Resolution SBS No. 18400-2010: Regulation for the Classification of Financial System Companies and Insurance Companies

Lima, December 29, 2010

S.B.S. Resolution No. 18400-2010

The Superintendent of Banking, Insurance and Private Pension Fund Administrators

CONSIDERING:

That, the General Law of the Financial System and of the Insurance System and Organic Law of the Superintendence of Banking and Securities, Law No. 26702 and its modifying laws, hereinafter General Law, establishes in articles 136 and 296 that financial system companies that collect funds from the public and insurance companies must have a classification by at least two rating agencies every six months;

That, through SBS Resolution No. 672-97 of September 29, 1997, the Regulation for the classification of financial system companies and insurance system companies was approved, which regulates the registration process of rating agencies, as well as the classification process to which supervised companies are subject;

That, in order to perfect the classification process of supervised companies, it is necessary to introduce additional mechanisms that promote an appropriate level of independence between them and risk rating agencies, as well as the obtaining of adequate information for the classification process;

That, in order to collect the opinions of the general public regarding the proposed modifications to the financial system and insurance company regulations, the pre-publication of the draft resolution modifying provisions for the classification of said companies was ordered on the electronic portal of the Superintendence, under the provisions of Supreme Decree No. 001-2009-JUS;

Being in accordance with the opinion of the Deputy Superintendencies of Banking and Microfinance, Insurance, Risks, Economic Studies and Legal Advice; and,

In exercise of the powers conferred by items 7 and 17 of article 349 of the General Law;

RESOLVES:

Article First.- Approve the Regulation for the classification of financial system companies and insurance companies, according to the following text:

“REGULATION FOR THE CLASSIFICATION OF FINANCIAL SYSTEM COMPANIES AND INSURANCE COMPANIES

CHAPTER I GENERAL ASPECTS

Scope Article 1.- This Regulation applies to financial system companies and insurance companies, and to the extent applicable, to risk rating agencies that participate in the classification process referred to in articles 136 and 296 of the General Law.

Definitions Article 2.- For the application of this regulation, the following concepts shall be considered: a. Financial system companies: Financial system companies that collect funds from the public. b. Insurance companies: Insurance and reinsurance companies defined in letter D of article 16 of the General Law. c. Classification Committee: Body of the risk rating agency responsible for issuing the classification opinion. d. General Law: General Law of the Financial System and of the Insurance System and Organic Law of the Superintendence of Banking and Securities, Law No. 26702 and its respective modifying laws. e. Registry: Registry of risk rating agencies under the Superintendence. f. Sanctions Regulation.- Sanctions Regulation approved by SBS Resolution No. 816-2005. g. Superintendence: Superintendence of Banking, Insurance and Private Pension Fund Administrators.

Company Classification Article 3.- Company classification is defined as the evaluation process carried out according to the methodology previously presented to the Superintendence, the result of which expresses the opinion of risk rating agencies on the capacity of financial system companies and insurance companies to manage the risks they face, in order to fulfill their obligations with savers and policyholders, respectively. The assigned rating is the sole responsibility of the risk rating agency.

Independent Rating Agencies. Article 4.- A rating agency is considered independent of another when: a) There is no single-risk linkage between them, according to special regulations on linkage and economic groups, approved by SBS Resolution No. 445-2000; or, b) There is no relationship or interest between them, in accordance with the Securities Market Law and its complementary regulations.

Mandatory Risk Classification Article 5.- All financial system companies and insurance companies must have risk classification from at least two (2) independent risk rating agencies registered in the Registry.

Permanent Evaluation Article 6.- The risk classification of financial system companies and insurance companies is a permanent evaluation, with mandatory semi-annual updates carried out with information as of June 30 and December 31 of each year. In the event of any fact or event that, due to its characteristics, could alter the previously assigned classification, the risk rating agency will proceed to issue a new classification.

CHAPTER II REGISTRY OF RISK RATING AGENCIES

Risk Rating Agencies Article 7.- The mandatory risk classification of financial system companies and insurance companies may only be performed by risk rating agencies that are duly registered in the Registry.

Requirements for Registration in the Registry Article 8.- To register in the Registry, risk rating agencies must submit an application attaching, at least, the information detailed below: a) For the case of risk rating agencies registered in the Registry of the Securities Market of the National Commission for the Supervision of Companies and Securities (CONASEV): i. Company name, registered address, share capital, shareholders and percentage of participation, directors, managers, employees in charge of classification projects, and full and alternate members of the classification committee. ii. Document accrediting their status as a risk rating agency registered in the Public Registry of the Securities Market of CONASEV. iii. One (1) copy of the classification methodology(ies) for each type of financial system company and for insurance companies, detailing the corresponding technical criteria, ratios, and weights. iv. Additional information that the Superintendence considers pertinent. b) For the case of risk rating agencies constituted abroad and operating internationally: i. Document accrediting that the company performs ratings of financial system companies and/or insurance companies in no less than ten (10) countries, of which at least five (5) must be Latin American. ii. Company name, registered address, share capital, shareholders and percentage of participation, directors, managers, employees in charge of classification projects in the Peruvian market, and full and alternate members of the respective classification committee.

