PERÚ Ministry of Economy and Finance
SMV
Superintendency of the Market in Securities

"Decade of Equal Opportunities for Women and Men" "Year of the Bicentennial, of the consolidation of our Independence, and of the commemoration of the heroic battles of Junín and Ayacucho"

SMV Deputy Superintendency Resolution

No. 007-2024-SMV/10

Lima, 20 February 2024

Summary: Faro Capital Sociedad Administradora de Fondos S.A. is sanctioned with a fine of 1 UIT, equivalent to S/ 4,300.00 (Four thousand three hundred and 00/100 soles) for having incurred in one (01) infraction classified as very serious, typified in Annex I, numeral 1, subsection 1.1 of the Sanctions Regulation, since it started activities of a mutual fund without having the minimum required net worth.

Administered party
:
Faro Capital Sociedad Administradora de Fondos S.A.
Subject
:
Administrative sanctioning procedure
File No.:
2023042141

The Deputy Superintendent of Prudential Supervision

VIEWS:

Administrative file No. 2023042141, and Report No. 1684-2023-SMV/10.3, issued by the General Intendancy of Prudential Compliance; as well as the defenses presented by Faro Capital Sociedad Administradora de Fondos S.A.; and,

CONSIDERING:

1. According to article 1 of Law No. 29782, Law for the Strengthening of the Supervision of the Securities Market, the name of Comisión Nacional Supervisora de Empresas y Valores (CONASEV) is replaced by that of Superintendencia del Mercado de Valores (SMV), so any reference to CONASEV in legal norms shall be understood as made to the SMV;

I. FACTS

2. As a result of the supervision and control activities of the SMV, through Official Letter No. 4561-2023-SMV/10.3, notified on 6 October 2023 (hereinafter, OFFICIAL LETTER OF CHARGES), an administrative sanctioning procedure was initiated against Faro Capital Sociedad Administradora de Fondos S.A. (hereinafter, FARO SAF), since it started activities of a mutual fund without having the minimum net worth established for the year 2020; and, consequently, without having constituted a guarantee in accordance with the provisions of the regulations on the matter;

3. By document presented on 16 October 2023, FARO SAF requested an extension for the presentation of its defenses; which was granted through Official Letter No. 4711-2023-SMV/10.3, notified on 16 October 2023; therefore, by document presented on 25 October 2023, FARO SAF presented the defenses to the charges formulated through the OFFICIAL LETTER OF CHARGES;

4. The charges formulated have been subject to evaluation by the General Intendancy of Prudential Compliance in Report No. 1684-2023-SMV/10.3, which has been submitted to the knowledge of this Deputy Superintendency;

5. In observance of the Principle of Due Process contemplated both in article IV, subsection 1, numeral 1.2 of the Preliminary Title, as well as in article 248, numeral 2, of the Single Ordered Text of Law No. 27444, General Administrative Procedure Law, approved by Supreme Decree No. 004-2019-JUS (hereinafter, TUO OF THE LPAG), through Official Letter No. 5485-2023-SMV/10, the administrative file to which this resolution refers was made available to FARO SAF for its review;

II. ISSUES TO BE DETERMINED

6. In the present administrative procedure, in the opinion of this Deputy Superintendency, it corresponds to determine the following:

a. Whether or not FARO SAF incurred in an infraction provided in Annex I, numeral 1, subsection 1.1 of the Sanctions Regulation, approved by SMV Resolution No. 035-2018-SMV/01 (hereinafter, SANCTIONS REGULATION), by starting activities of the Fondo de Fondos Faro Capital Global Innovation FMIV" (hereinafter, FUND) without having the minimum net worth established for the year 2020; and, consequently, without having constituted a guarantee in accordance with the provisions of the regulations on the matter;

b. Whether or not it corresponds to impose a sanction on FARO SAF;

III. ANALYSIS

OF THE APPLICABLE REGULATIONS

7. Article 241 of the Single Ordered Text of the Securities Market Law, approved by Supreme Decree No. 020-2023-EF (hereinafter, TUO LMV) provides the following:

"Article 241.- Requirements of the fund.- In order for the management company to start the activities of a mutual fund, it must comply with the following:

a) Register the mutual fund in the Registry;

b) The net worth of the mutual fund must be no less than four hundred thousand soles (S/ 400 000,00); and,

c) Constitute the guarantee referred to in article 262.

(…)";

8. In this same sense, article 65 of the Regulation of Mutual Funds of Investment in Securities and their Management Companies, approved by CONASEV Resolution No. 068-2010-EF/94.01.1 and its amendments (hereinafter, REGULATION) establishes the following:

"Article 65.- Stages

Mutual Funds have two stages:

(…)

b) The operational stage or start of activities: it begins from the moment the mutual fund is enabled to make any of the investments contemplated in its investment policy, and complies with the provisions of article 67 of the Regulation";

9. Article 67 of the REGULATION provides the following:

"Article 67.- Requirements for the start of activities

To enter the operational stage or start of activities, the mutual fund must have a net worth of no less than Four Hundred Thousand Soles (S/ 400 000) and the management company must have constituted the guarantee referred to in article 265-A of the Law.

The start of activities of the mutual fund must be communicated as a Material Event.

If the net worth falls below the minimum indicated in the preceding paragraphs, the management company must submit a request with the conditions and term for the regularization of the deficit, within ten (10) business days of the deficit occurring. If such request is not presented, the line body of the SMV will determine the conditions and terms for its regularization";

10. In this regard, the first complementary and final provision of the REGULATION states the following:

"Complementary and Final Provision

First.-

The figures in Nuevos Soles indicated in the REGLAMENTO are of constant value and are updated at the close of each fiscal year, based on the average wholesale price index at the national level periodically published by the Instituto Nacional de Estadística e Informática. The index corresponding to the month of January 1996 is considered as the base. Said update must occur within twenty (20) days of the start of the new fiscal year.";

11. Likewise, regarding the obligation of fund management companies to constitute a guarantee in favor of the SMV, article 262 of the TUO LMV1 establishes the following:

"Article 262.- Guarantee.- The management companies must constitute

a guarantee in favor of the SMV, backing the commitments made with the participants under their charge, for an amount not less than the percentage that the SMV establishes by general rule based on the net assets managed of each mutual fund.

