SUPERINTENDENCY OF BANKING, INSURANCE AND AFP Republic of Peru

Lima, 22 June 2023

Resolution S.B.S. No. 2186-2023

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

WHEREAS

That article 23 of the Law of the Private Pension Fund Administration System, whose Single Ordered Text is approved by Supreme Decree No. 054-97-EF, hereinafter the SPP Law, provides that the Legal Reserve, constituted with the own resources of the Private Pension Fund Administrator, hereinafter AFP, serves to guarantee the minimum profitability of the pension funds, as well as to cover the potential damages that the AFP causes to the pension funds due to the breach of the obligations established in the SPP Law and its regulations;

That subparagraphs h) and i) of article 57 of the SPP Law establish that the following are attributions and obligations of the Superintendency: to supervise the constitution, maintenance, operation and application of the Legal Reserve and the other profitability guarantees and the investment of the resources destined to said funds; and to supervise the investment of the resources of the funds administered by the AFP, including the aforementioned Legal Reserve;

That article 86 of the Regulation of the SPP Law, approved by Supreme Decree No. 004-98-EF, hereinafter Regulation of the SPP Law, provides that the Superintendency is responsible for establishing the guarantees of the minimum profitability corresponding to each fund, which must be used to compensate the pension fund in case the AFP does not reach the minimum profitability;

That the seventh final and complementary provision of the aforementioned Regulation of the SPP Law provides that it corresponds to the Superintendency to establish the nature, application and mechanisms for the constitution and instrumentation of the Legal Reserve;

That by Resolution No. 052-98-EF/SAFP, Title VI of the Compendium of Regulatory Superintendency Rules of the Private Pension Fund Administration System is approved, referred to Investments, where the methodology for calculating the Legal Reserve required of the AFPs is regulated;

That by Resolution SBS No. 724-2001, Title X of the Compendium of Regulatory Superintendency Rules of the Private Pension Fund Administration System is approved, referred to Qualification and Risk Classification of

Investments, replacing the one approved by Resolutions No. 248-98-EF/SAFP and No. 284-98- EF/SAFP and its amendments;

That it is necessary to modify the methodology for calculating the Legal Reserve in order to solve the inconsistency between the required reserve rates and the volatility of the value of the pension funds, solve the operational inconveniences in the application of the reserve rates, as well as the inconsistencies between the eligibility requirements and the risk classification requirement of the investment instruments for purposes of the Legal Reserve;

That the Legal Reserve must be consistent with the long-term investment horizon of the pension funds and foster a better alignment of the interests of the AFP and the affiliates in the management of the funds;

That the new methodology for calculating the Legal Reserve does not depend on the risk classification of the investment instruments, so it is necessary to make adjustments to the aforementioned Title X, in order to eliminate all reference to reserve rates based on risk classification, as well as to repeal category "V" of the annexes of said title;

That after having reviewed the guarantee regulated in articles 86, 87, 88 and 89 of Title VI, which can only be executed once the resources of the Legal Reserve have been exhausted, it is deemed convenient to leave it without effect in order to promote greater efficiency of the SPP that redounds to the benefit of the affiliates;

That it is necessary to modify the Regulation of Infractions and Sanctions of the Superintendency of Banking, Insurance and Private Pension Fund Administrators, approved by Resolution SBS No. 2755-2018 and its amendments, in order to incorporate infractions due to the breach of the constitution of the "reserve for excess investments"; as well as to leave without effect those infractions linked to the current methodology for determining the Legal Reserve based on the risk classification of the investment instruments and the letter of guarantee, considering the change of methodology for determining the Legal Reserve in the SPP at portfolio level;

That additionally, it is necessary to modify the Accounting Manual for Private Pension Fund Administrators and the Accounting Manual for Managed Portfolios, approved by Resolution No. 435-2005 and its amendments, to adapt to the measures referred to the constitution of the Legal Reserve and the reserve for excess investments, as well as the surplus of the minimum retirement balance established in Law No. 31670;

That it is necessary to modify Circular No. AFP 148-2015 in order to harmonize it with the measures approved by this resolution related to the Legal Reserve and the creation of the reserve for excess investments;

That in order to gather the opinions of the general public regarding the proposals for modification to the SPP regulations, the prepublication of the draft resolution on the matter was ordered on the electronic portal of the Superintendency, under the provisions of Supreme Decree No. 001-2009-JUS;

In accordance with the opinion of the deputy superintendencies of Private Pension Fund Administrators, Risks, Legal Advice and Economic Studies; and,

In use of the attributions conferred by the General Law of the Financial System and the Insurance System and Organic of the Superintendency of Banking and Insurance, Law No. 26702 and its amendments, in articles 25 and 57 of the SPP Law, and in the third final and transitory provision of the Regulation of the SPP Law,

RESOLVES:

Article One.- Modify the second paragraph of article 65° and articles 80°, 81°, 83° and 85° of Title VI of the Compendium of Regulations of the Superintendency of the Private Pension Fund Administration System, approved by Resolution No. 052-98-EF/SAFP and its amendments, in accordance with the following texts:

“Article 65°- Quota value

(…)
Where:
(…)

Maintained reserve = Required Legal reserve + reserve for investment excesses required + surplus of Legal reserve + surplus of reserve for investment excesses.”

