Resolution SBS No. 3544-2015: Investment Bank Regulations

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Lima, June 23, 2015
S.B.S. Resolution
No. 3544-2015

The Superintendent of Banking, Insurance and Private Pension Fund Administrators

CONSIDERING:

That, Article 16 of the General Law of the Financial System and the Insurance System and Organic Law of the Superintendence of Banking and Insurance, Law No. 26702 and its modifying norms, hereinafter General Law, considers Investment Banks as companies supervised by this Superintendence;

That, Article 293 of the General Law states that investment banks are anonymous societies whose purpose is to promote investment in general, both in the country and abroad;

That, for adequate supervision of investment banks, it is necessary to issue the corresponding regulation that includes aspects such as corporate object, constitution and authorization to operate, permitted operations, applicable prudential measures, among others;

That, through SBS Resolution No. 895-98 and its modifying and complementary norms, the Accounting Manual for Financial System Companies was approved, which contains provisions regarding the complementary information that must be sent to this Superintendence;

That, through SBS Resolutions No. 11699-2008 and No. 17026-2010 and their modifying norms, the Internal Audit Regulation and the External Audit Regulation were approved, respectively, applicable to companies of the financial system, insurance, and private pension fund administrators;

That, through SBS Resolution No. 816-2005 and its modifying norms, the Sanctions Regulation of this Superintendence was approved;

That, it is necessary to modify the aforementioned norms, as well as the Accounting Manual, in order to adapt them to the provisions of the Regulation approved by this Resolution;

That, for the purpose of collecting opinions from the general public regarding the regulatory proposal, the draft resolution on the matter was published on the Superintendence's electronic portal, under the provisions of Supreme Decree No. 001-2009-JUS;

Having the approval of the Adjunct Superintendencies of Banking and Microfinance, Risks, Economic Studies, Market Conduct and Financial Inclusion, and Legal Advice; and,

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

RESOLVES:

Article First.- Approve the Investment Bank Regulation, which forms an integral part of this Resolution.

“INVESTMENT BANK REGULATION

CHAPTER I
GENERAL PROVISIONS

Article 1.- Scope
The provisions of this Regulation are applicable to the Investment Banks referred to in paragraph C of Article 16 of the General Law.

Article 2.- Definitions
For the application of this Regulation, the following definitions shall be considered:
a. Central Bank: Central Reserve Bank of Peru. b. Negotiable Portfolio: comprises long and short positions, within or outside the balance sheet, in debt-representing instruments, capital-representing instruments, financial derivative products, and commodities.
c. General Law: General Law of the Financial System and the Insurance System and Organic Law of the Superintendence of Banking and Insurance, Law No. 26702 and its modifying norms.
d. Accounting Manual: Accounting Manual for Financial System Companies approved by SBS Resolution No. 895-98 and its modifying and complementary norms. e. Superintendence: Superintendence of Banking, Insurance and Private Pension Fund Administrators.

CHAPTER II
ON INVESTMENT BANKS

Article 3.- Corporate Object
Investment banks are financial system companies constituted as anonymous societies, whose purpose is to promote investment in general, both in the country and abroad.
Investment banks are authorized to carry out the operations indicated in Article 5 of this Regulation.

Article 4.- Constitution, Operation, and Minimum Capital
For their constitution and operation, investment banks must comply with what is established in the General Law and in the Regulation for the Constitution, Reorganization, and Establishment of Companies and Representatives of the Financial and Insurance Systems, approved by SBS Resolution No. 10440-2008 and its modifying norms. Investment banks must necessarily use the denomination "investment bank". Before investment banks begin their operations, the shares representing their social capital must be listed on the stock exchange. Regarding minimum capital, investment banks must maintain the minimum capital referred to in Article 16 of the General Law, subject to the update established in Article 18 of the same Law.

Article 5.- Permitted Operations
Investment banks cannot receive public deposits, make placements, or grant contingent credits, therefore, they do not have a credit portfolio. Investment banks will only operate in the negotiable portfolio. Considering the above, investment banks may carry out the following operations:

