Resolution SBS No. 1559-2022: Amend Title VI to Establish Maximum Operational Percentages and/or Investment Sub-limits

Los Laureles Nº 214 - Lima 27 - Peru Tel.: (511) 6309000 Lima, May 11, 2022

S.B.S. Resolution
No. 1559-2022

The Superintendent of Banking, Insurance and Private Pension Fund Administrators

CONSIDERING:

That, subsections a), e), i) and l) of Article 57 of the Law of the Private System for the Administration of Pension Funds, whose Consolidated Text was approved by Supreme Decree No. 054-97-EF, hereinafter the SPP Law, establish that it is the authority and obligation of the Superintendence to ensure the safety and adequate profitability of the investments made by the AFPs with the resources of the funds they administer, to supervise the AFPs in compliance with the legal and administrative provisions governing them, to supervise the investment of the resources of the funds they administer, as well as to issue resolutions incorporating new modalities of operations and services to the activity of the AFPs within their purposes;

That, Article 25 B of the SPP Law establishes that the investments of the AFPs with the resources of the funds they administer must be subject to the investment diversification policy of each type of fund, and that it is the responsibility and obligation of the AFPs to inform affiliates in detail about the characteristics and risks of each of them;

That, through Supreme Decree No. 196-2021-EF, Article 61B of the Regulations of the SPP Law, approved by Supreme Decree No. 004-98-EF, was modified, with the aim of adapting it to what is provided in the last paragraph of the aforementioned Article 25-B of the SPP Law, and to allow the Superintendence, with the prior opinion of the Ministry of Economy and Finance, and in accordance with technical criteria and the needs of the pension system, to establish maximum operational percentages and/or sub-limits to those established in the aforementioned Article 25-B of the SPP Law;

That, through the Sole Complementary Derogatory Provision of the aforementioned Supreme Decree No. 196-2021-EF, the repeal of articles 62, 62A, 63, 64, 65, 66, 67, 68, 69, 71, 73, 74 and 75 of the aforementioned Regulations of the SPP Law is ordered, from the entry into force of the resolution(s) issued by the Superintendence on the matters regulated in the cited articles, which must have the prior opinion of the Ministry of Economy and Finance, in accordance with what is provided in the aforementioned Article 61B of the Regulations of the SPP Law;

That, through Resolution No. 052-98-EF/SAFP, Title VI of the Compendium of Regulatory Supervision Norms of the Private System for the Administration of Pension Funds, referred to Investments, was approved;

That, it is necessary to eliminate the existing heterogeneity in the limits and sub-limits per issuer, because its application generates inefficiencies in the management of pension fund investments; and, consequently, it proceeds to simplify and opt for a single limit per issuer, regardless of its nature or the type of instrument it issues, in order to contribute to obtaining better possibilities of combining profitability and risk;

That, the current conditions that investments of resources located in the Pension Fund Type 0 must meet generate that the AFPs have a lower offer of opportunities or alternatives for investment, so it is necessary to approve a higher limit per issuer with respect to that provided for the other types of Funds managed by the AFPs;

That, the current investment limits associated with accounting accounts show deficiencies in their determination when financial statements are not available, so they cannot be used for the implementation of profitability reference indicators in portfolio management and, consequently, it is justified to approve the repeal of said limits;

That, the provisions contained in Chapter XI of Title VI of the Compendium of Regulatory Supervision Norms of the Private System for the Administration of Pension Funds, referred to Investment Risk Management, requires the AFPs, among others, to adequately manage credit and liquidity risks, concentration levels; as well as the evaluation of investment instruments, such as stress models that consider risk factors, the requirement of guarantees, collateral and other enhancers that allow increasing the credit quality of investment instruments; so it is considered prudent to eliminate any reference to the risk and liquidity factors, provided in the aforementioned Article 62 of the Regulations of the SPP Law;

That, mutual funds and investment funds are legal structures independent of the managing company and, therefore, the risks are inherent to the investment in the mutual fund and in the investment fund, but not to the managing company, so the investment limit with respect to the managing company must be defined by the AFP in the investment policy of the pension funds;

That, technical consistency must be maintained between the limits applicable to investment in mutual funds and investment funds, so it proceeds to modify the limits applicable to these investment alternatives;

