Resolution SBS No. 03955-2022: Amending Regulations on Effective Equity Requirements for Market and Operational Risk, Leverage Ratio, Special Regimes, and Liquidation

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Lima, December 22, 2022

Resolution S.B.S.
No. 03955-2022
The Superintendent of Banks, Insurance Companies and Private Pension Fund Administrators

CONSIDERING:

That, through Resolution SBS No. 455-99 and its modifying regulations, the Regulation of the Special Regimes and of the Liquidation of the Companies of the Financial System and of the Insurance System was approved, which regulates the surveillance regime, the intervention regime, and the dissolution and liquidation of the companies of the financial system and of the insurance system;

That, through Resolution SBS No. 6328-2009 and its modifying regulations, the Regulation for the Requirement of Effective Equity for Market Risk was approved, which establishes the methodology to be applied, as well as the requirements that companies of the financial system must meet to carry out the calculation of the effective equity requirement for market risk using the standard method or under internal models;

That, through Resolution SBS No. 2115-2009 and its modifying regulations, the Regulation for the Requirement of Effective Equity for Operational Risk was approved, which establishes the methodology to be applied, as well as the requirements that companies of the financial system must meet to carry out the calculation of the effective equity requirement for operational risk using the basic indicator method, the alternative standard method or advanced methods;

That, through Resolution SBS No. 1706-2018 and its modifying regulations, the Regulation on the Participation of Municipal Savings and Credit Caisses in the Law that promotes regional and local public investment with private sector participation was approved, which establishes the conditions and prior requirements and prudential criteria for the participation of municipal savings and credit caisses in the aforementioned Law, related to capitalization of profits, risk management and corporate governance;

That, through Resolution SBS No. 3791-2021, the Leverage Ratio Regulation was approved with the objective of monitoring the degree of leverage of the companies of the financial system and adapting the regulations to the international standards of the Basel Committee on Banking Supervision;

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 That, through Resolution SBS No. 11823-2010 and its modifying regulations, the Regulation for the Consolidated Supervision of Financial and Mixed Conglomerates was approved, which establishes the equity requirements and concentration limits at the consolidated level;

That, through Resolution SBS No. 877-2020 and its modifying regulations, the Regulation for Business Continuity Management was approved, which establishes minimum criteria for business continuity management, the obligation to report events of significant interruption of operations, and the use of indicators for business continuity management;

That, through Law No. 31380, Law that delegates to the Executive Power the authority to legislate in tax, fiscal, financial and economic reactivation matters in order to contribute to the closing of social gaps, the Congress of the Republic delegated to the Executive Power the authority to legislate, among others, in financial matters;

That, through Legislative Decree No. 1531, the Executive Power modified the General Law of the Financial System and of the Insurance System and Organic Law of the Superintendence of Banks and Insurance - Law No. 26702 and its modifying regulations (hereinafter General Law), in order to strengthen the solvency and stability of the financial system in protection of savers, within the framework of the powers granted by Law No. 31380;

That, the General Law establishes in article 184 the composition of effective equity for companies of the financial system and in article 186 it is provided that the Superintendence will determine the methodologies for the measurement of credit, market and operational risk that will be used by the companies to calculate the effective equity requirements;

That, through the aforementioned Legislative Decree, the regulations applicable to the companies of the financial system, related to the composition of effective equity, are adapted to the Basel III standard in order to improve the quality of effective equity and the advanced methods for calculating the effective equity requirement for operational risk are eliminated, in accordance with Basel III recommendations;

That, considering the foregoing, it is necessary to update the current regulations applicable to the companies of the financial system issued by this Superintendence in order to incorporate the changes related to the composition of effective equity and the elimination of the advanced methods for calculating the effective equity requirement for operational risk;

That, likewise, it is necessary to modify Chapter V "Complementary Information" of the Accounting Manual for Companies of the Financial System, approved by Resolution SBS No. 895-98 and its modifying and complementary regulations, to incorporate the modifications introduced by the aforementioned Legislative Decree regarding the composition of effective equity and the elimination of the advanced methods for calculating the effective equity requirement for operational risk;

