Resolution SBS No. 1299-2022: Amend the Regulation for the Negotiation and Accounting of Financial Derivative Products in Financial System Companies

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511)6309239 Lima, April 20, 2022 Resolution S.B.S. No. 01299-2022

The Superintendent of Banks, Insurance, and Private Pension Fund Administrators

CONSIDERING:

That, numeral 16 of Article 221 of the General Law of the Financial System and of the Insurance System and the Organic Law of the Superintendence of Banks and Insurance, Law No. 26702 and its amendments, hereinafter the General Law, authorizes financial system companies to carry out operations with commodities and with financial derivative products, such as forwards, futures, swaps, options, credit derivatives, or other instruments or contracts of derivatives, in accordance with the regulations issued by the Superintendence;

That, Articles 283 to 289 of the General Law indicate the operations that may be carried out by multiple-operation companies of the financial system according to the type of company, stating that companies may carry out other operations listed in Article 221 of the General Law and distinct from those described in the aforementioned articles, provided they meet the requirements established by this Superintendence;

That, by Resolution SBS No. 1737-2006 and amending regulations, the Regulation for the Negotiation and Accounting of Financial Derivative Products in Financial System Companies, hereinafter the Regulation, was approved;

That, in order to clarify the valuation methodology for financial derivative products, it is necessary to modify the Regulation;

That, with the aim of collecting public opinions on the proposal, the pre-publication of the draft regulation was ordered on the electronic portal of the Superintendence, under the provisions of Supreme Decree No. 001-2009-JUS;

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

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

RESOLVES:

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511)6309239 Article First.- Modify the Regulation for the Negotiation and Accounting of Financial Derivative Products in Financial System Companies, approved by Resolution SBS No. 1737-2006 and amending regulations, according to the following:

1. Replace Article 8 with the following text:

"Accounting of Financial Derivative Products for Trading Article 8.- The initial measurement of a financial derivative product for trading shall be carried out at its fair value. Subsequently, any change in the fair value of said derivative will affect the results of the period. To this end, the valuation at buyer price (bid) or seller price (ask) must be estimated for open positions, depending on whether the position is long (active) or short (passive). For those positions that offset market risks among themselves and for those foreign currency forward operations with a contractual maturity of one (1) year or less, the valuation at mid-market prices may be estimated.

To estimate bid and ask prices, one may start from a mid-price valuation (using rate curves or mid-prices) and apply mid-to-bid and mid-to-ask valuation adjustments that allow approximating the aforementioned prices and appropriately reflect the exit price of the position in the financial derivative instrument, or one may directly value long positions at bid prices and short positions at ask prices.

To apply mid-prices, it is considered that financial derivative instruments that offset market risks among themselves are those that represent opposite positions in the same underlyings and coincide in all their critical terms (nominal amounts, cash flows, maturities, currencies, and interest rates). It can be considered that a group of derivatives offsets with a single derivative or another group of derivatives if they meet the conditions indicated above, taking into account that the aggregate nominal amount of a group of derivatives must coincide with the nominal of the derivative or the aggregate nominal of another group of derivatives with which they offset."

2. Incorporate Article 8-A, according to the following text:

"Accounting of Financial Derivative Products for Hedging Purposes Article 8-A.- The initial measurement of a financial derivative product for hedging purposes shall be carried out at its fair value. Subsequently, changes in the fair value of said derivative will affect the results of the period or equity, as established in Articles 16, 17, and 18 of this Regulation. The valuation may be estimated at buyer price (bid) or seller price (ask) depending on whether the position is long (active) or short (passive), according to the methodologies indicated in Article 8, or it may also be estimated at mid-market prices."

Article Second.- The First Article of this Resolution enters into force starting June 1, 2022, granting an adaptation period for its implementation until December 31, 2022.

Register, communicate, and publish.

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511)6309239 MARIA DEL SOCORRO HEYSSEN ZEGARRA Superintendent of Banks, Insurance, and AFP