iii. Sworn declaration stating the commitment of the rating agency and its members to perform, in their work in Peru, activity exclusively related to risk classification. iv. One (1) copy of the classification methodology(ies) for each type of financial system company and for insurance companies, detailing the corresponding technical criteria, ratios, and weights. v. Company reports available for the last two (2) years. vi. Certified copy of the agreement of the competent corporate body authorizing the establishment of a branch with assigned capital or a subsidiary in Peru. The capital in both cases must be equal to that required by the Securities Market Law (Legislative Decree 861). vii. Name of the legal representative and their legal address in Peru. viii. Copy of the power of attorney granted to the representative and their acceptance, duly registered in the Public Registries. ix. Curriculum vitae of the legal representative. x. Additional information that the Superintendence considers pertinent. Risk rating agencies must permanently update the information contained in the Registry, communicating any modification in said information within a period not exceeding five (05) business days.

Deadline for Authorization of Registration Article 9.- Upon submission of the application indicated in the preceding article, within a period not exceeding thirty (30) business days, the Superintendence will issue a resolution authorizing the registration of the rating agency in the Registry, prior to the evaluation of the information referred to in the preceding article. The authorizing resolution must be published in the Official Gazette and in another newspaper of national circulation, within ten (10) business days following its issuance. The expenses for said publication shall be borne by the rating agency. The Superintendence may request more information about the classification methodology(ies) and other aspects it considers pertinent. In this case, the deadline indicated in the first paragraph is suspended until the requested information is presented, to the satisfaction of the Superintendence.

Exclusion from the Registry Article 10.- Risk rating agencies that fail to comply with any of the provisions established in this regulation, including the application of their classification methodology, will be excluded from the Registry.

CHAPTER III IMPEDIMENTS, LIMITATIONS AND CONTRACTING

Impediments and Prohibitions Article 11.- Risk rating agencies are impeded from classifying a financial system company and/or insurance company when: a) There is a single-risk linkage between them, in accordance with provisions issued by the Superintendence, or if they are related or present interest between them, according to the criteria established by the Securities Market Law and its respective complementary regulations. b) Companies linked to it have provided advisory and/or consulting services to the classified company in the twelve (12) months prior to the signing of the contract. c) They have registered overdue credits for more than one hundred twenty (120) calendar days or that have entered judicial collection, in any of the financial system companies. d) Additionally, it will be considered an impediment to be a shareholder or partner, director, manager, full or alternate member of the classification committee, or official in charge of a classification project, having been sanctioned at any time by the Superintendence. Regarding risk rating agencies that, after their registration in the Registry, incur in any impediment, they will be excluded from it, until the rating agency substantiates before the Superintendence that it has remedied the observation that gave rise to said removal. The Superintendence may request additional information from the rating agency before reincorporating it into the Registry. Financial system companies or insurance companies that maintain active contracts with risk rating agencies that have been excluded from the Registry must terminate the classification contract and hire a new rating agency.

Prohibitions Regarding Operations with Risk Rating Agencies Article 12.- Financial system companies and insurance companies, while maintaining an active contract with the registered rating agency, may not grant them new credits or subscribe to new insurance policies, respectively, under more favorable conditions than those offered to their other clients with a similar risk profile. This prohibition will also apply to the shareholders or partners, directors and managers of the aforementioned rating agency, to the full or alternate members of its classification committee and to its officials in charge of the classification project. Furthermore, during said periods, financial system companies and insurance companies may not acquire debt and/or capital instruments issued by the rating agency with which the respective contract has been signed. Contracting of risk classification services is also prohibited when, in the three (03) months prior to the signing of the contract, the operations prohibited in this article have been carried out. Likewise, this prohibition extends to the three (03) months following the conclusion of the contract.

Contracting of the Rating Agency Article 13.- Financial system companies and insurance companies must hire the services of risk rating agencies with a notice of no less than three (3) months prior to the semi-annual update referred to in article 6. Such contracting must be communicated to the Superintendence by the contracting company within a period not exceeding five (5) business days after the signing of the contract, attaching a copy thereof. Minimum Content of Contracts Article 14.- Contracts between financial system companies or insurance companies and risk rating agencies must be agreed upon for a minimum term of twelve (12) months and must indicate the mechanisms for the exchange of information between the parties, the officials responsible for the timely and accurate delivery thereof, and any other information that the parties consider. Termination of Contracts Article 15.- Financial system companies and insurance companies that decide to terminate contracts with risk rating agencies must communicate such decision to the Superintendence with a notice of no less than two (2) months prior to the termination date, except in exceptional cases duly substantiated. The Superintendence reserves the right to summon the rating agency and the financial system company or insurance company, as appropriate, for the purposes it deems convenient.

CHAPTER IV CLASSIFICATION PROCEDURE

Classification Methodology Article 16.- The classification methodology must be oriented to evaluate the capacity of financial system companies and insurance companies to manage the risks they assume in order to fulfill their obligations with savers and policyholders, respectively. For this effect, risk rating agencies will identify the risks to which the companies subject to classification are exposed and analyze the policies and procedures for their management, and their respective monitoring, taking into account the most recent quantitative and qualitative information. Classification will be carried out according to the methodology previously presented to the Superintendence.