“Article 80°.- Required Legal reserve. The Required Legal reserve, for each of the days of the month, is equivalent to the following percentages of the total number of quotas existing in the patrimony of the respective type of pension fund on the last business day of the previous month:

a) Type 0 Fund: 0.70%.

b) Type 1 Fund: 0.85%.

c) Type 2 Fund: 1.00%.

d) Type 3 Fund: 1.15%.”

“Article 81°.- Maintained Legal reserve. The Maintained Legal reserve for each type of pension fund, for each of the days of the month, corresponds at least to the number of quotas of Required Legal reserve resulting from the provisions of article 80°.

The Maintained Legal reserve for a type of fund must be invested in quotas of said type of fund and is valued in accordance with the provisions of Chapter IV, referring to Valuation of Investments.”

“Article 83°.- Deficit and surplus of reserve. If as a result of the update provided in article 80°, the number of quotas of the Required Legal reserve is greater than the number of quotas of the Maintained Legal reserve, the AFP must cover said deficit during the first five business days of each month.

The AFP may dispose of all or part of the reserve surplus registered in a type of pension fund, during the first five business days of each month, under the following situations:

a) To cover the deficit of Legal reserve that it may present in any of the other types of funds administered.

b) When, as a result of variations in the number of quotas of the Portfolio Administered under its charge, or for any other reason, a differential is registered between the value of the Maintained Legal reserve and the Required Legal reserve.”

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“Article 85°.- Reserves. Checking account. The AFP must maintain checking account(s) in the name of the respective Administered Portfolio with the exclusive purpose of making the charges and credits destined to the administration of the requirements of Legal reserve and reserve for investment excesses.”

Article Two.- Incorporate subsection b.14) of article 24°, a clarification in the heading of literal c) of Article 24°, article 85°-A and the thirty-ninth final and transitory provision of Title VI of the Compendium of Regulations of the Superintendency of the Private Pension Fund Administration System, approved by Resolution No. 052-98-EF/SAFP and its amendments, in accordance with the following texts:

“Article 24°.- Quotas of local investment funds-Requirements.

b) Requirements applicable to investment funds:

(…)

b.14) Investment funds must have at least one risk classification, granted by any of the classifying companies indicated in Title X.

(…)

c) Additional requirements applicable to venture capital funds, private debt, private equity, real estate, forestry funds and infrastructure funds. In addition to complying with the previous literal b), the fund must comply with the following:

(…)”

“Article 85°-A.- Reserve for investment excesses. Considering the provisions of article 23° of

the Law, the AFP must constitute a “reserve for investment excesses” in case imputable investment excesses are presented and maintained and/or the investment excesses are not eliminated within the framework of the current adequacy plan approved by the Superintendency, in accordance with the definition in article 78°-A.

The reserve for investment excesses must be constituted at the latest on the fifth business day of receiving the communication from the Superintendency, in case the aforementioned excesses are maintained. Said communication notifies the excesses that will be subject to this reserve and the number of quotas of the types of fund that the AFP must acquire. The required reserve for investment excesses corresponds to 1% of the value of the notified investment excesses.

In case the investment limits are calculated based on the set of all funds administered by an AFP, the investment excess is distributed proportionally among all types of fund, in accordance with the position that each of them maintains in the set of instruments involved in the calculation of the limit.

The reserve for investment excesses may be disposed of during the first five business days of each month, after having eliminated the investment excess that originated it. In case it is not disposed of, it is considered as a surplus that is maintained in the participation quotas acquired.”

“FINAL AND TRANSITORY PROVISIONS

(…)

Thirty-ninth. Illiquid investment instruments. For the purposes of the provisions of article 78°-A, referring to the treatment of investment excesses, the following are considered illiquid investment instruments:

a) Local corporate bonds.

SUPERINTENDENCY OF BANKING, INSURANCE AND AFP

b) Shares that trade locally. c) Mutual and investment funds, local. d) Alternative instruments that do not trade in centralized negotiation mechanisms.”