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 That, taking into account that the aforementioned changes will have an impact on the calculation of effective equity and the equity requirement at the consolidated level, it is considered necessary to establish an adaptation period for the deduction of the portion of the difference between consolidated effective equity and consolidated equity requirement that comes from any equity element or instrument representing subordinate debt that does not correspond to holders of controlling participations of the companies that are part of the consolidatable group that are subject to regulatory capital based on risk;

That, it is necessary to modify the Regulation for Business Continuity Management to establish provisions applicable to companies subject to effective equity requirement for risk by market concentration that belong to the same economic group;

That, in order to collect the opinions of the general public regarding the proposal to modify the regulations, the pre-publication of the draft resolution was ordered, under the provisions of the Thirty-Second Final and Complementary Provision of the General Law and Legislative Decree No. 001-2009-JUS and its modifying regulations;

Having the approval of the Adjunct Superintendencies of Banking and Microfinance, of Risks, of Economic Studies, and of Legal Advice; and,

In exercise of the powers conferred in paragraphs 7, 9, 13 and 19 of article 349 of the General Law, and the power granted in article 1 of Law No. 29230, modified by Law No. 30608;

RESOLVES:

Article First.- Modify the Regulation for the Requirement of Effective Equity for Market Risk, approved by Resolution SBS No. 6328-2009 and its modifying regulations, in accordance with the following:

1. Substitute the fourth paragraph of article 6, with the following text:

"Additionally, the APR for market risk must be multiplied by a factor, whose value will correspond to that indicated in the following table:

Period Adjustment Factor
January 2023 - March 2023 0.85
April 2023 – August 2023 0.90
September 2023 – February 2024 0.95
March 2024 – onwards 1.00
"

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000
2. Substitute article 7 in accordance with the following:

"Article 7.- Admissible effective equity to cover market risk Companies must cover the market risk inherent in their operations with level 1 or level 2 effective equity.
The components of level 1 and level 2 effective equity and their respective limits are established in articles 184, 185 and 199 of the General Law."

Article Second.- Modify the Regulation for the Requirement of Effective Equity for Operational Risk, approved by Resolution SBS No. 2115-2009 and its modifying regulations, in accordance with the following:

1. Substitute the first and second paragraphs of article 3 with the following text:

"Article 3.- Effective equity requirement for operational risk Companies must allocate effective equity to cover the operational risk they face. For the calculation of said equity requirement, companies must apply one of the following methods:
a. Basic indicator method b. Alternative standard method The use of the alternative standard method requires the express authorization of the Superintendence.
(…)"

2. Substitute the last paragraph of article 3 with the following text:

"Additionally, the APR for operational risk must be multiplied by a factor, whose value will correspond to that indicated in the following table:

Period Adjustment Factor
January 2023 - March 2023 0.85
April 2023 – August 2023 0.90
September 2023 – February 2024 0.95
March 2024 – onwards 1.00
"

3. Substitute article 4 with the following text:

"Article 4.- Authorization process before the Superintendence Companies that wish to use the alternative standard method must submit to the Superintendence an authorization request signed by the General Manager, which must be accompanied by the following documents:

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 -Certified copy of the Board of Directors agreement or equivalent social body where the decision to request the corresponding authorization to the Superintendence is recorded.
-Declaration of compliance with the requirements established in this regulation, attaching a Report that describes how the company complies with each requirement. Said report must be submitted in accordance with the format published by the Superintendence on the Supervised Portal, and the corresponding supporting information must be kept available to the Superintendence. After receiving the request with the required documents, the Superintendence will issue its pronouncement within a period that will not exceed sixty (60) business days."

4. Eliminate Chapter IV "Advanced Methods"

5. Substitute the Second Final Provision with the following text:

"Second.- Revocation of authorization
If the Superintendence determines that a company that has been authorized to use the alternative standard method ceases to satisfy the authorization requirements associated with said method, it may revoke the authorization granted and require it to use the basic indicator method. To return to the alternative standard method, the company must go through the corresponding authorization process again."