Categories Article 17.- Financial system companies and insurance companies will be classified by assigning capital letters, from lower to higher risk, from letter A to letter E. Categories from A to D may be differentiated by adding a positive “+” sign or a negative “-” sign to distinguish those institutions that are at the upper or lower extreme of the generic category, respectively. Communication of Classification Opinion Article 18.- The rating agency, within two (2) business days following the holding of the classification committee, will communicate to the Superintendence and to the company subject to classification the assigned classification. The communication addressed to the Superintendence must include a report of the evaluations carried out for the assignment of the classification.

Review of Classification Opinion Article 19.- In cases where the company subject to classification does not agree with the assigned classification, it may request, within eight (08) business days following receipt of the communication, and only once, a review of the opinion. When said review modifies the result of the classification, the rating agency must communicate to the Superintendence and to the company subject to classification said change, within two (02) business days following the modification, attaching the supporting report. Publication Article 20.- The risk rating agency will proceed to publish the final classification in at least one newspaper of national circulation, within five (05) business days following its issuance. Final classification is considered to be when, having passed the period provided for in article 19, no request for review of the classification opinion has been made. In case of a review request, the final classification will be that issued by the rating agency's classification committee convened for the review of the opinion. The Superintendence may establish other mechanisms for the dissemination of classifications of financial system companies and insurance companies. For the case of semi-annual risk classifications of financial system companies and insurance companies provided for in article 6, the publication must be carried out at the latest on the last business day of September and March for updates carried out with information as of June 30 and December 31 of each year, respectively. Minimum Information of Publications Article 21.- The publication provided for in the preceding article must exclusively record information related to the classification of financial system companies and insurance companies. The publication must contain at least the following information: a) Identification of the classified company; b) Identification of the rating agency; c) The assigned classification indicating the description of the category and, if applicable, the subcategory, the explanation of the classification granted and, if applicable, the previously granted classification; d) The indication that the classification expresses an independent opinion of the risk rating agency on the capacity of financial system companies and insurance companies to manage risks; e) The indication that the risk rating agency assumes absolute responsibility for the classification performed; and, f) Date of the classification committee in which the respective opinion was issued.

CHAPTER V OBLIGATIONS AND RESPONSIBILITIES

Obligation to Provide Information Article 22.- The company subject to classification must provide the necessary information in a timely and complete manner so that the rating agency can adequately perform its work. The manager and, if applicable, the board of directors or equivalent body of the company subject to classification will be responsible for compliance with this obligation.

Obligation of Information Confidentiality and Bank Secrecy Article 23.- The rating agency, its directors, managers, officials, advisors, representatives and members of the classification committee, have the obligation to keep confidential the information provided by the companies subject to classification, especially that referred to the passive operations that the companies subject to classification have with their clients in accordance with article 140 of the General Law.

Responsibility Article 24.- The rating agency is responsible for the classification it performs on financial system companies and insurance companies. The directors, managers, officials, advisors, representatives and members of the classification committee of the risk rating agencies that intervene in a classification process assume responsibility for their participation.

COMPLEMENTARY AND TRANSITORY PROVISIONS

Minimum Content of the Report First.- Until the Superintendence issues a general norm with the minimum content of the report referred to in article 18 of this Regulation, risk rating agencies may use their own report formats.

Classification of Small and Microenterprise Development Entities - EDPYMES Second.- Small and microenterprise development entities (EDPYMES) authorized to collect deposits from the public will have a period of one hundred eighty (180) calendar days from the entry into force of the resolution issued by the Superintendence authorizing them to carry out said operation, as provided in the Regulation for the expansion of operations, approved by SBS Resolution No. 11698-2008, to comply with what is established in article 5.

Single-Risk Linkage Third.- Financial system companies and insurance companies must inform the Superintendence of the existence of single-risk linkage between them and the rating agency hired for their classification, within thirty (30) calendar days following the entry into force of this norm. For the purposes of what is stated in article 11 regarding single-risk linkage, the companies referred to in the previous paragraph will have an adaptation period that will expire on July 31, 2011.

Adaptation of Contracts Fourth.- Contracts signed prior to the entry into force of this norm must be adapted to what is established in article 14 of this Regulation in case of renewal or modification.”

Article Second.- Modify the Sanctions Regulation approved by Resolution No. 816-2005, according to the following indication: Incorporate item 27) into the serious infractions of Annex 1, referred to “Common Infractions”, according to the following text: 27) Fail to comply with the obligation to communicate to the Superintendence the contracting of the services of risk rating agencies according to the deadline and formality provided for in the Regulation for the classification of financial system companies and insurance companies

Article Third.- This resolution will enter into force from the day following its publication in the Official Gazette “El Peruano”, from which date the Regulation for the classification of financial system companies and insurance system companies, approved by SBS Resolution No. 672-97 of September 29, 1997, will be repealed.

Register, communicate and publish,

FELIPE TAM FOX Superintendent of Banking, Insurance and Private Pension Fund Administrators