Resolution SBS No. 114-2005: Approves Requirements on Ethical Conduct and Professional Capacity of Persons Participating in the Investment Process of Banking, Insurance Companies and Portfolios Administered by AFPs

Lima, January 21, 2005
Resolution S.B.S.
No. 114-2005
The Superintendent of Banking and Insurance

CONSIDERING:

That, items 3 and 9 of Article 349 of the General Law of the Financial System and the Insurance System and the Organic Law of the Superintendency of Banking and Insurance, Law No. 26702, hereinafter the General Law, establish that among the Superintendent's attributions, in addition to those already established in the same norm, are exercising comprehensive supervision of the companies in the Financial System and the Insurance System, those incorporated by special laws into their supervision, as well as those carrying out complementary operations, and issuing the necessary norms for the exercise of financial and insurance operations, and complementary services to the activity of the companies and for their supervision, as well as for the application of the present law, respectively;

That, items a), e) and i) of Article 57 of the Single Text of the Law of the Private System for the Administration of Pension Funds, approved by Supreme Decree No. 054-97-EF, hereinafter the Law, establish that among the attributions and obligations of the Superintendency are to ensure the security and adequate profitability of the investments made by the AFPs with the resources of the Portfolios they administer, to oversee the Administrators in the compliance with the legal and administrative provisions that govern them, and to oversee the investment of the resources of the Funds they administer, respectively;

That, the Third Final and Transitional Provision of the Regulation of the Single Text of the Law of the Private System for the Administration of Pension Funds, approved by Supreme Decree No. 004-98-EF, empowers the Superintendency to issue the necessary regulatory norms for the proper functioning of the Private System for the Administration of Pension Funds;

That, the General Law provides in item 2 of its Article 134 that in order to provide adequate protection to the saver and without prejudice to the other attributions conferred by this norm, it corresponds to the Superintendency, among other powers, to supervise that the companies of the financial system are properly organized and administered by suitable personnel;

That, for its part, Article 79 of the General Law specifies that the Board of Directors of the companies of the Financial and Insurance Systems is composed of no fewer than five (5) members, who meet conditions of technical and moral suitability, elected by the General Shareholders' Meeting;

That, likewise, Article 24 of the Regulation of Supreme Decree No. 054-97-EF indicates that to be a Director of an AFP, it is required to have moral and economic solvency;

That, it is convenient to promote the use of standards and best practices in the management of the investments of the financial resources of banking companies, insurance companies, and the Portfolios Administered by the AFPs, so it is necessary to establish requirements on the ethical conduct and professional capacity of the persons who participate in the investment process of the aforementioned companies and Portfolios Administered;

Being in accordance with the opinion of the Deputy Superintendencies of Banking, Insurance, Private Administrators of Pension Funds, Risks and Legal Advice, and the Economic Studies Management;

And, in exercise of the attributions conferred by the General Law of the Financial System and the Insurance System and the Organic Law of the Superintendency of Banking and Insurance, Law No. 26702 and its amendments, the Single Text of the Law of the Private System for the Administration of Pension Funds, approved by Supreme Decree No. 054-97-EF and its amendments, and its Regulation, approved by Supreme Decree No. 004-98-EF and its amendments;

RESOLVES:

Article First.- Approve the "Requirements on Ethical Conduct and Professional Capacity of Persons Participating in the Investment Process of Banking Companies, Insurance Companies and Portfolios Administered by the AFPs", which forms an integral part of this Resolution.

Article Second.- This norm enters into force the day following its publication in the Official Gazette El Peruano.

Register, communicate and publish.

