Lima, 16 October 2003

S.B.S. Resolution No. 1455 -2003

The Superintendent of Banking and Insurance

WHEREAS:

That, it is the objective of this Superintendency to promote that supervised companies have a risk control system that allows them to identify, measure, control and report the risks they face in order to protect the interests of the public, in accordance with the provisions of article 347 of the General Law of the Financial System and the Insurance System and Organic Law of the Superintendency of Banking and Insurance, Law No. 26702 and its amendments, hereinafter General Law;

That, the Regulation for the Supervision of Market Risks, approved by SBS Resolution No. 509-98 of 22 May 1998, provides that companies of the financial system must adequately identify and manage the market risks they face and, likewise, establishes general guidelines for the adequate management of such risks;

That, among the market risks faced by supervised companies in the development of their activities, is foreign exchange risk, which arises when companies present mismatches between their asset, liability and off-balance sheet positions in the different currencies in which they operate;

That, article 178 of the General Law establishes that companies of the financial system must ensure that there is an adequate, but not necessarily exact, correspondence with respect to their exposure in foreign currency, between their asset and liability operations, as well as between their deposits and the respective placements and investments;

That, it is necessary to establish minimum prudential criteria for supervised companies to adequately manage foreign exchange risk, as well as to modify the limit to the global oversold position of foreign currency;

That, by means of Official Letter No. I220-LB-2003-069 the Central Reserve Bank of Peru communicated to this Superintendency its favorable opinion regarding the proposal to modify the referred limit;

In accordance with the opinion of the Deputy Superintendencies of Banking and Legal Advisory, as well as the Risk and Economic Studies Managements; and,

In use of the powers conferred by numerals 7, 9 and 13 of article 349 of the General Law;

RESOLVES:

Article One.- Approve the Regulation for the Administration of Foreign Exchange Risk, which is an integral part of this Resolution.

Article Two.- Leave without effect Circular No. B-2024-98, F- 365-98, CM-214-98, CR-084-98, EDPYME-033-98 of 14 October 1998 and Circular No. B-2030-99, F-0371-99, CM-0220-99, CR-0090-99, EDPYME-0038-99 of 28 February 1999.

Article Three.- This Resolution shall enter into force on 1 January 2004. The information corresponding to the month of December 2003 must be submitted in accordance with the provisions in force at that date.

JUAN JOSÉ MARTHANS LEÓN
Superintendent of Banking and Insurance

REGULATION FOR THE ADMINISTRATION OF FOREIGN EXCHANGE RISK

CHAPTER I GENERAL PROVISIONS

Scope

Article 1.- This norm is applicable to multiple operations companies included in literal A of article 16 of the General Law, hereinafter companies.

Definitions

Article 2.- For the application of this norm the following definitions must be considered:

a. Board of Directors: Any reference to the Board of Directors must be understood as made to the Board of Directors or equivalent body.

b. Global position: Result of the sum of the balance sheet exchange position and the net position in financial derivative products.

c. Balance sheet exchange position: Total assets in foreign currency minus total liabilities in foreign currency. This position corresponds to that reported daily in Annex No. 15-A "Treasury report and daily liquidity position".

d. Net position in financial derivative products: Total future purchase positions of foreign currency minus the total future sale positions of foreign currency in financial derivative products, with or without accounting hedging purposes, of the forward, swap and currency future type, only. The amounts to be considered for this calculation shall correspond to those recorded in the corresponding analytical subaccounts of the Accounting Manual for Companies of the Financial System.1

e. Market Risk Regulation: Regulation for the Supervision of Market Risks, approved by SBS Resolution No. 509-98 of 22 May 1998.

f. Comprehensive Risk Management Regulation: Comprehensive Risk Management Regulation approved by SBS Resolution No. 37-2008 of 10 January 2008.2

g. Foreign exchange risk: Possibility of financial losses as a consequence of adverse movements in exchange rates.

h. Oversold: Negative balance of the global position.

i. Overbought: Positive balance of the global position.

j. Superintendency: Superintendency of Banking and Insurance

Responsibility of the companies3

Article 3.- Companies must adequately identify, measure, control and report the level of foreign exchange risk they face, as well as comply with the provisions of article 5 of the Market Risk Regulation. Likewise, it will be the responsibility of the Board of Directors to approve policies and procedures for the administration of such risk, in accordance with the provisions of article 8 of the Comprehensive Risk Management Regulation, and to ensure that Management adopts the necessary measures to monitor and control this risk.