Article Three.- Modify articles 6°, 8°, 9° and 18° of Title X of the Compendium of Regulations of the Superintendency of the Private Pension Fund Administration System, approved by Resolution SBS No. 724-2001 and its amendments, in accordance with the following texts:

“Article 6° - Obligation to update the reports issued by local risk classifying companies. The AFP must ensure that the issuing companies of the local investment instruments acquired by the pension funds send it the updated risk classification reports, or delegate such delivery to the classifying companies, at least once a year. Such reports must be prepared on the basis of audited financial and accounting information as of 31 December of each year and sent to the AFP by 31 May of each year at the latest.

If 30 days after the expiration of the period set in the preceding paragraph the omission to present the corresponding classification reports persists, the provisions of Article 9 shall apply."

"Article 8.- Change in the circumstances supporting the classification. In the event that the risk classification of a local investment instrument does not reflect its level of risk, the AFP must request the issuer to present a new risk classification report, which must be prepared with financial and accounting information no more than three months old. The Superintendency shall set, in each specific case, the period for the delivery of the aforementioned report."

"Article 9.- Failure to meet deadlines. In the event of non-compliance with the provisions of Articles 2 or 6, the investment instrument ceases to be eligible for investment by the Managed Portfolios."

"Article 18.- Monitoring of risk classifications. The AFP must monitor the level of risk and changes in the risk classification of the investment instruments in which the Managed Portfolios invest. The information on risk classifications and their updates must form part of the Investment File and be available to the Superintendency through the means and frequency it determines."

Article Four.- Incorporate Article 1-A and the fourth paragraph to Article 3 of Title X of the Compendium of Superintendency Regulatory Rules of the Private Pension Fund Administration System, approved by SBS Resolution No. 724-2001 and its amendments, in accordance with the following texts:

"Article 1-A.- Information on risk classifications. To the extent practicable, the risk classification required for an investment instrument to be considered eligible to be acquired with the resources of the Managed Portfolios must be public in nature and be available to anyone who requests it through the dissemination media used by the risk classifying companies.

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In the case of investment instruments acquired with the resources of the Managed Portfolios that do not have public information on their risk classifications, these must be made available to the Superintendency by the AFPs."

"Article 3.- Risk classifying companies.

(...) The AFP may request the Superintendency to include a new risk classifier in the list of equivalences, subject to evaluation, which must be sent to the Superintendency."

Article Five.- Amend Annexes I, II and III of Title X of the Compendium of Superintendency Regulatory Rules of the Private Pension Fund Administration System, approved by SBS Resolution No. 724-2001 and its amendments, in accordance with the following indications:

• In Annex No. I, Equivalent Risk Classification for Foreign Instruments, eliminate category "V" from the Long-Term Classification and Short-Term Classification tables.

• In Annex No. II, Equivalent Risk Classification for Local Instruments, eliminate category "V" from the tables of "Short-Term Investment Instruments" and "Long-Term Investment Instruments".

• In Annex No. II, Equivalent Risk Classification for Local Instruments, eliminate the tables referring to "Short-Term Investment Instruments Issued by Financial and Non-Financial Entities Incorporated Abroad", "Long-Term Investment Instruments Issued by Financial and Non-Financial Entities Incorporated Abroad", "Preferred Shares", "Shares and Securities Representing Rights over Shares in Deposit Registered on the Stock Exchange and Preferred Subscription Certificates", "units of Mutual Funds and Investment Funds According to the Credit Risk Criterion" and "Units of Mutual Funds and Investment Funds According to the Market Risk Criterion".

• In Annex No. III, Definitions on Equivalent Risk Classification for Local Instruments, eliminate category "V" and its definition in the sections regarding "Short-Term Investment Instruments", and "Long-Term Investment Instruments".

• In Annex No. III, Definitions on Equivalent Risk Classification for Local Instruments, eliminate the sections referring to "Preferred Shares", "Shares and Securities Representing Rights over Shares in Deposit Registered on the Stock Exchange and Preferred Subscription Certificates", "Participation Units of Mutual Funds and Investment Funds According to the Credit Risk Criterion", and "Participation Units of Mutual Funds and Investment Funds According to the Market Risk Criterion".

Article Six.- Amend literal a) of section VII of Article 9, the second paragraph of Article 17, literal c) of Article 18 and the first paragraph of the fifth final provision of the Regulation for the Investment of Pension Funds Abroad, approved by SBS Resolution No. 8-2007, in accordance with the following texts:

"Participation units of alternative mutual funds Article 9.-

VII.
The requirements indicated in sections II to VI are not applicable in the case of funds whose objective is to invest in Real Estate Investment Trusts (REITs). This type of funds must comply with the following:

a) The fund is supervised and regulated by the corresponding securities market and/or financial authorities of a State that has, for its long-term debt securities, an international rating of no less than “BBB-”, granted by at least two rating agencies referred to in Title X.”

