a copy of a transaction statement issued by Lek Securities Corporation, for the period from 01/06/2009 to 01/11/2009, and copies of five (5) operation notes issued by ScotiaBank for the concept of issuing payment orders for the transfer from bank account No. 000-3047787 of INTERCAPITAL to the account of Lek Securities Corporation for a total of US$ 317,409.40. It also indicated that the detected inconsistency was due to a typographical error;

That, on the same day, February 22, 2010, the regulated entity submitted new individual interim financial information as of December 31, 2009. Upon this presentation, CONASEV again requested information proving the balance presented under the concept "others" of the accounting item "Cash and Banks." However, the regulated entity limited itself to sending a letter from Lek Securities Corporation where the foreign company declared that all funds received in the INTERCAPITAL SABSA (CAPPERU) securities account had the purpose of acquiring securities or options in the United States of America or abroad;

That, regarding the applicable regulatory framework, we must point out the following: (i) Article 223 of Law No. 26887, General Corporations Law (hereinafter, the LGS) establishes that the preparation and presentation of financial statements must be made in accordance with the legal provisions on the matter and with the generally accepted accounting principles in the country; (ii) Article 1 of Resolution No. 013-98-EF/93.01 of the Accounting Standards Council specifies that Generally Accepted Accounting Principles substantially comprise the IAS officialized through Resolutions of the Accounting Standards Council and the standards established by Supervisory and Control Bodies (in this case, CONASEV), in the same line is Article 2 of the Financial Information Regulation[2]; (iii) Paragraph 13 of IAS 1[3] states that financial statements will reasonably reflect the situation, financial performance, and cash flows of the entity and that this reasonable presentation requires providing a faithful image of the effects of transactions according to the definitions and criteria fixed in the Conceptual Framework; (iv) The Conceptual Framework[4] establishes that financial statements must comply with the qualitative characteristics of reliability[5] (they must faithfully represent transactions) and completeness (the information presented must be complete) and (v) Intermediation agents must prepare and present their financial statements taking into account Article 91 of the RAI[6];

That, in the present case, the first instance has considered that the evidentiary material presented by INTERCAPITAL does not prove that as of December 31, 2009, the amount of S/. 914,520.00 was under the control of the regulated entity, a position that is shared, since the documentation sent proves that this brokerage society transferred funds abroad for the execution of certain operations, but it cannot prove that, as of December 31, 2009, the regulated entity had control over said amounts;

That, to the extent that the regulated entity could not prove the existence of a record representing 51% of the "Cash and Banks" accounting item and 45% in relation to total assets as of December 31, 2009 presented in the Balance Sheet, the Administrative Tribunal considered that the presented financial statements did not meet two of the qualitative characteristics of financial statements: reliability and completeness, both established in the Conceptual Framework and that therefore, INTERCAPITAL had committed a sanctionable infringement and a sanction corresponded to be applied;

That, the reasoning of the Administrative Tribunal is shared and it is considered that there is no inconsistency between the motivation of the administrative act and the sanction itself, as INTERCAPITAL points out, since said regulated entity has not managed to prove that its financial statements reasonably reflect the situation, financial performance, and cash flows of the entity as stated in IAS 1, which also establishes that reasonable presentation requires providing a faithful image of the effects of transactions. Therefore, said argument must be discarded;

That, as a second argument, INTERCAPITAL maintains that the Administrative Tribunal has carried out an extensive application of the sanctionable scenario. However, said argument also does not warrant further analysis, since the infringing type states the following:

“2.12 Submit to CONASEV, to the Stock Exchange, to the Commodity Exchange, to the entity in charge of the centralized trading mechanism, to the investor and in general to any other Participant of the securities or commodities market, financial information prepared without observing the International Accounting Standards in Peru, the technical pronouncements issued by the accounting profession of the country, accounting standards established by supervisory and control bodies, and the standards contained in the Financial Information Regulation.” (Emphasis added);

That, as can be seen, the sanctionable scenario consists of having presented financial information without observing the accounting standards in force in the country for companies supervised by CONASEV;

That, in the present case, the financial statements prepared by INTERCAPITAL do not comply with what is established in Article 2 of the Financial Information Regulation, paragraphs 33 and 38 of the Conceptual Framework, paragraph 13 of IAS 1, and Article 91 of the RAI, so INTERCAPITAL has committed the infringement typified in Annex I, item 2.12 of the aforementioned Sanctions Regulation, without having carried out an extensive application of the sanctionable scenario as INTERCAPITAL states, an argument that must also be discarded; and,

Being in accordance with what is provided in Article 11, paragraph k) of the Unified Text of Related Provisions of the Organic Law of CONASEV, approved by Legislative Decree No. 26126, as well as by what was agreed by the Board of Directors of CONASEV, meeting in session on June 13, 2011;

IT IS RESOLVED:

Article 1°.- Declare unfounded the appeal filed by Intercapital Sociedad Agente de Bolsa S.A. against the Resolution of the CONASEV Administrative Tribunal No. 250-2010-EF/94.01.3.

