Resolution SBS No. 0472-2006: Approves Prudential Standards for Transactions with Related Parties of Financial System Companies

Lima, April 6, 2006

S.B.S. Resolution
No. 472 -2006

The Superintendent of Banking, Insurance and Private Pension Fund Administrators:

CONSIDERING:

That, the General Law of the Financial System and the Insurance System and Organic Law of the Superintendence of Banking and Insurance - Law No. 26702, hereinafter General Law, in its article 202, establishes that, without prejudice to the limitations resulting from its articles 206 to 211, the total of credits, investments and contingencies that a financial system company grants to natural and legal persons directly or indirectly linked to its ownership in a proportion greater than four percent (4%), or with significant influence in its management, cannot exceed an amount equivalent to thirty percent (30%) of the company's effective equity, and that this Superintendence will determine the criteria for linkage through rules of a general nature;

That article 203 of the General Law provides that the fact that a company constituted abroad whose shares are bearer shares or among whose partners or shareholders there are other companies whose shares are bearer shares is a debtor of a company, will presume that it is linked for the purposes referred to in article 202 of the General Law;

That, according to article 185 of the General Law, the amount of any investment in shares, bonds and similar instruments made with companies with which financial statements are to be consolidated is deducted from effective equity;

That, through the Special Standards on Linkage and Economic Group, approved by SBS Resolution No. 445-2000, and the Prudential Standards for Transactions with Subsidiaries and Other Companies of the Economic Group, approved by SBS Resolution No. 436-2000, the prudential treatment to be applied to transactions carried out between persons linked to financial system companies was established, as well as the method of calculating the limit referred to in article 202 of the General Law;

That, financing granted to companies belonging to the financial system of the country or abroad constitutes resources for financial intermediation, serving to finance third parties;

That, likewise, the Regulation for the Consolidated Supervision of Financial and Mixed Conglomerates, approved by SBS Resolution No. 446-2000, establishes limits at the consolidated level for financing, which allows controlling the financing granted by financial system companies of the country and abroad that belong to the same economic group;

That, in addition, it is necessary to clarify the definitions of linkage for the purposes of calculating the limit of article 202 of the General Law based on the experience obtained in the application of the current standards on the matter and based on what is provided in article 203 of the General Law;

That, consequently, it is convenient to clarify the criteria for calculating the limits on related parties established in the General Law, as well as to establish minimum prudential guidelines so that companies control the granting of financing to related parties;

Being in what was opined by the Adjunct Superintendencies of Banking and Microfinance, Risks and Legal Advice, as well as by the Economic Studies Management;

And, in exercise of the powers conferred by numbers 9 and 13 of article 349 of the General Law;

RESOLVES:

Article First.- Approve the Prudential Standards for Transactions with Related Parties of Financial System Companies, which form an integral part of this Resolution. 1

Article Second.- Substitute the second and third paragraphs of article 7 of the Special Standards on Linkage and Economic Group, approved by SBS Resolution No. 445-2000 with the following text:

"Likewise, it is considered that the following persons have significant influence in management:
a) Those natural or legal persons who maintain management relationships with the company according to letters c), d), e), j), k), l) and m) of article 5 of this standard; unless proof to the contrary of the existence of such influence; b) Those legal persons that belong to their economic group. The Superintendence may apply other presumptions of significant influence in management based on the results of supervision work, such as those contemplated in the last paragraph of article 5 of this standard. It will also be presumed that there is linkage by ownership or significant influence in management with those legal persons that have received financing whose shares are bearer shares or whose shareholders are in turn legal persons with bearer shares, unless proof to the contrary to the satisfaction of the Superintendence."

Article Third.- Eliminate letter e of number 2 of Circular No. B-2148-2005, F-488-2005, S-613-2005, CM-335-2005, CR-204-2005, EAF-231-2005, EDPYME-119-2005, FOGAPI-026-2005, modified by Circular No. B-2153-2006, F-0493-2006, S0616-2006, CM-0340-2006, CR-0209-2006, EAF-0233-2006, EDPYME-0122-2006, FOGAPI-0027-2006, and substitute number 6 of said standard with the following text:

"6. Application of the limit to financing for related persons of article 202 of the General Law

1 Article modified by SBS Resolution No. 5780-2015 of 24.09.2015.

For the application of the limit to the total financing to related persons referred to in article 202 of the General Law, the criteria indicated in article 7 of the Special Standards on Linkage and Economic Group and in article 7 of the Prudential Standards for Transactions with Related Persons of Financial System Companies in force must be applied.

Regarding natural persons linked to the company, any financing granted to their spouse must also be considered as an exposure to this natural person, unless proof to the contrary, as well as any financing granted to a legal person over which the linked natural person exercises control, either individually or by belonging to a group of natural persons who act as a decision-making unit, in accordance with article 8 of the Special Standards on Linkage and Economic Group.

Regarding legal persons linked to the company, any financing granted to a legal person that belongs to their economic group must also be considered as an exposure to this legal person, unless proof to the contrary.

The application of the limit of article 202 of the General Law must be carried out without prejudice to individual concentration limits.

Article Fourth.- This Resolution will enter into force the day after its publication in the Official Newspaper "El Peruano", from which date the Prudential Standards for Transactions with Subsidiaries and Other Companies of the Economic Group, approved by SBS Resolution No. 436-2000, will be null and void.