The guarantee referred to in the preceding paragraph is intangible and may not be subject to judicial measure or lien. Said guarantee may adopt the following modalities:

[1] Text incorporated as article 265-A of Decreto Legislativo N° 861, according to article 81 of Ley N° 27649.

a) Bank deposit to the order of the SMV;

b) Bank guarantee letter in favor of and of the SMV; and,

c) Surety bond issued by insurance companies in favor of the SMV

The SMV may require a guarantee for higher amounts due to the volume and nature of the mutual funds, or other substantiated circumstances.";

12. Similarly, article 141 of the REGLAMENTO establishes the following:

"Article 141.- Constitution of Guarantees The management companies must constitute a guarantee in favor of CONASEV, backing the commitments made with the participants under their charge, for an amount not less than zero point seventy-five percent (0.75%) of the net assets managed of each mutual fund. This guarantee may not be less than zero point seventy-five percent (0.75%) of the net assets required in subsection b) of article 245 of the Ley.

The guarantee referred to in the preceding paragraph may adopt the modalities indicated in article 265 A of the Ley.

The renewal of the guarantees or their replacement by the constitution of a new one must be carried out at the latest on the business day prior to their expiration.

In case the management company opts for the modality of bank guarantee letter or surety bond, said instrument must consider as a cause for execution the non-renewal of the guarantee or non-constitution of a new one within the period established in the preceding paragraph. The Gerencia General of CONASEV, upon expiration of the period, and if the guarantee has not been renewed or a new one constituted, must execute it and replace it with the modality of bank deposit to the order of CONASEV";

OF THE CHARGE FORMULATED

13. According to the provisions of article 241 of the TUO LMV and article 67 of the REGLAMENTO, one of the requirements for a mutual fund to enter its operational stage or begin its activities is to have a minimum net assets, which is updated annually according to the average wholesale price index at the national level, as indicated in the first complementary and final provision of the REGLAMENTO. By means of Circular N° 005-2020.SMV/10.2, notified to FARO SAF on 7 January 2020, the SMV communicated to the management company, among others, that the updated amount of the minimum net assets of mutual funds for investment in securities for the year 2020 amounted to S/ 798,929.00 (Setecientos noventa y ocho mil novecientos veintinueve y 00/100 soles);

14. On the matter, it is observed that by means of the material fact presented on 27 January 20202 , FARO SAF communicated to the SMV that the mutual fund for investment in securities denominated "Fondo de Fondos Faro

[2] File No. 2020002842.

Capital Global Innovation FMIV" (hereinafter, FONDO3 ), began its operational stage on said date;

15. However, from the review of the technical specification files4 sent by the management company, the SMV observed that the net assets of the FONDO as of 27 January 2020 amounted to S/ 484,305.00 (Cuatrocientos ochenta y cuatro mil trescientos cinco y 00/100 soles), which is below the minimum net assets established for the start of activities of mutual funds in the year 2020;

16. By means of Oficio N° 573-2020-SMV/10.2, notified on 6 February 2020 (hereinafter OFICIO), FARO SAF was informed of the requirements established in article 67 of the REGLAMENTO, for entering the operational stage or start of activities of mutual funds, regarding the duty to have a minimum net assets and that the management company has constituted the guarantee established in the regulations;

17. Likewise, in the OFICIO, the management company was informed that the net assets reached by the FONDO as of 27 January 2020 for S/. 484,305.00 (Cuatrocientos ochenta y cuatro mil trescientos cinco y 00/100 soles), was less than the minimum net assets established for mutual funds updated for the year 2020; and it was required to comply with the provisions contained in article 67 of the REGLAMENTO; and, consequently, to regularize said situation immediately;

18. On 14 February 2020, in response to the OFICIO, FARO SAF indicated that as of 12 February 2020, the net assets of the FONDO amounted to US$ 262,915.14 (Doscientos sesenta y dos mil novecientos quince y 14/100 dólares americanos), which is approximately equivalent to S/ 889,100.12 (Ochocientos ochenta y nueve mil cien y 12/100 soles)5 ;

19. It should be added that, according to the information recorded in the Sistema de Fondos Mutuos of the SMV, based on the information submitted by the management company6 , as of 11 February 2020 the assets of the FONDO amounted to S/. 887,758.17 and as of 12 February 2020 to S/. 889,100.12;

20. In accordance with the foregoing, it is observed that the FUND began its operational stage, that is, it began activities on 27 January 2020, without having the updated minimum equity for the year 2020 of S/ 798,929.00 (Seven hundred ninety-eight thousand nine hundred twenty-nine and 00/100 soles), which constitutes one of the requirements established in article 67 of the MUTUAL FUNDS REGULATION;

21. As a consequence of the foregoing, that is, that FARO SAF began operations of the FUND with a minimum equity lower than that established for the year 2020, it is noted that the guarantee constituted in favor of the SMV - in support of the commitments made with the participants under its charge - was also insufficient;

[3] By Resolution of the General Superintendence of Supervision of Entities No. 083-2019-SMV/10.2 of 9 October 2019, the registration of the FUND in the Public Registry of the Securities Market (RPMV) was ordered.

[4] Technical Specifications of the Information to be submitted by the Mutual Funds Management Companies sent to the SMV in accordance with article 134, literal a) of the REGULATION.

[5] According to the average interbank selling exchange rate (S/. per US$) published by the Central Reserve Bank of Peru.

[6] According to the Technical Specifications of the Information to be submitted by the Mutual Funds Management Companies sent to the SMV in accordance with article 134, literal a) of the REGULATION.