That, it is necessary to simplify the methodology for calculating investment limits per issuance or series applicable to local instruments in order to eliminate intermediate calculations that imply the use of issuance risk factors, proceed to establish a limit per issuance with a fixed percentage, and apply the investment limit based on the shares in circulation available for trading or "float" for the instrument category defined in subsection i) of Article 25-A of the Law with the aim of promoting greater liquidity of the local equity portfolio of pension funds;

That, for the purpose of collecting opinions from the general public regarding the proposed modifications to the SPP regulations, the draft resolution on the matter was pre-published on the electronic portal of the Superintendence in accordance with what is provided in Supreme Decree No. 001-2009-JUS;

That, in accordance with what is established in article 61B of the aforementioned Regulations of the SPP Law, the Ministry of Economy and Finance has issued an opinion on the present regulatory proposal, through Letter No. 922-2022-EF/13.01;

Having the approval of the Adjunct Superintendencies of Private Pension Fund Administrators, Legal Advice, Economic Studies, and Risks; and,

In exercise of the powers conferred by numbers 7 and 9 of Article 349 of the General Law of the Financial System and the Insurance System and the Organic Law of the Superintendence of Banking and Insurance, Law No. 26702 and its amendments, articles 25 and 57 of the SPP Law, and Article 61B and the Third Final and Transitory Provision of the Regulations of the SPP Law;

RESOLVES:

Article First.- Incorporate articles 74°-A, 75°-M, 76°-A, 76°-B, 76°-C, 76°-D, 76°-E, 78°-A, 78°-B, as well as the Thirty-Seventh and Thirty-Eighth Final and Transitory Provisions, to Title VI of the Compendium of Regulatory Supervision Norms of the Private System for the Administration of Pension Funds, approved by Resolution No. 052-98-EF/SAFP and its amendments, in accordance with the following texts:

“Article 74°-A.- Types of funds in the formation stage. The AFP that administers funds that are in the formation stage must make a diligent and reasonable effort to comply with all maximum investment limits during this stage. This formation period corresponds to the period between the date of initiation of investments and the date on which the value of each type of fund administered reaches a size equivalent to four hundred million Soles (S/. 400,000,000). During this period, a reasonable criterion is applied regarding investment excesses that may occur, in order not to harm the formation of the funds given their relatively small size. The share values and profitability indicators of funds in the formation stage must be published indicating that this information may present significant variations. The publication of comparative profitability indicators is carried out in accordance with the deadlines established by general application norm.”

“Article 75°-M- Limit per local managing company. - The AFP must define in the investment policies of each type of fund, a limit applicable to investments made by an AFP in participation shares of mutual funds or investment funds managed by the same local managing company.”

“Article 76°-A.- Limits per issuer applicable to local instruments. Investments made by an AFP in investment instruments that belong to the instrument categories defined in subsections i) to iv) of article 25-A of the Law, issued by the same local issuer regardless of its nature, except those indicated in article 76°-C, must not be greater than ten percent (10%) of the value of the respective Type 1, 2, or 3 Fund. In the case of Type 0 Fund, this limit is equivalent to thirty (30%) of the value of said Fund. The calculation of the aforementioned limits per issuer must consider the guidelines indicated in Article 77°. The AFP must define diversification criteria in each instrument category, based on the risk of the investment instruments and the profile of each type of fund.”

“Article 76°-B.- Investment limits by market capitalization, issuance or series, applicable to local instruments. Investments made by an AFP in instruments that belong to the category defined in subsection i) of article 25-A of the Law, issued by an issuer, regardless of its nature, except those indicated in article 76°-C, are subject to the following limits:
a) It must not be greater than the relative participation of the value of all funds administered by it, in relation to the total value of all SPP funds, multiplied by eight tenths (0.8) on the common shares or investment shares in circulation available for trading or "float" in question. Such relative participations correspond to those determined based on the value of Type 1, 2 and 3 Funds administered by the AFPs, at the close of the months of January and July of each year. b) In the case of local equity titles that are part of the profitability reference indicator, defined in the investment policy, the necessary percentage can be reached to replicate the mentioned profitability reference indicator. Investments made by an AFP in instruments that belong to the category defined in subsection ii) of Article 25-A of the Law, issued by an issuer regardless of its nature, except those indicated in article 76°-C, are subject to the following limits:
a) Fifty percent (50%) of the value of each issuance or series effectively placed, considering all funds, in case the equivalent risk classification is equal to or greater than BBB- local or its international equivalent in accordance with the provisions established by the Superintendence through circular. b) Thirty-five percent (35%) of the value of each issuance or series effectively placed, considering all funds, in case the equivalent risk classification is less than BBB- local or its international equivalent in accordance with the provisions established by the Superintendence through circular. Investments made by an AFP in instruments that belong to the category defined in iv) of Article 25-A of the Law, issued by an issuer regardless of its nature, except those indicated in article 76°-C, are subject to the following maximum limits:
a) One hundred percent (100%) of the value of each issuance or series effectively placed, in case the equivalent risk classification is equal to or greater than CP-3 local or its international equivalent in accordance with the provisions established by the Superintendence through circular. b) Forty percent (40%) of the value of each issuance or series effectively placed, in case the equivalent risk classification is less than CP-3 local or its international equivalent in accordance with the provisions established by the Superintendence through circular. The aforementioned limits do not apply to investments in instruments issued or guaranteed by the Peruvian State or by the Central Reserve Bank of Peru.”