Register, communicate and publish,

JUAN JOSÉ MARTHANS LEÓN
Superintendent of Banking, Insurance and Private Pension Fund Administrators

PRUDENTIAL STANDARDS FOR TRANSACTIONS WITH RELATED PARTIES OF FINANCIAL SYSTEM COMPANIES

CHAPTER I
GENERAL PROVISIONS

Article 1.- Scope
The provisions of this standard are applicable to multiple operation companies indicated in letter A of article 16 of the General Law, to financial leasing companies and to the Fondo de Garantía para Préstamos a la Pequeña Industria Foundation (FOGAPI), hereinafter companies.

Article 2.- Definitions
For the purposes of this standard, the following definitions are considered:
a. Financing: Credits, accounts receivable, financial leases, investments and contingencies. b. Economic group: According to the definition established in the Special Standards on Linkage and Economic Group issued by the Superintendence. 2
c. General Law: General Law of the Financial System and the Insurance System and Organic Law of the Superintendence of Banking and Insurance – Law No. 26702.
d. Superintendence: Superintendence of Banking, Insurance and Private Pension Fund Administrators e. Related parties: Persons and legal entities linked to financial system companies for the purposes of applying article 202 of the General Law, in accordance with what is established in said article and the Special Standards on Linkage and Economic Group issued by the Superintendence. 3

Article 3.- Company Responsibility
Companies must appropriately identify their related parties, adequately evaluate the risks involved in transactions with them, grant financing under conditions no more favorable than those offered to the rest of their clients and permanently control that such financing complies with the limits and requirements established by the General Law and other regulations issued by the Superintendence. The Board of Directors is responsible for approving policies and procedures necessary to comply with the above, and Management is responsible for adopting the necessary measures.

Article 4.- Policy and Procedure Manuals
The policies and procedures established for the adequate control of the granting of financing to related parties must be clearly defined in the policy and procedure manuals. Among other aspects, they must include control that the conditions of financing granted to related parties are not more favorable than the best that the company offers to its clientele in terms of terms, interest rates and guarantees, as well as control of individual and global limits to related parties.

Article 5.- Related Parties Database
In order to facilitate control of compliance with the above paragraph, financial system companies must have a database of their related parties updated permanently, which must be available to this Superintendence. In said database, those related parties excluded from the calculation of the financing limit to related parties due to the causes established in the current regulatory framework, such as those indicated in article 7 of this standard, must also be distinguished.

2 Letter modified by SBS Resolution No. 5780-2015 of 24.09.2015.
3 Letter modified by SBS Resolution No. 5780-2015 of 24.09.2015.

When companies consider that a related party no longer incurs in the circumstances to be considered as such, they must communicate this to the Superintendence through a letter explaining the reasons for it, within a period not exceeding three (3) calendar days from the exclusion of said person from the database.

CHAPTER II
PRUDENTIAL MEASURES

Article 6.- Approval of financing to related parties
Any financing to be granted to a related party, including those delivered to related parties who are excluded from the calculation of the limit of article 202 of the General Law, must have prior approval from the Board of Directors or equivalent body.

Article 7.- Limit on financing to related parties 4
For the purposes of calculating the limit referred to in article 202 of the General Law, companies will not consider investments made in instruments representing capital or those modalities of contributions that grant similar rights for the case of legal entities, and debt, that are deducted from the effective equity of the company, in accordance with article 184 of the General Law.

Likewise, for the calculation of the limit referred to in the previous paragraph, financial system companies will not consider financing granted to financial system companies of the country or abroad that belong to their economic group, provided that:
a) they are subject to consolidated supervision by the Superintendence or under similar standards by another external supervisory body, at the discretion of the Superintendence, and b) there is sufficient information on the assets of said company to the satisfaction of the Superintendence, regarding companies belonging to the external financial system, when consolidated supervision corresponds to the Superintendence.

Article 8.- Individual limits
Any financing granted to related parties must individually comply with the limits established in articles 204 to 211 of the General Law.

For the purposes of calculating the limits indicated in articles 204 and 205 of the General Law, financial system companies will consider the financing granted, the deposits made, as well as the guarantees, bonds and other guarantees received from their subsidiaries and other companies of their economic group, which are financial system companies of the country or abroad, as applicable.

CHAPTER III
EXTERNAL COLLABORATORS

Article 9.- Internal Audit
The internal audit unit, in verifying compliance with operational limits provided as a programmed activity in the Annual Work Plan, must evaluate compliance with what is provided by this standard.

4 Article modified by SBS Resolution No. 5780-2015 of 24.09.2015.

Article 10.- External Audit
External audit firms must consider in their supplementary report on the evaluation of compliance with global and individual limits what is provided in articles 7 and 8 of this standard.

FINAL AND TRANSITIONAL PROVISIONS

First.- Sanctions
In case of non-compliance with the provisions contained in this standard, the Superintendence will apply the corresponding sanctions in accordance with what is established in the Sanctions Regulation.

Second.- Deadline and adaptation plan
Companies will have an adaptation period to the provisions contemplated in articles 4 and 5 of this standard, which will expire on May 31, 2006. By that date, companies must have available to this Superintendence their policy and procedure manuals adapted to the provisions included in this standard, as well as the database referred to in article 5 of this standard.