22. On this matter, it should be noted that, in accordance with the provisions of article 241 of the TUO LMV and article 67 of the REGULATION, another of the requirements for a mutual fund to enter its operational stage or begin its activities is that the management company must have constituted the guarantee referred to in article 262 of the TUO LMV. Said guarantee must be constituted for an amount not less than 0.75% of the required net equity of the mutual fund, as indicated in the cited article 262 of the TUO LMV in accordance with article 141 of the REGULATION;

23. In this regard, it is observed that on 27 January 2020, the date on which the FUND began its operational stage7, FARO SAF submitted to the SMV the surety bond No. 93704-18 issued on 24 January 2020 for the amount of US$ 1,500.00 (One thousand five hundred and 00/100 US dollars) for the purpose of guaranteeing the obligations contracted with the participants of the FUND;

24. Subsequently, on 6 February 2020, the management company submitted the surety bond No. 93704-29 with modifications to its conditions, for the same amount, which replaced the first surety bond submitted. It should be noted that the validity of said surety bond began on 24 January 2020 and expired on 23 January 2021;

25. In accordance with the provisions of the OFFICIAL LETTER, the SMV, among others, required the management company to comply with the provisions contained in article 67 of the REGULATION; and, consequently, to regularize said situation immediately;

26. On 14 February 2020, in its response10 to the OFFICIAL LETTER, FARO SAF indicated, among others, that it requested the issuance of a new surety bond for the minimum amount of the net equity reached by the FUND as of 12 February 2020, which will replace the surety bond issued at the end of January 2020;

27. On 18 February 2020, FARO SAF submitted to the SMV the surety bond No. 93704-311 issued on that date (which replaced the surety bond No. 93704-2) for an amount of US$ 2,200.00 (Two thousand two hundred and 00/100 US dollars); In accordance with the foregoing, and considering that, for the year 2020, the minimum net equity amount established for mutual funds was S/ 798,929.00 (Seven hundred ninety-eight thousand nine hundred twenty-nine and 00/100 soles); in accordance with article 67, and article 262 of the TUO LMV, in accordance with article 141 of the REGULATION, for the beginning of activities of the FUND on 27 January 2020, the management company should have constituted a guarantee for an amount not less than zero point seventy-five percent (0.75%) of the referred minimum equity, that is, S/5,992.00 (Five thousand nine hundred ninety-two and 00/100 soles) or its equivalent in US dollars US$ 1,794.0012;

28. However, it is noted that although FARO SAF on 24 January 2020, constituted a guarantee, the surety bond No. 93704-1 - and then the surety bond No. 93704-2 that replaced the first - for the amount of US$ 1,500.00 with validity beginning from 24 January 2020, that is, from before the beginning of

[7] According to the material fact of the same date, with file No. 2020002842.

[8] File No. 2020002845.

[9] File No. 2020004471.

[10] File No. 2020004343.

[11] File No. 2020006678.

[12] Based on the average interbank exchange rate (S/. per US$) published by the Central Reserve Bank of Peru for 27 January 2020, the date on which the FUND began operations.

activities of the FUND, which occurred on 27 January 2020; said guarantee did not comply with the amount established in article 262 of the TUO LMV in accordance with article 141 of the REGULATION;

29. It should be noted that on 18 February 2020, a date after the notification of the OFFICIAL LETTER, FARO SAF constituted the surety bond No. 93704-3, with a validity start date of 24 January 2020 and for an amount of US$ 2,200.00;

30. Thus, it is observed that the FUND began its operational stage, that is, it began activities on 27 January 2020, without FARO SAF having constituted the guarantee for the minimum amount established in the regulations of S/. 5,992.00 (Five thousand nine hundred ninety-two and 00/100) or US$ 1,794.00;

31. In accordance with the foregoing, it is noted that FARO SAF breached the provisions of article 241 of the TUO LMV and article 67 of the REGLAMENTO, since it began activities of the FONDO without having the minimum net equity established for the year 2020; and, consequently, without having constituted a guarantee in accordance with the provisions of article 262 of the TUO LMV in conjunction with article 141 of the REGLAMENTO;

32. Therefore, FARO SAF was charged with having incurred one (1) infraction classified as very serious, in accordance with Annex I, numeral 1, subparagraph 1.1 of the Sanctions Regulation, approved by SMV Resolution No. 035-2018-SMV/01 (hereinafter, SANCTIONS REGULATION) according to which the following constitutes an infraction: “Perform functions, operations, activities, acts or contracts, not authorized or that do not comply with the requirements established in the regulations”;

DEFENSES SUBMITTED

33. In response to the charges made, by brief submitted on 25 October 2023, FARO SAF states that, in accordance with the provisions of numeral 1 of subparagraph a) of article 26 of the SANCTIONS REGULATION, it acknowledges its responsibility for all the charges in the STATEMENT OF CHARGES expressly and in writing at this initial stage of the administrative sanctioning procedure and within the period granted by the aforementioned statement for the submission of defenses. Likewise, it specifies that the acknowledgment of the infraction is made in a precise, concise, clear, express and unconditional manner;

34. In this regard, FARO SAF states that it undertakes to contribute at all times with the SMV to the clarification of the facts that gave rise to the initiation of this administrative sanctioning procedure. Additionally, it alleges that it is evaluating the implementation of additional measures seeking to avoid the recurrence of the charges imputed;

35. Without prejudice to the foregoing, and in accordance with what was indicated by the management company, without it being able to be taken as an ambiguity or contradiction with the acknowledgment made, in which the management company states it ratifies itself, FARO SAF proceeds to rule on the recitals for the criteria for grading the sanction so that they are taken into account in its determination;

36. On this point, FARO SAF states that article 25 of the SANCTIONS REGULATION sets the criteria for the determination of sanctions, which it considers applicable to this procedure;

37. Regarding recidivism, the management company states that it is not a repeat offender in the commission of the same infraction imputed. It adds that the foregoing can be verified by observing that there are no final sanctions referring to the same charges imputed by the SMV within the year prior to the commission of the infraction described in the STATEMENT OF CHARGES;