“Article 76°- C.- Limits per issuer applicable to local mutual funds and investment funds. Investments made by an AFP in the participation shares of the same mutual fund are subject to the following maximum investment limits per issuer:
a) Five percent (5%) of the value of each type of fund. b) Ten percent (10%) of the value of the net worth of the mutual fund, considering all types of fund.
Investments made by an AFP in the participation shares of the same investment fund are subject to the following maximum investment limits per issuer:
a) Five percent (5%) of the value of each type of fund. b) Fifty percent (50%) of the value of the net worth of the investment fund, considering all types of fund.
Investments made by an AFP, in the case of mutual funds that invest their resources in the instruments that compose indices that replicate the complete or partial behavior of local equity or debt markets (ETF), the maximum limit in a mutual fund is up to fifty percent (50%) of the limit corresponding to the category of the investment instrument to which the mutual fund or investment fund belongs by Type of Fund. The maximum limit per mutual fund, indicated in the previous paragraph, is fifty percent (50%) of the value of the size of each mutual fund, considering all types of Fund.”

“Article 76°-D.- Limit per economic group. In the case of Type 1, 2 or 3 Funds, investments made by an AFP in investment instruments that belong to the instrument categories defined in subsections i) to iv) of Article 25-A of the Law, issued by the same economic group, regardless of its nature, must not be greater than fifteen percent (15%) of the value of the respective Type 1, 2, or 3 Fund. In the case of Type 0 Fund, said percentage is equivalent to thirty-five percent (35%) of the value of said type of fund.

“Article 76°-E.- Reduction of limits by affiliation. The limits of investments made by an AFP in investment instruments issued by a certain issuer, regardless of its nature, that is part of the economic group to which the AFP belongs, are reduced by thirty percent (30%).
This provision is applicable to the following limits: Limits on investment per issuer of local instruments; limits on investment per issuance or series applicable to local instruments, and limits on investment per economic group.
Exceptionally and considering criteria associated with the construction of the profitability reference indicators defined in the investment policies of each type of fund, the aforementioned restriction can be lifted, upon substantiated request by the AFP.”

“Article 78°-A.- Treatment of investment excesses. Once an investment excess occurs in liquid instruments, the AFP must sell, no later than the next business day after the excess occurred, the instruments or operations it selects in order to comply with all maximum investment limits or the requirements established in the regulations.
In case the investment instruments are illiquid or cannot be sold immediately after an investment excess occurs, the AFP has a maximum period of 30 calendar days from the occurrence of the excess to present to the Superintendence, for its approval, a duly substantiated adjustment plan to eliminate investment excesses in such a way that it does not harm the pension funds nor the markets of the investment instruments. The Superintendence authorizes or requests modifications to the adjustment plan, within the 30 calendar days following its presentation. The minimum content of the adjustment plan is as follows:
a) List of investment limits in which investment excesses have occurred. b) Dates on which the investment excesses occurred and explanation of the reasons for the mentioned excesses. c) Actions taken from the date of start of the investment excess until the date of presentation of the adjustment plan. d) Investment instruments that it has decided to sell to eliminate the investment excesses; or description of the procedure to select said instruments. e) Description and support of the adjustment plan to eliminate the investment excesses. Concrete actions and execution deadlines must be defined. f) Investment costs generated in the process of eliminating investment excesses, differentiating those to be assumed by the AFP and by the pension funds. g) Persons responsible for the implementation and monitoring of the adjustment plan. Non-compliance with what is established in these provisions constitutes a serious offense subject to sanction and the uneliminated excesses, regardless of their origin, will be qualified as attributable.”