JUAN JOSÉ MARTHANS LEÓN
Superintendent of Banking and Insurance

REQUIREMENTS ON ETHICAL CONDUCT AND PROFESSIONAL CAPACITY OF THE PERSONS WHO PARTICIPATE IN THE INVESTMENT PROCESS OF BANKING COMPANIES, INSURANCE COMPANIES AND THE PORTFOLIOS ADMINISTERED BY THE AFPs

Responsibility

Article 1.- Banking companies, insurance companies and AFPs must establish and implement, in accordance with the norms of this Regulation, the requirements on ethical conduct and professional capacity of the persons who participate in the investment process of their financial resources and of the financial resources of the Administered Portfolios, respectively.

It is the responsibility of the Board of Directors of the aforementioned supervised companies to establish the policies and actions that allow the implementation and permanent compliance with the provisions established in this Regulation.

Scope of Application

Article 2.- This Regulation is applicable to the process by which the financial resources of banking companies, insurance companies and the Portfolios Administered by the AFPs are invested.

To this effect, it will be understood that the process by which the financial resources of the aforementioned companies and the Administered Portfolios are invested involves the following activities:

a) The proposal, elaboration, approval and execution of investment policies and investment strategies;

b) The allocation of investments among different classes and types of investment instruments or operations;

c) The proposal, approval and verification of internal limits applicable to investments or operations;

d) The execution of investment decisions including the proposals formulated, the confirmation of orders and the closing of transactions;

e) The management of investment risks including the identification, analysis, measurement, monitoring, limitation, control and reporting of such risks;

f) The fundamental and technical analysis of investments or operations;

g) The settlement and clearing of investments or operations;

h) The custody and physical safeguarding of investments or operations;

i) The registration and accounting of investments or operations;

j) The monitoring and internal audit of investments or operations, and;

k) Others determined by the Superintendency.

Regarding this, investments will be understood as those made by the aforementioned supervised companies in the instruments and operations authorized by current regulations. Likewise, operations will be understood as those transactions with derivatives, repurchase agreements, foreign exchange purchase and sale, repo operations and similar.

Additionally, this Regulation will be applicable to the management personnel and trusted personnel of the aforementioned supervised companies who participate in the activities described in the previous paragraph and who work in their investment or equivalent areas, risks, clearing, settlement, internal audit, registration and custody of securities, hereinafter, personnel in charge of the investment process. For the purposes of this Resolution, management personnel is that which has or does not have direct or indirect personnel under their charge and whose activity and degree of responsibility depends on the result of the activities described in the previous paragraph. Likewise, for the purposes of this Resolution, trusted personnel is understood as all those who have access to information of a reserved nature, and whose opinions or reports are presented to management personnel, and who may participate, if applicable, in the decision-making process of the activities described in the previous paragraph.

Code of Ethics and Standards of Professional Conduct

Article 3.- Banking companies, insurance companies and AFPs must elaborate codes of ethics and standards of professional conduct that are mandatory for the personnel in charge of the investment process of their financial resources and of the financial resources of the Administered Portfolios, respectively.

Such codes and standards must be elaborated considering at least the following guidelines:

a) Be based on codes and standards that are widely recognized and widely used internationally.

b) Be based on codes and standards elaborated by some independent institution of recognized international prestige.

c) Incorporate, as applicable, the following aspects:

• Performance of functions and responsibilities with integrity and ethics.
• Maintenance of an adequate level of professional competence.
• Maintenance of objectivity and professional independence.
• Obligations to know and comply with current laws, norms and devices (including codes and standards).
• Obligations not to participate in dishonest, illegal or other acts that cast doubt on moral solvency.
• Obligations to avoid conflicts of interest.
• Knowledge and respect for obligations with clients or affiliates, act in their benefit and give priority over one's own interests.
• Obligations of confidentiality and information reserve.
• Obligations on the proper use of privileged information.
• Obligations on the transparency or disclosure of information.
• Measures in case of violation of the code and standards.

Likewise, within the framework of such codes and standards, supervised companies must establish, at a minimum, the following policies:

a) Policy of compliance with the code of ethics and standards of professional conduct;

b) Policy of personal investments;

c) Policy of appropriate use of reserved information, and;

d) Policy oriented towards the adoption of best practices in investments and risks.