Article 2°.- Declare the administrative remedy exhausted.

Article 3º.- Transcribe this resolution to Intercapital Sociedad Agente de Bolsa S.A. and to the Lima Stock Exchange S.A.

Article 4°.- Order the dissemination of this resolution on the CONASEV Portal.

Register, communicate, and archive.

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Michel Canta Terreros
President

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[1] Article 113.- Requirements of writings
Any writing submitted to any entity must contain the following:

1. Full names, address, and National Identity Document number or foreigner's ID card of the regulated entity, and if applicable, the quality of representative and of the person represented.
2. The concrete expression of what is requested, the factual grounds supporting it, and, when possible, the legal grounds.
3. Place, date, signature or fingerprint, in case of not knowing how to sign or being impeded.
4. The indication of the organ, entity, or authority to which it is addressed, understood as such, as far as possible, the authority of the grade closest to the user, according to hierarchy, with competence to hear and resolve it.
5. The address of the place where notifications of the procedure are desired to be received, when different from the real address exposed pursuant to paragraph 1. This designation of address takes effect from its indication and is presumed subsistent, unless its change is expressly communicated.
6. The list of documents and attachments accompanying it, indicated in the TUPA.
7. The identification of the file of the matter, in the case of already initiated procedures.

Article 207.- Administrative remedies
(...)

207.2 The term for filing appeals is fifteen (15) peremptory days, and they must be resolved within thirty (30) days.

Article 209.- Appeal
The appeal shall be filed when the challenge is based on a different interpretation of the produced evidence or when it concerns matters of pure law, and must be directed to the same authority that issued the act being challenged so that it elevates the proceedings to the hierarchical superior.

Article 211.- Requirements of the appeal
The appeal writing must indicate the act from which the appeal is taken and must comply with the other requirements provided in Article 113 of this Law. It must be authorized by a lawyer.

[2] Article 2° GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Financial statements must be prepared and presented in accordance with Generally Accepted Accounting Principles, accounting standards established by Supervisory and Control Bodies, and the standards of this Regulation.

Generally Accepted Accounting Principles are contained in the officialized and current International Accounting Standards (IAS) in Peru and also comprise the technical pronouncements issued by the accounting profession in Peru.

In those circumstances where certain accounting operating procedures are not specifically regulated in any of the IAS, the criteria exposed in the conceptual framework of said standards must be applied, possibly supported by similar or specific procedures considered in the Accounting Principles applied in the United States of North America.

This Regulation does not replace accounting doctrine and its application must be understood in the integral context of the IAS and its conceptual framework.”

[3] Paragraph 13 of IAS 1:
Financial statements will reasonably reflect the situation, financial performance, and cash flows of the entity. This reasonable presentation requires providing a faithful image of the effects of transactions, as well as of other events and conditions, according to the definitions and recognition criteria for assets, liabilities, income, and expenses fixed in the Conceptual Framework. It is presumed that the application of IFRS, accompanied by additional information when necessary, will result in financial statements that provide a reasonable presentation.

[4] The Conceptual Framework aims to facilitate the coherent and logical formulation of International Financial Reporting Standards.

[5] Regarding these characteristics, paragraph 33 of the Conceptual Framework provides that “To be reliable, information must faithfully represent the transactions and other events that it intends to represent, or that can reasonably be expected to represent.” Likewise, paragraph 38 of the same Framework establishes that: “To be reliable, information in financial statements must be complete within the limits of materiality and cost. An omission may cause information to be false or misleading and therefore not reliable and deficient in terms of relevance.”

[6] Article 91 °.- REGISTRATION
The Agent must timely register in its accounting books, all transactions or economic, financial, or any other kind of events in which it participates, that affect it or may affect it, or that it is necessary to control.

Such records must be duly supported with source documentation or pertinent evidence, and strictly adhere to what is provided by IFRSs.