38. In relation to the circumstances of the commission of the infraction, the management company alleges that, in accordance with what was indicated above, it expressly acknowledges the commission of the infraction imputed in the STATEMENT OF CHARGES. Likewise, it states that it has already taken necessary corrective actions to avoid omissions to the current regulations such as those noted in the STATEMENT OF CHARGES and that are the subject of this procedure. In that sense, it alleges that each year, after receiving the circular updating the corresponding amount, it is incorporated into the internal control files;

39. FARO SAF states that on the occasion of this criterion, and without it being taken as a contradiction to its acknowledgment, it considers it pertinent to provide more information on the extraordinary facts that caused the commission of the acknowledged infractions;

40. In that context, the management company states that the nature of the FONDO must be considered, which would operate as a feeder fund to the mutual fund Faro Capital Global Innovation FMIV (hereinafter, FONDO FARO), that is, the FONDO would have as its objective to offer the investor the option of investing in a portfolio formed solely by participation quotas of series B of the FONDO FARO, which is managed by the same management company itself, and whose investment objective is the long-term appreciation of the invested capital;

41. Taking into account the foregoing, FARO SAF maintains that it erroneously interpreted article 241 of the TUO LMV and article 65 of the REGLAMENTO, considering that the obligation to have the minimum equity would already be understood as fulfilled as long as the FONDO FARO exceeded said figure at the time of starting operations with the FONDO;

42. In line with the situation described in the preceding recital, the management company states that the determination of the amount subject to the guarantee was carried out taking into account the amount of the net equity of the FONDO at the time of its start of operational phase. However, having incurred the interpretation error described, the specific amount for which the guarantee was constituted also incurred in said situation;

43. Without prejudice to the foregoing, FARO SAF considers that it must be taken into account that after receiving the STATEMENT and after becoming aware of the interpretation error incurred, it began the steps to remedy the indicated situation. Thus, on 14 February 2020, it communicated that the FONDO already had an amount that exceeded the minimum required for the start of operations. In this regard, the management company states that, considering that as of 11 February the minimum capital had already been exceeded, this breach was remedied after a period of 16 calendar days had elapsed. Likewise, it states that it must be considered that during said period no complaints or claims were received from investors regarding the start of the operational phase;

44. On the other hand, FARO SAF states that since the bond N° 93704-3 was sent on 18 February 2020 to the SMV, which complied with the corresponding amount, it must be considered that said breach was remedied after only a period of 23 calendar days. Likewise, it maintains that it must be considered that during said period the execution of the guarantee was not requested;

45. Regarding the illicit benefit resulting from the commission of the infraction, FARO SAF states that it must be taken into account that it did not establish, nor receive a bonus, payment or success fee for the start of the operational stage of the FUND as of 27 January 2020. Notwithstanding this, it considers pertinent to rule on the commissions accrued between 27 January 2020 and 11 February 2020, the date on which the minimum equity was effectively exceeded, and on the constitution of the guarantees;

46. First, FARO SAF points out that between the indicated dates a total of US$ 17.62 (Seventeen and 62/100 US dollars) accrued as commission in its favor for the exercise of its functions. Said commissions did not respond to a special calculation or an additional bonus but to the ordinary and common exercise of its functions. Likewise, it states that it must be taken into account that it is a marginal amount and that it did not constitute, in any way, an incentive for regulatory non-compliance and that said amount will be returned to the FUND;

47. Second, regarding the guarantee, the management company maintains that the difference in the financial cost of maintaining a first guarantee for US$ 1,500.00 and one for US$ 2,200.00 was a total of US$ 1.00. It adds that it must be considered that the amount of the difference is marginal and that it did not constitute, in any way, an incentive for regulatory non-compliance;

48. FARO SAF indicates that for further detail, it attaches as an annex to its brief, the corresponding tables with the calculations set forth above;

49. Regarding the probability of detection of the infraction, FARO SAF states that the probability of detection by the SMV of the infractions imputed in the OFFICIO DE CARGOS is very high given that they can be easily evidenced as a result of (i) the publication of the respective material fact dated 27 January 2020, indicating the start of the operational stage of the FUND, (ii) the sending to the SMV of the daily annex files of information of the mutual funds referred to in literal a) of article 134 of the REGLAMENTO and (iii) the supervision and control activities carried out by the SMV;

50. Additionally, FARO SAF considers that, as the SMV points out in the OFICIO DE CARGOS, in the daily annex files submitted the net equity of the FUND was indicated;

51. With regard to the seriousness of the damage to the public interest and/or protected legal interest, the management company considers that no damage has been presented to the rights of investors, the general public and/or any protected legal interest as a consequence of the actions carried out by it. It adds that the foregoing would be explained, first, in that no complaint, denunciation and/or letter has been presented by the investors in which they formulate any claim referring to the start of operations of the FUND; and, second, in that even to date the guarantee has not been executed;

52. Finally, on this point it reiterates that it must be taken into account that the minimum net equity, as well as the amount corresponding to the guarantee were promptly remedied by it before the requirement of the SMV;

53. As to the existence or not of intentionality in the conduct of the offender, FARO SAF points out that the carrying out of the activities described in the OFICIO DE CARGOS did not occur with the intention of obtaining an undue benefit or advantage, nor with the intention of carrying out non-compliance with the applicable regulations;

54. Regarding the economic damage caused and its repercussion in the market, FARO SAF maintains that, for the aforementioned, it must be presumed that the activities subject to the imputation of charges have not generated any damage or repercussion in the market or, in any case, it must be considered that the magnitude of the damage is very slight, given that no affectations have been evidenced or reported by the investors. So much so that, it states that it has not received or become aware of complaints made by investors regarding the FUND and that the guarantee has not been executed either;

55. Additionally, the management company appeals that the following principles provided in article IV of the Ley del Procedimiento Administrativo General be considered in the determination of the eventual sanction;

56. On the principle of reasonableness, FARO SAF states that insofar as the decisions of this office, in this case, regarding the qualification of infractions and imposition of sanctions must be adapted within the limits of the attributed faculty and maintaining due proportion between the means to be employed and the public ends under protection, this insofar as it is sought that the means (the sanction) respond to what is strictly necessary for the satisfaction of its purpose (to prevent it from reoffending with the infractions described in the OFICIO DE CARGOS);