Article Third.- Modify the Leverage Ratio Regulation, approved by Resolution SBS No. 3791-2021, in accordance with the following:

1. Substitute letters f), i) and j) of article 2 with the following texts:

"(…) f) Effective equity: Off-balance sheet amount that serves as backing for the company's operations. It is equal to the sum of level 1 effective equity and level 2 effective equity. Its composition and limits are indicated in the General Law and regulatory norms issued by the Superintendence. (…) i) Regulation on Subordinated Debt Applicable to Companies of the Financial System: Regulation on Subordinated Debt Applicable to Companies of the Financial System, approved by Resolution SBS No. 03950-2022 or the norm that replaces it. j) Regulation for the Requirement of Effective Equity for Additional Risks: Regulation for the Requirement of Effective Equity for Additional Risks approved by Resolution SBS No. 03953-2022 or the norm that replaces it. (…)"

2. Substitute article 4 with the following text:

"Article 4.- Capital Measure
The Capital Measure is equivalent to the amount of Level 1 Effective Equity obtained from Report No. 3 "Effective Equity" of the Accounting Manual."

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000
3. Substitute letter b) of paragraph 5.3 of article 5 with the following text:

"(…) b) Assets that are deducted from level 1 effective equity as contemplated in Report No. 3 "Effective Equity" of the Accounting Manual must be excluded from the Exposure Measure.
(…)
"

4. Substitute paragraph 5.4 of article 5 with the following text:

"5.4. On-Balance Sheet Exposures (excludes derivatives) It includes all on-balance sheet assets, with the exception of receivables for financial derivative products, net of accounting valuation adjustments, such as specific and general provisions, among others. The amount of general provisions that are deducted from the Exposure Measure as stated above must exclude those general provisions that count in Level 2 Effective Equity and those that have been used to reduce the effective equity requirement for additional risks in accordance with the provisions of the Regulation for the Requirement of Effective Equity for Additional Risks."

5. Substitute the first paragraph of paragraph 5.6 of article 5 with the following text:

"5.6. Off-Balance Sheet Exposures
It corresponds to the exposures generated by off-balance sheet items, except for positions in financial derivative instruments, deducted from specific and general provisions, without considering in said deduction the general provisions that count in Level 2 Effective Equity and those that have been used to reduce the effective equity requirement for additional risks in accordance with the provisions of the Regulation for the Requirement of Effective Equity for Additional Risks. (...) "

Article Fourth.- Modify the Regulation of the Special Regimes and of the Liquidation of the Companies of the Financial System and of the Insurance System approved by Resolution SBS No. 455-99 and its modifying regulations, in accordance with the following:

1. Substitute article 3 with the following text:

"Article 3rd.- EVALUATION AND DETERMINATION OF REAL EQUITY When a company is subjected to the surveillance regime, the Superintendence may evaluate and determine its real equity. If as a result of said evaluation, the determined equity is less than that indicated by the company, the Superintendence will proceed to adjust the latter, first, charged against the profits of the period and accumulated profits, in that order. If they are insufficient or non-existent, it will proceed to adjust it, in this order, charged against

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 donations, issuance premiums, discretionary reserves and legal reserves.
Regarding companies of the financial system, if the adjustments referred to in the previous paragraph were insufficient, it will proceed to apply, in this order, the capital-representing instruments computable in ordinary level 1 capital and the capital-representing instruments computable in additional level 1 capital. In the event that the aforementioned capital-representing instruments are not sufficient to cover the losses of the financial system company, the Superintendence will apply ex officio the accrued but unpaid interest and the principal of the subordinated debt that can absorb losses without the need for the company to cease operations, in that order. This subordinated debt corresponds to that which can be considered as additional level 1 capital, in accordance with articles 13, 19 and 20 of the Regulation on Subordinated Debt applicable to Companies of the Financial System. For this purpose, the limits contemplated in article 22 of said Regulation are not taken into account. This must have been expressly contemplated in the documentation and information relative to the instrument necessary for decision-making by investors. In the event that the aforementioned subordinated debt is insufficient to cover the losses of the company, the Superintendence will apply ex officio the capital-representing instruments computable in level 2 effective equity. Regarding companies of the insurance system, if the adjustments referred to in the first paragraph of this article were insufficient, it will proceed to apply the share capital. In the event that the share capital is not sufficient to cover the losses of the insurance system company, the Superintendence will apply ex officio the accrued but unpaid interest and the principal of the subordinated debt that can absorb losses without the need for the company to cease operations, in that order. The determination of the real equity of the companies and, if applicable, the reduction of the aforementioned capital-representing instruments, gives rise to the issuance of a resolution, which does not require publication. The Public Registries will inscribe the capital reduction by the sole merit of said resolution. In the event that the equity evaluation requires it, the Superintendence may require the company subjected to the surveillance regime to carry out, immediately, asset valuation studies."