Risk Unit4

[1] Literal d. replaced by SBS Resolution No. 1593-2010 of 12/02/2010 and SBS Resolution No. 1890-2015 of 25/03/2015.

[2] Literal f. replaced by SBS Resolution No. 1593-2010 of 12/02/2010.

[3] Article 3 replaced by SBS Resolution No. 1593-2010 of 12/02/2010.

Article 4.- The Risk Unit is responsible for the identification and management of foreign exchange risk, in accordance with the provisions of Article 18 of the Regulation for Comprehensive Risk Management and Article 7 of the Market Risk Regulation. If necessary due to the size of the company, the complexity of its operations and/or its overall exposure to foreign exchange risk, the Risk Unit shall contain a unit specialized in such risk.

Policy and Procedure Manual

Article 5.- The policies and procedures on foreign exchange risk management must be clearly defined in a Policy and Procedure Manual, as provided in Article 8 of the Market Risk Regulation, which must be available to this Supervisory Authority. The established policies and procedures must be consistent with the size of the company, the complexity of its operations and its overall exposure to foreign exchange risk.

CHAPTER II PRUDENTIAL MEASURES

Limits on foreign currency positions5

Article 6.- Companies shall be subject to the following limits:

a) Limit on the global oversold position The global oversold position of companies may not exceed ten percent (10%) of their effective equity.

b) Limit on the global overbought position The global overbought position of companies may not exceed fifty percent (50%) of their effective equity.

For the calculation of these limits, the latest effective equity submitted by the company and validated by this Superintendency must be used.

Limit on the net position in foreign currency financial derivative products6

Article 6-A.- Companies shall be subject to the following limits:

a) Limit on the net oversold position in foreign currency financial derivative products The absolute value of the net oversold position in foreign currency financial derivative products of companies may not exceed twenty percent (20%) of their effective equity or three hundred million nuevos soles (S/. 300 million), whichever is higher.

b) Limit on the net overbought position in foreign currency financial derivative products The absolute value of the net overbought position in foreign currency financial derivative products of companies may not exceed forty percent (40%) of their effective equity or six hundred million nuevos soles (S/. 600 million), whichever is higher.

[4] Article 4 replaced by SBS Resolution No. 1593-2010 of 12/02/2010.

[5] Article 6 replaced by SBS Resolutions No. 9076-2012, 1593-2010 and 15536-2010.

[6] Article 6-A incorporated by SBS Resolution No. 923-2011 of 24/01/2011 and amended by SBS Resolutions No. 10454-2011 of 06/10/2011, 9076-2012 of 05/12/2012, SBS No. 1890-2015 of 25/03/2015 and SBS No. 4861-2015 of 26/08/2015.

For the calculation of these limits, (i) the latest effective equity submitted by the company and validated by this Superintendency and (ii) only contracts involving some foreign currency and national currency must be used.

The calculation of these limits shall not include positions in foreign currency financial derivative products classified as for accounting hedging purposes.

Sanctions for breach of limits7

Article 7.- Breach of the limits established in this Regulation shall entail the application of the corresponding sanctions as provided in the current Sanctions Regulation.

Additional prudential measures

Article 8.- If the Superintendency considers that a company is highly exposed to foreign exchange risk or reveals deficient management thereof, it may require the adoption of hedging mechanisms, the allocation of additional effective equity or other additional prudential measures.