57. On the principle of presumption of veracity, the management company states that, insofar as, its declarations regarding the motives that caused the commission of the imputed infractions must be considered to conform to the truth;

58. On the principle of predictability or legitimate confidence, FARO SAF maintains that under the provisions of the REGLAMENTO DE SANCIONES, among which are the possibility of acknowledging the infraction and the criteria for grading the sanction, its legitimate expectations (as an administered) reasonably generated by practice and administrative precedents must be considered;

59. In that sense, the management company points out that the authority is subject to the current legal system and cannot act arbitrarily, and therefore cannot unreasonably and without justification change the interpretation of the applicable rules;

60. In line with the foregoing, FARO SAF states that the principles of sanctioning power are also present, as provided in article 248 of the General Administrative Procedure Law. In this regard, it considers that the following must be taken into account regarding the SMV's sanctioning power;

61. Regarding reasonableness, it points out that the sanction that may eventually be applied must be proportionate to the non-compliance classified as an infringement, observing the criteria that have also been set out in the SANCTIONS REGULATIONS. Along these lines, with respect to the facts noted in the STATEMENT OF CHARGES, the management company alleges that it did not act intentionally or with the purpose of obtaining benefits irregularly. It adds that it expects the real impact of the facts imputed to it to be assessed and calls for the assessment of the imputations made and the grading of the sanction to take into account that the imputed facts have not meant a real effect on the interests of investors and/or the market;

62. Consequently, FARO SAF concludes that, taking as a premise that it has expressly acknowledged the commission of the infringement, the mitigating factor set out in numeral 1 of subsection a) of article 26 of the SANCTIONS REGULATIONS should be applied and, when determining the amount of the infringement, the SMV must apply the sanction criteria referred to in article 25 of the SANCTIONS REGULATIONS and the General Administrative Procedure Law;

ASSESSMENT OF DEFENSES

63. This analysis must begin by stating that FARO SAF has expressly acknowledged its responsibility for the commission of the infringement imputed in the STATEMENT OF CHARGES, stating that such acknowledgment is made precisely, concisely, clearly, expressly and unconditionally. Additionally, it undertakes to contribute to clarifying the facts that gave rise to the initiation of this administrative sanctioning procedure and states that it is evaluating the implementation of additional measures seeking to prevent the recurrence of these facts;

64. In this regard, it should be noted that the acknowledgment made by the management company will be taken into account when determining the sanction to be imposed;

65. Without prejudice to the foregoing, it is important to note that FARO SAF is a company supervised by the SMV, with authorization to operate granted by CONASEV Resolution No. 053-2011-EF/94.01.1 of 30 June 2011, and it is aware of the regulations under which mutual funds investing in securities operate, and therefore it has the obligation to act diligently as a fund management company; however, the foregoing is not observed in this administrative sanctioning procedure, which led to the commission of the infringement described in the third recital of this resolution;

66. On this matter, FARO SAF, with respect to the facts that caused the commission of the infringement, explained that, taking into account that the FUND would operate as a feeder fund of the FARO FUND, it erroneously interpreted article 241 of the TUO LMV and article 67 of the REGULATIONS by considering that the obligation to have a minimum equity was deemed fulfilled as long as the FARO FUND exceeded that figure at the time of starting operations with the FUND. Along the same lines, the management company states that it established the amount of the letter of guarantee taking into account the net equity of the FUND at the time of starting its activities; however, because it incurred an error of interpretation, regarding the equity the amount of the guarantee also incurred in that situation;

67. In this regard, it should be noted that the current regulations set out are clear in establishing that one of the requirements for a mutual fund to enter its operating stage or start its activities is to have a minimum net equity, which is updated each year; and which in turn is taken into consideration at the time of establishing the guarantee (which must be established for an amount not less than 0.75% of the required net equity of the mutual fund, as indicated in the aforementioned article 262 of the TUO LMV, in accordance with article 141 of the REGULATIONS);

68. Therefore, taking into account the acknowledgment of its responsibility for the commission of the infringement, in this case it has been established that FARO SAF failed to comply with the provisions of article 241 of the TUO LMV and article 67 of the REGULATIONS, since it started the operating stage of the FUND on 27 January 2020 without the latter having the minimum equity established for mutual funds, updated for the year 2020, and consequently, without FARO SAF having established the guarantee for the minimum amount established in article 262 of the TUO LMV, in accordance with article 141 of the REGULATIONS;

69. In view of the foregoing, it is concluded that FARO SAF has not rebutted the charge imputed;

70. Additionally, FARO SAF alleges that, after being notified of this fact through the OFFICIAL LETTER, it initiated the corresponding steps to regularize that situation. In this regard, it should be noted that, according to the documents in the file, as of 11 February 2020, the FUND had exceeded the minimum equity established for the year 2020; and, as regards the regularization of the guarantee corresponding to the FUND, on 18 February 2020, FARO SAF submitted to the SMV letter of guarantee No. 93704-3, with a start date of validity of 24 January 2020 and for an amount of US$ 2,200.00. Likewise, FARO SAF requests that at the time of determining the possible sanction, the criteria for the determination of the sanction recognized in the SANCTIONS REGULATIONS be taken into consideration, as well as the principles of reasonableness, presumption of veracity and predictability or legitimate expectation set forth in the General Administrative Procedure Law. On this matter, it should be noted that they will be taken into consideration at the time of grading the sanction to be imposed;

71. Consequently, taking into account the considerations indicated, it is noted that FARO SAF has incurred one (1) infraction classified as very serious, in accordance with Annex I, numeral 1, subparagraph 1.1 of the SANCTIONS REGULATIONS, according to which it constitutes an infraction: “To carry out functions, operations, activities, acts or contracts, not authorized or that do not comply with the requirements established in the regulations”;