2. Substitute article 10 with the following text:

"Article 10th.- DETERMINATION OF REAL EQUITY
Once a company is subjected to the intervention regime, the Superintendence may determine its real equity and, if applicable, will make the adjustments in accordance with what is provided in the first three (3) paragraphs of article 3 of this Regulation.
If the capital-representing instruments and the subordinated debt referred to in the second and third paragraphs of article 3 of this Regulation are not sufficient to cover the losses of the company, the Superintendence will apply ex officio the

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 accrued but unpaid interest and the principal of the remaining subordinated debt, in that order.
Regarding companies of the financial system, this subordinated debt corresponds to the subordinated debt that can be considered level 2, in accordance with articles 16, 19 and 20 of the Regulation on Subordinated Debt applicable to Companies of the Financial System. For this purpose, the limits contemplated in article 22 of said Regulation are not taken into account. In the event that the aforementioned subordinated debt is insufficient to cover the losses of the company, the Superintendence will apply ex officio the subordinated debt issued without meeting the requirements to be computable in effective equity. The determination of real equity and, if applicable, the reduction of the capital-representing instruments gives rise to the issuance of a resolution. The Public Registries will inscribe the capital reduction by the sole merit of said resolution. The Superintendence must evaluate the need to contract asset valuation studies charged against the resources of the company subjected to the intervention regime. Likewise, it must dispose of the inventory and custody of all credit files, including the securities that certify or guarantee obligations in favor of the company."

3. Substitute paragraph 4 of article 31 with the following text:

"(…)
4. Application of accrued but unpaid interest and of the principal of the subordinated debt that can absorb losses without the need for the company to cease operations, and of accrued but unpaid interest and of the principal of the remaining subordinated debt, in that order, to absorb losses. Regarding companies of the financial system, the subordinated debt that can absorb losses without the need for the company to cease operations corresponds to that which is considered additional level 1 capital, in accordance with articles 13, 19 and 20 of the Regulation on Subordinated Debt applicable to Companies of the Financial System. The remaining subordinated debt corresponds to the subordinated debt that is considered level 2, in accordance with articles 16, 19 and 20 of the Regulation on Subordinated Debt applicable to Companies of the Financial System. For this purpose, the limits contemplated in article 22 of said Regulation are not taken into account. In the event that the aforementioned subordinated debt is insufficient to cover the losses of the company, it will proceed to apply the subordinated debt issued without meeting the requirements to be computable in effective equity.
(…)
"

4. Substitute the Ninth Final Provision with the following text:

"NINTH- Companies not authorized to capture public deposits Companies of the financial system not authorized to capture public deposits are subject to the causes of revocation referred to in articles 28 and 28-A of the General Law, within the framework of what is stipulated in the Unified Text of the General Administrative Procedure Law, approved by D.S. No. 004-2019-JUS."

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000

Article Fifth.- Modify the Regulation on the Participation of Municipal Savings and Credit Caisses in the Law that Promotes Regional and Local Public Investment with Private Sector Participation, approved by SBS Resolution No. 1706-2018 and its amendments, as follows:

1. Eliminate item 9 of Article 2 and modify item 11 of Article 2 as follows:

“11. Subordinated Debt Regulation: Subordinated Debt Regulation applicable to Financial System Companies approved by SBS Resolution No. 03950-2022.”

2. Substitute literals d) and e) of item 5.2 of Article 5 with the following texts:

“5.2 The MCC is considered to have good corporate governance and integrated risk management practices when it meets the following conditions:
(…) d) The MCC complies with conservation buffers, by economic cycle and by risk of market concentration, and with the effective equity requirement for additional risks. e) The indicator ‘Tier 1 Common Equity to Total Risk-Weighted Assets and Contingent Claims’ defined in Article 15 of the Subordinated Debt Regulation, is greater than 5.125%. (…)”

3. Substitute item 6.5 of Article 6 with the following text:

“6.5 The MCC must ensure, at the close of each month, that the maximum amount of total investment does not exceed the amount that would be recognized as an expense for the period and its subsequent impact on effective equity, which could cause the MCC to breach the global limit established in item 3 of Article 199 of the General Law, the operational limits established in Articles 200 to 212 of the General Law, as well as the conservation buffers, by economic cycle and by risk of market concentration, and the effective equity requirement for additional risks. Such analysis must be available to this Superintendence.”