The codes, standards and policies detailed in this article must be approved by the Board of Directors of the supervised companies. Likewise, these documents will be available to the Superintendency.

Additionally, the administration area or equivalent unit of the supervised companies referred to in this Regulation must ensure that the personnel in charge of the investment process sign commitment letters by which they submit and commit to comply with what is established in the code of ethics, in the standards of professional conduct, in the policies and in this Regulation.

These commitment letters must be archived by the company itself within the personnel file of each worker and be available to this Superintendency.

Professional Capacity

Article 4.- The personnel in charge of the investment process of the financial resources of banking companies, insurance companies and the Portfolios Administered by the AFPs must have minimum qualification and experience requirements that guarantee their competence in the area in which they perform their duties, as well as have moral solvency. The Boards of Directors of the supervised companies will approve the requirements on professional capacity, experience and moral solvency of the aforementioned personnel. This information will be available to the Superintendency.

Additionally, the personnel in charge of the investment process who participates in the decision-making process of the activities described in Article 2 and works in the investment or equivalent and risk areas of the aforementioned companies must pass, except for the exceptions detailed in this article, at least the exam corresponding to the initial level of an internationally recognized certification that demonstrates that they have an adequate level of professional competence in matters of investments and risks, which must meet at least the following characteristics:

a) Encompass investment and risk topics, including portfolio management, economics, statistics, financial statement analysis, corporate finance, investments in equity and fixed income instruments, derivatives, ethics and professional conduct;

b) Be an internationally recognized certification; and,

c) Be a certification offered by some independent institution of recognized international prestige.

The approval of said exam will be at least mandatory for the personnel in charge of the investment process detailed in this article who has less than five (05) years of experience, at the date of publication of this Regulation, in the specific labor they perform in said process. Persons who have more than five (05) years of proven experience, at the date of publication of this Regulation, in the management of investments and risks, which is compatible with their specific functions and assignments, will be exempt from said exam.

The Boards of Directors of the supervised companies will approve for their institutions the exam that leads to the internationally recognized certification described above. This information will be available to the Superintendency.

Obligation to Evaluate and Report to the SBS Any Non-Compliance with this Regulation

Article 5.- The internal audit unit or equivalent unit will be responsible for evaluating any non-compliance with the codes of ethics, the standards of professional conduct, the policies and the requirements of professional capacity, experience and moral solvency referred to in this Regulation and to inform the Board of Directors of the company and the Superintendency in a timely manner about such facts, including the preventive and corrective measures adopted.

Additionally, annually, within a period not exceeding three (03) months after the close of each year, supervised companies must present to the Superintendency an annual report prepared by the internal audit area or equivalent unit on the compliance with the provisions established in this Regulation. This annual report will be brought to the knowledge of the Board of Directors.

FINAL AND COMPLEMENTARY PROVISIONS

FIRST.- Deadline for submission of codes of ethics, standards of professional conduct, policies and requirements

Banking companies, insurance companies and AFPs will have a period of one hundred eighty (180) days, counted from the date of publication of this Regulation, to elaborate the codes of ethics, the standards of professional conduct, the policies, the requirements they establish on professional capacity, experience and moral solvency, as well as the list of their personnel in charge of the investment process indicated in this norm. This information will be available to the Superintendency.

SECOND.- Deadline for adaptation regarding compliance with professional requirements 1

Banking and insurance companies will have a period of three hundred sixty (360) days, counted from the date of publication of this Regulation, to choose the exam that leads to the certification or equivalent indicated in Article 4 of this norm. In the case of AFPs, this period will be one hundred eighty (180) days, counted from the date of publication of this norm.

Additionally, all the aforementioned companies will have a period of up to two (02) years, from the date that the period specified in the previous paragraph expires, to comply with the requirement established in the second paragraph of Article 4.

1 Provision modified by Article Second of Resolution SBS No. 1089-2005 published on 24/07/2005.