“Article 78°-B.- Responsibility of the AFP for attributable excesses. When the investment excess is due to a cause strictly attributable to the AFP and the value of the sale generates determinable losses to the pension funds, the AFP must cover such losses with its own resources, in accordance with the provisions determined by the Superintendence.”

“Thirty-Seventh.- Consequences of investment excesses. Until a new profitability calculation methodology for pension funds enters into force, in no case are the benefits obtained from attributable investment excesses included in the determination of the profitability level of the fund administered by an AFP that the Superintendence publishes.
In this context, the share values used for the calculation of the profitability referred to in Subchapter II of Chapter V of this Title correspond to the adjusted share values. The Superintendence establishes through Circular the guidelines it uses to carry out said adjustments.”

“Thirty-Eighth.- Treatment of investment excesses in illiquid instruments. In no case are the benefits obtained from investment excesses, attributable or not, in alternative instruments and other illiquid instruments, to be included in the determination of the profitability level of the fund administered by an AFP that the Superintendence publishes.
In this context, the share values used for the calculation of the profitability referred to in Subchapter II of Chapter V of this Title correspond to the adjusted share values. The Superintendence establishes through Circular the guidelines it uses to carry out said adjustments.”

Article Second.- Modify Title VI of the Compendium of Regulatory Supervision Norms of the Private System for the Administration of Pension Funds, approved by Resolution No. 052-98-EF/SAFP and its amendments, in accordance with the following:

• Modify the penultimate paragraph of Article 72°-A, in accordance with the following text:
  “Article 72°-A.- Risk-adjusted profitability.
  (...)
  The nominal daily profitability referred to in this article is obtained by dividing the share value of the business day “t” by the share value of the business day “t-1”. Likewise, a business day is understood as the days in which the respective Daily Investment Reports presented to the Superintendence were validated.
  (...)”

• Modify the sixth paragraph of Article 75°-C, in accordance with the following text:
  “Article 75°C.- Limits and sub-limits applicable to alternative instruments.
  (...)
  Before committing capital from the resources of the Managed Portfolios, the AFP must evaluate the criteria established in articles 78° and 78°-A.
  (...)”

• Modify the second paragraph of Article 77°, in accordance with the following text:
  “Article 77°.- Participation shares of funds and Investment instruments representative of securitized assets.
  (...)
  “The provision indicated in the preceding paragraph is not applicable to those local and foreign mutual funds that seek to replicate the profitability reference indicators defined by the AFP in its investment policy within the framework of what is established in Chapter XIII. The maximum investment limits per issuer indicated in Article 76°-A or Article 12 of the Regulations for the Investment of Pension Funds Abroad, and the issuance or series limits, are not applicable to those local and foreign mutual funds that use reference or mandatory profitability reference indicators on categories of local instruments, prepared and calculated by an entity independent of the managing company and its affiliates. (...)”

• Modify Article 77J°, in accordance with the following text:
  “Article 77°-J.- Limits per issuer applicable to derivative instruments. The counterparty of an operation with a derivative instrument traded in a non-centralized mechanism that is carried out under a master contracting agreement that includes a bilateral compensation agreement, is included in the calculation of the maximum limit per issuer indicated in Article 76°-A or Article 12 of the Regulations for the Investment of Pension Funds Abroad. For each counterparty, the maximum value between zero and the sum of the market values of the forwards, options and swaps contracts is considered; provided that, the AFP has a legal opinion confirming that the aforementioned compensation agreement is applicable and enforceable in the country of constitution of the counterparty. The collateral received to reduce counterparty risk decreases the position applicable to the aforementioned limits per issuer, provided that the AFP legally verifies that this can be executed directly, in accordance with the applicable legislation, in the country of constitution of the counterparty or guarantee, as applicable, and that it meets the requirements indicated in Article 53K° and/or Article 16° of the Regulations for the Investment of Pension Funds Abroad, as applicable. For the purposes of the maximum investment limits per issuer established in Article 76°-A or Article 12 of the Regulations for the Investment of Pension Funds Abroad, depending