1. Acquire, hold, and sell shares, bonds, and similar instruments of anonymous societies established in the country or abroad, on their own account or for third parties, in accordance with the legislation on the matter.
2. Acquire, hold, and sell, as participants, certificates of participation in mutual funds and investment funds.
3. Purchase, hold, and sell titles representing internal and external public debt, as well as obligations of the Central Bank, on their own account and for third parties.
4. Purchase, hold, and sell bonds and other titles issued by multilateral credit organizations of which the country is a member, on their own account and for third parties.
5. Purchase, hold, and sell titles of government debt, in accordance with the norms issued by the Superintendence, on their own account and for third parties.
6. Carry out operations in the futures market, financial derivative products, and commodities on their own account and for third parties, in accordance with the legislation on the matter.
7. Originate, structure, distribute, and temporarily subscribe to primary issuances of securities in the domestic or external market for subsequent placement to the public, with the power to grant the issuer a total or partial guarantee of the placement, in accordance with the legislation on the matter.
8. Advise and facilitate the placement of funds in the country or abroad, through stock transactions, in accordance with the legislation on the matter.
9. Pledge the securities referred to in paragraphs 1, 2, 3, 4, and 5 of this article.
10. Issue and place their own obligations in the market.
11. Identify potential partners for clients interested in the purchase of assets or ongoing businesses.
12. Provide economic and financial advisory services, as well as valuing assets and ongoing businesses.
13. Accept and fulfill trust commissions, provided that this is intended to promote an investment, or the merger and transfer of ongoing businesses, the restructuring of liabilities, as well as those compatible with their nature.
14. Act as the institution responsible for the liquidation of companies of the financial and insurance systems.
15. Operate in foreign currency.
16. Make deposits in companies of the financial system of the country or abroad.
17. Receive credits from companies of the financial system of the country or abroad.
18. Buy, hold, and sell gold.
19. Acquire movable goods, furniture, and equipment.
20. Act as originators in securitization processes through the transfer of movable goods, real estate, and/or money, being authorized to constitute special purpose companies.
21. Receive securities in custody.
22. Grant interbank funds to national or foreign financial system companies, considering the maximum terms established for such operations in the current regulation. 1
23. Receive interbank funds from national or foreign financial system companies, considering the maximum terms established for such operations in the current regulation. 1

Additionally, the Superintendence may authorize investment banks that request it to carry out other operations, provided they are compatible with their nature. For this purpose, they must follow the procedure established in the Regulation for the Expansion of Operations, approved by SBS Resolution No. 11698-2008.

Article 6.- Governing Bodies
Investment banks must comply with the norms issued by the Superintendence that are applicable to the general shareholders' meeting, the board of directors, the managers, and the main officials.

Article 7.- Risk Classification
Investment banks must have a classification from at least one risk classification company every twelve (12) months; for this purpose, the guidelines established in the Regulation for the Classification of Companies of the Financial System and Insurance Companies, approved by SBS Resolution No. 18400-2010, must be followed.

CHAPTER III
APPLICABLE PRUDENTIAL MEASURES

Article 8.- Effective Equity and Effective Equity Requirements
The provisions issued by the Superintendence on effective equity, on effective equity requirements for credit, market, operational risk, and additional effective equity are applicable to investment banks, insofar as they are pertinent considering the operations they carry out.

Article 9.- Global Limit and Limits on Financing
The global limit contemplated in Article 199 of the General Law is applicable to investment banks. Likewise, the limits on financing established in Articles 201 to 211 of the General Law are applicable to investment banks.

Article 10.- Global Limits by Operation
Investment banks are subject to the following operational limits:
i) For investment in movable and immovable goods, seventy-five percent (75%) of their effective equity, with a sub-limit of forty percent (40%) of total effective equity in each category.

1 Paragraph incorporated by SBS Resolution No. 464-2017 of 02/02/2017

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ii) For the global position in foreign currency, they must comply daily:
a) Limit on the global short-selling position
The global short-selling position in foreign currency of investment banks cannot exceed one hundred percent (100%) of their effective equity. b) Limit on the global long-buying position The global long-buying position in foreign currency of investment banks cannot exceed one hundred percent (100%) of their effective equity. iii) For the net position in foreign currency financial derivative products, they must comply daily with the limit established in Article 6-A of the Regulation for the Management of Exchange Rate Risk, approved by Resolution 1455-2003 and its modifying norms. iv) Other limits determined by the Superintendence.

Article 11.- Integral Risk Management
Investment banks must have an integral risk management system adequate to the complexity of their operations and services. This process is designed to identify potential events that may affect the company, to manage them according to their risk appetite, and to provide reasonable assurance in the achievement of their objectives. In this sense, the Regulation for Integral Risk Management, approved by SBS Resolution No. 37-2008 and its modifying norms; the Regulation for the Supervision of Market Risks, approved by SBS Resolution No. 509-98 and its modifying norms; the Regulation for the Management of Exchange Rate Risk, approved by Resolution 1455-2003 and its modifying norms, are applicable to investment banks, not being subject to compliance with the limits contemplated in Article 6; the Circular B-2087-2001 which establishes guidelines for the Management of Interest Rate Risk and presentation of Annex No. 7 “Measurement of Interest Rate Risk”, not being subject to compliance with the limit established in paragraph 15 of said norm referred to earnings at risk in relation to their effective equity; the Regulation for Credit Risk Management, approved by SBS Resolution No. 3780-2011, insofar as it is applicable to the operations authorized to be carried out by investment banks; and, the Regulation for Operational Risk Management, approved by SBS Resolution No. 2116-2009. Investment banks must establish an internal limit on their earnings at risk in relation to their effective equity (GER). The approval and formalization of this limit in manuals must be recorded in the Minutes of the corresponding Committee. The Regulation for Liquidity Risk Management, approved by SBS Resolution No. 9075-2012 and its modifying norms, is also applicable to investment banks, with respect to the management of this risk, not being subject to compliance with the regulatory limits of the ratios established in said norm.