Article Sixth 1
.- For the deduction of the portion of the difference between consolidated effective equity and the total minimum solvency requirements of consolidable groups or the financial group that comes from any element of Tier 1 common capital, additional Tier 1 capital, or Tier 2 effective equity, which does not correspond to holdings of controlling shareholders of the companies comprising the consolidable groups or financial group that are subject to regulatory capital based on risk, the following adaptation period applies:

1 Article substituted by SBS Resolution No. 3004-2023, published on 14.09.2023. Effective from 01.01.2024.

Date	Deduction Percentage
January 2023	30%
January 2024	60%
January 2025	100%

Article Seventh.- Substitute Article 14 of the Regulation for Business Continuity Management approved by SBS Resolution No. 877-2020 and its amendments, as follows:

“Article 14. Company with Market Concentration

14.1 In addition to the provisions contained in subchapters I or II, the company subject to an effective equity requirement for market concentration risk, according to what is stated in the Regulation for Conservation Buffers, by Economic Cycle and by Risk of Market Concentration, must comply with the following provisions as part of its business continuity management:

a) Consider for the design of continuity strategies, the compliance with business recovery objectives and RPOs in addition to RTOs. In the case of passive products, an RTO of no more than four (04) hours must be ensured in contingency situations that affect the company individually;

b) Incorporate as part of prioritized products and services, those whose unavailability would affect other companies in the financial system, the insurance system, or the private pension fund administration system;

c) Ensure that alternate data processing centers allow the recovery of all prioritized products and services, in order to meet business recovery objectives, RTOs, and RPOs;

d) Ensure the recovery of those offices and/or branches previously identified as priority;

e) Identify the maximum operating time in contingency situations after an interruption;

f) Support, through a risk assessment, that at least one of the facilities designated for the recovery of prioritized products and services would be available upon the occurrence of an event;

g) Implement alternative strategies for customer identification, allowing the delivery of prioritized products and services in force majeure situations that prevent the use of identification documents used in normal operations;

h) Designate main and alternate members for the crisis committee, seeking to maximize the probability of having at least one of them;

i) Implement an alternative communication medium to traditional communication, in order to ensure communication with critical personnel and those who may be affected by the interruption of the company's activities, in case such communication fails;

j) Implement protocols for communication through the alternative communication medium, which must contemplate internal communication, as well as with authorities, suppliers, and all those who may be affected by the interruption of the company's activities;

k) Conduct periodic training on crisis communication protocols and the use of alternative communication mechanisms; and

l) Implement redundant data communication networks, seeking to mitigate single points of failure.

14.2 In the case of companies subject to an effective equity requirement for market concentration risk that belong to the same economic group, according to the definition contemplated in the Special Norms on Linkage and Economic Group approved by SBS Resolution No. 5780-2015 or the norm that replaces it, the provisions described in paragraph 14.1 apply only to that company in the economic group that has the highest level of assets.”

Article Eighth.- Modify the Accounting Manual for Financial System Companies by SBS Resolution No. 895-98 and its modifying and complementary norms, as follows:

1. Eliminate Report No. 34 “Adjusted Effective Equity - Adjusted Total Risk-Weighted Assets and Contingent Claims”.

2. Substitute the format and methodological notes of Report No. 37 “Leverage Ratio” of the Accounting Manual for Financial System Companies, in accordance with Annex No. 1 which forms an integral part of this Resolution, and is published on the institutional portal (www.sbs.gob.pe), in accordance with what is established in Supreme Decree No. 001-2009-JUS and its amendments.

Article Ninth.- This Resolution enters into force from January 1, 2023.

The submission of Report No. 37 “Leverage Ratio” of Chapter V “Complementary Information” of the Accounting Manual for Financial System Companies, via SUCAVE, for the information corresponding to January to June 2023, will be carried out, per quarter, in July 2023.

Register, communicate, and publish

MARIA DEL SOCORRO HEYSEN ZEGARRA
Superintendent of Banks, Insurance, and AFP