IV. EVALUATION OF THE SANCTION

72. In accordance with article 344 of the TUO LMV and article 25 of the SANCTIONS REGULATIONS, in accordance with article 248, numeral 3 13, of the TUO DE LA LPAG, the administrative sanctions that are imposed must take

[13] “Article 248.- Principles of the administrative sanctioning power (…) 3. Reasonableness.- The authorities must foresee that the commission of the sanctionable conduct is not more advantageous for the offender than complying with the infringed norms or assuming the sanction. However, the sanctions to be applied must be proportional to the non-compliance classified as an infraction, observing the following criteria that are indicated for the purposes of their grading: a) The illicit benefit resulting from the commission of the infraction;

into account the criteria set forth by the LMV, the SANCTIONS REGULATIONS and the TUO DE LA LPAG;

73. Within this framework, the evaluation of the sanction must consider: a) antecedents of the offender; b) recidivism14; c) the circumstances of the commission of the infraction; d) the harm caused and the repercussion on the market; e) the illicit benefit resulting from the commission of the infraction; f) probability of detection of the infraction; g) seriousness of the damage to the public interest and/or protected legal interest; h) the existence or not of intentionality in the conduct of the offender;

74. In this sense, in order to reconcile the criteria established in the TUO LMV with those indicated in the SANCTIONS REGULATIONS and the TUO DE LA LPAG; as well as for said criteria to be adequately considered so that their assessment observes the principle of reasonableness, as well as the principles of presumption of veracity and legitimate expectation, cited by FARO SAF, and so that the sanction to be imposed is adapted to these, the following criteria are analyzed;

75. Regarding the antecedents, in accordance with the provisions of article 25, literal a) of the SANCTIONS REGULATIONS, the sanctions firmly imposed by the SMV within the term of four (4) years prior to the commission of the infraction to be sanctioned constitute antecedents. The referred article specifies that the commission of the same infraction in the year prior to the infraction to be sanctioned is not considered an antecedent;

76. In this sense, from the review carried out in said period, it has been verified that FARO SAF records the following firm sanctions:

No.	Resolution	Resolved	Firmness
i	Resolution of the Deputy Superintendence SMV No. 018-2018-SMV/1015	FARO SAF is sanctioned with a fine of 4.08 UIT, equivalent to S/ 15 708,00 (Fifteen thousand seven hundred eight and 00/100 Soles), for having incurred two (02) infractions of a minor nature typified in Annex I, numeral 3, subparagraph 3.1 of Resolution CONASEV No. 055-2001-EF/94.10 and its amendments (hereinafter, PREVIOUS SANCTIONS REGULATIONS), for not having complied with presenting periodic information within the term established by the applicable regulations.	09/06/2018
ii	Resolution of the Deputy Superintendence SMV No. 061-2018-SMV/1016	FARO SAF is sanctioned with a fine of 1.545 UIT equivalent to S/ 6 102,75 (Six thousand one hundred two and 75/100 Soles) for having incurred one (01) infraction of a minor nature typified in Annex I, numeral 3, subparagraph 3.1 of the PREVIOUS SANCTIONS REGULATIONS, for not having complied with presenting eventual information within the term established in the regulations, referring to a fact of importance regarding the approval of financial statements.	16/11/2018

b) The probability of detection of the infraction;

c) The seriousness of the damage to the public interest and/or protected legal interest;

d) The economic harm caused;

e) Recidivism, for the commission of the same infraction within the term of one (1) year from when the resolution that sanctioned the first infraction became firm.

f) The circumstances of the commission of the infraction; and

g) The existence or not of intentionality in the conduct of the offender”.

[14] The sanction criteria referring to Recidivism and the Probability of detection of the infraction were introduced by article 2 of Legislative Decree No. 1272 which modified, among others, article 230; numeral 3 of the LPAG.

[15] Notified on 15 May 2018.

[16] Notified on 25 October 2018.

No.	Resolution	Resolved	Firmness
iii	Resolution of the Deputy Superintendence SMV No. 026-2019-SMV/1017	FARO SAF is sanctioned with a fine of four (04) UIT equivalent to S/. 15 800,00 (Fifteen thousand eight hundred and 00/100 Soles), for having incurred one (01) infraction of a serious nature, typified in Annex XIX, numeral 2, subparagraph 2.12 of the PREVIOUS SANCTIONS REGULATIONS, for not having complied with presenting the Semi-annual Report of the Compliance Officer within the term established in the Norms for the Prevention of Money Laundering and Financing of Terrorism.	06/06/2019

77. With regard to recidivism for the commission of the same infraction, the firm sanction imposed by the SMV within the term of one (1) year prior to the commission of the infraction to be sanctioned is taken into account. Within this framework, it must be stated that FARO SAF does not present sanctions within the aforementioned period, for the commission of the same infraction subject to analysis, in the present administrative sanctioning procedure, and therefore a recidivism is not configured;

78. With regard to the circumstances of the commission of the infractions, it must be mentioned that FARO SAF, in its capacity as a company supervised by the SMV, knows the rules that regulate the securities market and their mandatory compliance in relation to the case evaluated in the present administrative sanctioning procedure;

79. Regarding the events that occurred, FARO SAF explained that, taking into account that the FUND would operate as a feeder fund of the FARO FUND, it erroneously interpreted article 241 of the TUO LMV and article 67 of the REGULATION by considering that the obligation to have a minimum equity was understood to be fulfilled as long as the FARO FUND exceeded said figure at the time of starting operations with the FUND. Along the same lines, the management company states that it established the amount of the surety bond taking into account the net equity of the FUND at the time of starting its activities; however, having incurred an error of interpretation regarding the equity, the amount of the guarantee also incurred in said situation;

80. In this regard, as has been verified, FARO SAF did not act with due observance of the regulations governing fund management companies, since, as it states in its defense, it erroneously interpreted article 241 of the TUO LMV and article 67 of the REGULATION, given that it started the FUND's activities on 27 January 2020 without having the minimum net equity established for the year 2020; and, consequently, without having constituted a guarantee in accordance with the provisions of article 262 of the TUO LMV in conjunction with article 141 of the REGULATION;

81. On the other hand, as stated in the OFFICIO DE CARGOS, once the OFICIO was notified on 06 February 2020, as of 11 February 2020, the FUND's equity exceeded the established minimum. Likewise, by means of writing18 dated 14 February 2020, the management company indicated that it had adopted measures to request the issuance of a new surety bond, and therefore on 18 February 2020, FARO SAF constituted the guarantee for an amount greater than the minimum established in the regulations. In both cases, 16 and 23 days after the start of the FUND's activities respectively, and after the notification of the OFICIO;

[17] Notified on 15 May 2019.