“Custody current accounts

Article 17.-.

(…) In the case of foreign financial institutions, if these are not the custody institutions themselves, they must have a risk rating, for their long-term debt, of no less than “A” and for their short-term debt of no less than “A-1”, in accordance with the rating equivalences established by the Superintendency. These accounts are used exclusively to make charges and credits resulting from transactions carried out with the investment instruments or operations referred to in the aforementioned article 3 in local or foreign markets. The interest and any other gains generated by these accounts must be credited in favor of the managed resources.”

“Custody

Article 18.-

c) Maintain a risk rating for its long-term debt of no less than “A” and for its short-term debt of no less than “A-1”, in accordance with the rating equivalences established by the Superintendency, granted by at least two rating agencies. In the event of a reduction in the rating of the corresponding custody institution such that it represents a risk category lower than the minimum established in this subsection, the AFP is unable to continue operating with said custody institution, unless it complies with the requirements indicated in the following paragraph.

Alternatively, if the custody institution does not comply with the previous requirement, it must satisfy the following requirements: (i) it has as one of its main income-generating activities the custody business; (ii) it has extensive experience providing custody services among pension fund systems; (iii) it has at least one rating, granted to it or to any of its debt instruments, that complies with the guidelines established in the previous paragraph, in accordance with the equivalences established by the Superintendency; and, (iv) the average equity of the custody institution over the last three years is not less than two hundred million United States dollars (US$ 200 000 000) or its equivalent in the currencies indicated in article 3°. Likewise, the custody institution may use subcustodians, which must have at least one risk classification; (…)”

“Risk classification

Fifth.- For the purposes of the provisions of this Regulation, the risk classification equivalences and the rating agencies of Title X are considered. The classifications must be related to the rating granted to the issuer's debt in foreign currency. In the event of divergence between the ratings granted, the equivalence corresponding to the higher risk rating is considered valid. (…).”

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Article Seventh.- Repeal articles 30°-A, 55°, 82°, 84°, 86°, 87°, 88°, 89° and 90° of Title VI of the Compendium of Superintendency Regulations of the Private Pension Fund Administration System, approved by Resolution Nº 052-98-EF/SAFP and its amendments.

Article Eighth.- Repeal article 1°, the third paragraph of article 2°, the second paragraph of article 8° and Article 23A° of Title X of the Compendium of Superintendency Regulations of the Private Pension Fund Administration System, approved by Resolution SBS Nº 724-2001 and its amendments.

Article Ninth.- Repeal Circular N° AFP-180-2022, and the thirty-seventh and thirty-eighth final and transitional provisions of Title VI of the Compendium of Superintendency Regulations of the Private Pension Fund Administration System, approved by Resolution Nº 052-98-EF/SAFP and its amendments .

Article Tenth.- Repeal Circular Letters N° 021-2000/SAFP and 035-2000/SAFP and Circular AFP-026-2003.

Article Eleventh.- Repeal field 9 (Reserve rate) of the table corresponding to section 9 (Characteristics of the instrument) of Annex B (Information necessary for the coding of investment instruments and operations included in the daily investment report) of Circular N° AFP 148-2015.

Article Twelfth.- Amend the Accounting Manual for Private Pension Fund Administrators and the Accounting Manual for Managed Portfolios, in accordance with the provisions of attached annexes 1 and 2, which are published on the Institutional Portal (www.sbs.gob.pe) in accordance with the provisions of Supreme Decree N° 001-2009-JUS.

Article Thirteenth.- Amend annexes I and II of Circular N° AFP 148-2015, in accordance with the provisions of attached annexes 3 and 4, which are published on the Institutional Portal (www.sbs.gob.pe) in accordance with the provisions of Supreme Decree N° 001-2009-JUS.

Article Fourteenth.- Amend Annex 4, Specific Infractions of the Private Pension Fund Administration System, of the Regulation of Infractions and Sanctions of the Superintendency of Banking, Insurance and Private Pension Fund Administrators, approved by Resolution SBS N° 2755-2018 and its amendments, in accordance with the following indications:

• Amend infraction 32 of section II, referring to serious infractions, according to the following text: “32. Failure to cover with own resources the determinable loss generated by the sale of investment instruments or operations, when the excess investment is due to causes attributable to the AFP .”

• Amend infraction 35 of section II, referring to serious infractions, in accordance with the following text:

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“35. “Failure to constitute and maintain the reserve for excess investments in the manner and form established in the current regulatory framework.”

• Repeal infractions 63 and 64 of section II referring to serious infractions.

Article Fifteenth.- This resolution enters into force as of 1 January 2024.

Register, communicate and publish.

MARIA DEL SOCORRO HEYSEN ZEGARRA
Superintendent of Banking, Insurance and AFP