CHAPTER III VALUE AT RISK MODELS

Regulatory and internal value at risk models

Article 9.- Companies must estimate the foreign exchange risk they face using the regulatory value at risk model, in addition to the standardized method, in accordance with the indications of Annex No. 9 attached to this Regulation. In the case of Municipal Savings and Loan Associations, Rural Savings and Loan Associations and Edpymes, such estimation is optional.

Banking companies must have at least one internal value at risk model for measuring foreign exchange risk, in addition to the regulatory model required by the Superintendency referred to in the preceding paragraph, which must be in accordance with the degree of complexity of their operations and the level of risk they face. The analysis must be performed for all assets, liabilities and contingents of the company expressed in foreign currency or whose market value depends on the evolution of some foreign currency. The methodology and assumptions used for these models must be clearly understood by the Head or person in charge of the Risk Unit and by the Board of Directors or Risk Committee.

The initial validation of the internal systems and models for measuring foreign exchange risk and their subsequent modifications must be performed by an area independent of the area that develops or uses them. Likewise, there must be periodic validations, at least annually, with the same independence requirements.

Scenario simulation and stress testing

Article 10.- Banking companies must simulate different scenarios and perform stress tests relevant to foreign exchange risk management, including the breach of the main assumptions and variations in the parameters used in the preparation of the internal models referred to in Article 9 of this Regulation. The results obtained must be

[7] Article repealed by SBS Resolution No. 6328-2009 of 18 June 2009 and replaced by SBS Resolution No. 15536-2010.

consider for establishing and reviewing the policies and procedures for foreign exchange risk management, and, likewise, they must be available to the Superintendency.

CHAPTER IV INFORMATION REQUIREMENTS

Amendment to the Accounting Manual for Companies of the Financial System

Article 11.- Replace Annex No. 9 "Capital Requirement for Positions Subject to Foreign Exchange Risk" of the Accounting Manual for Companies of the Financial System, approved by SBS Resolution No. 895-98 and its amendments, with Annex No. 9 "Positions Subject to Foreign Exchange Risk" attached to this Regulation.

Submission of Annex No. 9 "Positions Subject to Foreign Exchange Risk"

Article 12.- Companies must submit monthly to the Superintendency, within fifteen (15) calendar days after the close of each month, Annex No. 9 "Positions Subject to Foreign Exchange Risk" referred to in the previous article, by printed means and via SUCAVE, in accordance with the instructions contained in said annex.

The first submission of Annex No. 9 "Positions Subject to Foreign Exchange Risk" under the criteria established in this regulation must include a report on the assumptions of the internal model. Said report must contain at least the following aspects:

a. The methodology for calculating volatility;

b. The value at risk model;

c. The manner of determining the exchange rate, as well as the interest rates to bring to present value its on- and off-balance sheet positions, which the company considers relevant for estimating the market value of foreign currency exposures; and,

d. Other aspects that the Superintendency communicates to the companies.

Subsequent modifications to said assumptions must be communicated to the Superintendency, with due justification, through a similar report that must be delivered on the submission date of Annex No. 9 from which the modifications take effect.

Responsibility for the preparation and submission of Annex No. 9

Article 13.- In accordance with Article 10 of the Market Risk Regulation, the head or person in charge of the Risk Unit is responsible for the preparation and submission of Annex No. 9 to the Superintendency.

The calculations and methodologies used for the preparation of said annex must be available to this Control Agency.

CHAPTER V EXTERNAL COLLABORATORS

Internal and external audit

Article 14.- The Internal Audit Unit must incorporate into its Annual Work Plan the evaluation of compliance with the provisions of this Regulation. Likewise, External Audit Firms must include in the report on the internal control system an opinion on the policies and procedures for the identification and management of foreign exchange risk, considering compliance with the provisions of this regulation.

Risk rating companies

Article 15.- Risk rating companies must take into account the policies and procedures established by the company for foreign exchange risk management in the process of rating supervised companies.