[18] File No. 2020004343.

82. For its part, FARO SAF indicated that it has taken the necessary corrective actions to avoid omissions to the current regulations such as those warned in the OFICIO DE CARGOS. In this sense, it states that each year, after receiving the circular updating the corresponding amount, it incorporates it into its internal control files;

83. As regards the economic harm caused and the impact on the market, in the present case, it has not been evidenced that the infraction incurred by FARO SAF has produced a concrete quantifiable harm in the market; that is, it has not been determined that one or more investors have been concretely affected or caused economic damage, and therefore it has also not been evidenced that there has been an impact on the market;

84. With respect to the illicit benefit resulting from the commission of the infractions, it must be noted that it has not been accredited in the present administrative sanctioning procedure that FARO SAF has obtained any illicit benefit as a result of having incurred the infraction subject to analysis;

85. Notwithstanding the foregoing, it must be indicated that, on this point, the management company states that from 27 January 2020 (start of the FUND's operations) to 11 February 2020 (date on which it exceeded the minimum equity), a total of US$ 17.62 (seventeen and 62/100 US dollars) accrued by way of commissions for the ordinary and common exercise of its functions as management company. Likewise, that the difference in financial cost between maintaining the first surety bond for an amount of US$ 1,500.00 and the surety bond for the amount of US$ 2,200.00 presented on 18 February 2020, was US$ 1.00 (one and 00/100 US dollar). In both cases FARO SAF maintains that the aforementioned did not constitute an incentive for regulatory non-compliance;

86. Regarding the probability of detection of the infractions, it must be indicated that the facts constituting the infraction committed by FARO SAF were evidenced as a result of the supervision and control activities carried out by the SMV, with respect to compliance by fund management companies with their obligations in accordance with the applicable regulations, related to the start of operations of mutual funds, material events, as well as the review of the daily information files of the mutual funds submitted by the management companies and the amounts of the surety bonds presented to the SMV by the entity. Therefore, it is considered that the probability of detection of the infractions was high;

87. As regards the seriousness of the harm to the public interest and/or protected legal interest, in the present case, it has not been possible to accredit that FARO SAF's conduct in the commission of the infraction subject to analysis in the present sanctioning procedure has caused determinable harm to the public interest;

88. However, considering that during the period from 27 January to 11 February 2020, the FUND did not comply with having the minimum equity established for the year 2020 and that from 27 January to 18 February 2020, FARO SAF registered a deficit in the guarantees it constituted as backing for the obligations contracted with the FUND's participants, it must be indicated that this affected the legal interest referred to their protection, insofar as the fact that a fund management company does not comply with minimum prudential requirements affects the confidence that participants, potential participants and the market in general may place in the securities market, affecting in turn its development and its impact as an alternative source of investment;

89. Regarding the existence or not of intent in the offender's conduct, it must be specified that no intent has been verified in FARO SAF's conduct with respect to the infringement under analysis;

90. In addition to the foregoing, it is appropriate to analyze the exempting and mitigating conditions of liability established in article 257 of the TUO DE LA LPAG19, and in articles 26 and 27 of the REGLAMENTO DE SANCIONES;

91. In this regard, in accordance with the provisions of article 257, numeral 1 of the TUO LPAG and article 27 of the REGLAMENTO DE SANCIONES20, it is not observed that in the present case any of the grounds constituting exempting conditions of liability has been configured;

92. With regard to the acknowledgment of liability by the offender (article 257, numeral 2, subparagraph a) of the TUO DE LA LPAG) and its contribution to the clarification of the infringement, established in article 2621, subparagraphs a) and b),

[19] “Article 257.- Exempting and mitigating conditions of liability for infringements 1.- The following constitute exempting conditions of liability for infringements: a) Duly proven fortuitous event or force majeure. b) Acting in compliance with a legal duty or the legitimate exercise of the right of defense. c) Mental incapacity duly proven by the competent authority, provided that it affects the ability to understand the infringement. d) The mandatory order of a competent authority, issued in the exercise of its functions. e) The error induced by the Administration or by a confusing or illegal administrative provision. f) The voluntary correction by the possible sanctioned party of the act or omission imputed as constituting an administrative infringement, prior to the notification of the imputation of charges referred to in subparagraph 3) of article 235. 2.- The following constitute mitigating conditions of liability for infringements: a) If, once an administrative sanctioning procedure has been initiated, the offender acknowledges its liability expressly and in writing. In cases where the applicable sanction is a fine, it is reduced to an amount not less than half of its amount. b) Others established by special rule.”

[20] “Article 27.- EXEMPTING CONDITIONS OF LIABILITY FOR INFRINGEMENTS” The following constitute exempting conditions of liability for infringements: a) Fortuitous event, force majeure or another exceptional situation that, in the SMV's judgment, is comparable to duly proven fortuitous event or force majeure. b) Acting in compliance with a legal duty or the legitimate exercise of a right of defense. c) Mental incapacity duly proven by the competent authority, provided that it affects the ability to understand the infringement. d) The mandatory order of a competent authority, issued in the exercise of its functions. e) The error induced by the Administration or by a confusing or illegal administrative provision. f) The voluntary correction by the possible sanctioned party of the act or omission imputed as constituting an administrative infringement, prior to the notification of the imputation of charges referred to in subparagraph 3) of article 253 of the LPAG and provided that no communication demanding compliance with the obligation has been sent”

[21] “Article 26.- Mitigating conditions of liability for infringements The following constitute mitigating conditions of liability for infringements: a) Acknowledgment of liability by the offender expressly and in writing, once the administrative sanctioning procedure has been initiated. When the applicable sanction is a fine, it is reduced, taking into account the following: 1. If the acknowledgment of the infringement is submitted within the period granted for the submission of defenses, the reduction amount shall be fifty percent (50%). 2. If the acknowledgment is submitted after the expiration of the period granted for the submission of defenses and before the expiration of the period granted to formulate arguments to the instruction report, the reduction amount shall be thirty percent (30%). 3. If the acknowledgment is submitted after the expiration of the period granted to formulate arguments to the instruction report and up to before the issuance of the sanction resolution, the reduction amount shall be ten percent (10%). The acknowledgment of liability with respect to an infringement must be made precisely, concisely, clearly, expressly and unconditionally, and must not contain ambiguous or contradictory expressions; otherwise, it shall not be understood

respectively, of the REGLAMENTO DE SANCIONES, it must be indicated that FARO SAF, in accordance with the provisions set forth in the defenses, has acknowledged its liability in the infringement that is the subject of this sanctioning procedure, expressly and in writing, within the period granted for the submission of defenses, and precisely, concisely, clearly, and unconditionally, without ambiguous or contradictory expressions, and has contributed to the clarification of the infringements, for which reason the aforementioned mitigating condition of liability is applicable to it;

93. On the other hand, it is observed that the mitigating condition referring to the correction made after the requirement has also been configured, established in article 26, paragraph c) of the SANCTIONS REGULATION, given that through the OFFICIAL LETTER, notified on 6 February 2020, FARO SAF was required to comply with the provisions contained in article 67 of the REGULATION; and, consequently, to regularize said situation immediately with respect to the FUND, which was complied with by the management company on 11 February 2020, upon verifying that the FUND complied with the minimum equity established for 2020, and on 18 February 2020, upon constituting and presenting the surety bond No. 93704-3 for an amount of US$ 2,200.00, in accordance with the provisions of article 262 of the TUO LMV and article 141 of the REGULATION;

94. Based on the foregoing, it is concluded that FARO SAF has incurred in the commission of one (1) infraction classified as very serious typified in Annex I, numeral 1, subparagraph 1.1 of the SANCTIONS REGULATION, according to which it constitutes an infraction: “To carry out functions, operations, activities, acts or contracts, not authorized or that do not comply with the requirements established in the regulations”, for which it would be appropriate to impose a sanction in accordance with the provisions of article 33 of the SANCTIONS REGULATION, which establishes that the very serious infraction is punishable with a fine of not less than fifty (50) and up to seven hundred (700) Tax Units (UIT), with suspension of the operating authorization for a period of not less than ten (10) days and up to forty-five (45) days, or with the revocation of the operating authorization; however, to the extent that FARO SAF has acknowledged the commission of the infraction; it is appropriate to apply the provisions of article 26, literals a), numeral 2 of the SANCTIONS REGULATION, so the fine for infractions must fluctuate between 25 UIT and 350 UIT; that is, 50% of the range established for very serious infractions;

95. However, taking into account the sanction criteria analyzed, and in application of the Principle of Reasonableness contemplated in article 248, numeral 3 of the TUO OF THE LPAG which states that the sanctions to be applied must be proportional to the non-compliance classified as an infraction, and that with respect to the infraction subject to charge, it has not been evidenced that these have had an impact on the market, that it has not been verified that the management company has obtained an illicit benefit, nor that it has had intentionality in its actions in this regard, that it is not a repeat offender with respect to the infractions; this Deputy Superintendency considers that it is appropriate to impose on FARO SAF a sanction lower than the

[a] as an acknowledgment. If defenses are presented, despite having made an acknowledgment of responsibility, it will be understood as a non-acknowledgment, and the authority shall proceed to evaluate the defenses.

[b] Contribution of the offender to the clarification of the infraction.

[c] The correction made after the requirement or at the beginning of the administrative sanctioning procedure”.

provided for very serious infractions, in accordance with the provisions of article 35 of the SANCTIONS REGULATION;

96. In accordance with the provisions of article 32, numeral 16, of the Regulation of Organization and Functions of the SMV, approved by Supreme Decree No. 216-2011-EF and its amendments;

RESOLVES:

Article 1.- Declare that Faro Capital Sociedad Administradora de Fondos S.A. has incurred in one (1) infraction classified as very serious, typified in Annex I, numeral 1, subparagraph 1.1 of the SANCTIONS REGULATION, since FARO SAF began activities of the FUND without having the minimum net equity established for the year 2020; and, consequently, without having constituted a guarantee in accordance with the provisions of article 262 of the TUO LMV in accordance with article 141 of the REGULATION.

Article 2.- Sanction Faro Capital Sociedad Administradora de Fondos S.A. with a fine of 1 UIT, equivalent to S/ 4,300.00 (Four thousand three hundred and 00/100 soles) for the commission of the infraction referred to in article 1 of this resolution.

Article 3.- This resolution does not exhaust the administrative route, unless it is consented, and may be challenged before the Deputy Superintendency of Prudential Supervision through the filing of a reconsideration or appeal presented before it, within a period of fifteen (15) business days counted from the day following its notification.

Article 4.- In the event that this resolution is not subject to challenge through a reconsideration or appeal within fifteen (15) business days of notification and becomes final, it must be published on the Institutional Page of the SMV on the Single Digital Platform of the Peruvian State, in observance of the provisions of numeral 1, article 7 of the Policy on dissemination of regulatory projects, general legal norms, early agenda and other administrative acts of the SMV, approved by SMV Resolution No. 014-2014-SMV/01 and its amendment, and by the provisions of article 14 of the Sanctions Regulation, approved by SMV Resolution No. 035-2018-SMV/01.

Article 5.- Transcribe this resolution to Faro Capital Sociedad Administradora de Fondos S.A.

Register, communicate and publish.

Omar Gutiérrez Ochoa
Deputy Superintendent
Deputy Superintendency of Prudential Supervision