Article 12.- Treatment of Investments
Investment banks must adhere to what is established in the Regulation for the Classification and Valuation of Investments of Financial System Companies, approved by SBS Resolution No. 7033-2012 and its modifying norms; the Regulation for the Trading and Accounting of Financial Derivative Products in Financial System Companies, approved by SBS Resolution No. 1737-2006 and its modifying norms, without considering chapters III and IV; and, the Regulation for Repo Operations applicable to Financial System Companies, approved by SBS Resolution No. 5790-2014. Investment banks must establish internal limits on investments in instruments that are traded through non-centralized trading mechanisms. The approval and formalization of these limits in manuals must be recorded in the Minutes of the corresponding Committee.

Article 13.- Framework Contracts for Operation Netting
For the purposes of the application of the netting of operations referred to in paragraph 4 of Article 116 of the General Law, the requirements that repo operations and operations with financial derivative products must meet are those established in SBS Circular No. G-155-2011 and its modifying norm.

Article 14.- Requirements for Persons Involved in the Investment Process
The Requirements on Ethical Conduct and Professional Capacity of Persons Participating in the Investment Process of Banking, Insurance Companies, and Portfolios Managed by AFPs, approved by SBS Resolution No. 114-2005 and its modifying norms, are applicable to investment banks.

Article 15.- Operations with Related Parties
The Prudential Norms for Operations with Related Parties to Financial System Companies, approved by SBS Resolution No. 472-2006 and its modifying norms, are applicable to investment banks, insofar as they are pertinent considering the operations they carry out.

Article 16.- Internal and External Audit
Investment banks are subject to what is established in the Internal Audit Regulation approved by SBS Resolution No. 11699-2008 and its modifying norms, and in the External Audit Regulation approved by SBS Resolution No. 17026-2010.

CHAPTER IV
INFORMATION TO BE PRESENTED TO THE SUPERINTENDENCE

Article 17.- Accounting Record
Investment banks must record their operations and prepare their financial information in accordance with what is established in the Accounting Manual.

Article 18.- Presentation of Information
Investment banks must present to the Superintendence the following information contemplated in the Accounting Manual, insofar as it corresponds to the operations they are authorized to carry out, according to the periodicity and deadlines set forth in Circular No. B-2108-2002, F-0447-2002, CM-0294-2002, EAF-0206-2002, CR-0163-2002, EDPYME-0092-2002, FOGAPI0011-2002, ESF-001-2002 and their updates:
Form A – Statement of Financial Position
Form B-1 – Statement of Results
Form B-2 – Statement of Results and Other Comprehensive Income Form C – Statement of Cash Flows Form D – Statement of Changes in Equity Form F – Trial Balance
Annex 1 (Annexes A, B, C, D, and E) – Investments
Annexes 7 A and B – Measurement of Interest Rate Risk - Earnings at Risk and Equity at Risk
Annex 8 – Position in Financial Derivative Instruments
Annex 9 – Positions Subject to Exchange Rate Risk
Annex 12-I – Control of Capital-Representing Instruments
Annex 12-II – Control of Subordinated Debt
Annex 16-A – Liquidity Table by Maturity Terms
Annex 16-B – Stress Scenario Simulation and Contingency Plan
Report 1 – Transfer of Shares of Financial System Companies Report 2-A – Assets and Contingent Weighted by Credit Risk Reports 2-B – Effective Equity Requirement for Market Risk Report 2-C – Effective Equity Requirement for Operational Risk Report 2-D – Effective Equity Requirements for Credit, Market, and Operational Risk and Calculation of the Global Limit referred to in the first paragraph of Article 199º and the Twenty-Fourth Transitory Provision of the General Law. Report 3 – Effective Equity Reports 4 – Additional Effective Equity Requirement Report 5 – Quotation of Supply and Demand for Foreign Currency Report 6-C – Daily Rate Report for Financial Derivative Products Report 13 – Control of Global and Individual Limits Applicable to Financial System Companies Report 19 – Report on the Economic Group of the Company Report 19-A – Information on Legal Entities Constituting the Economic Group Report 20 – Information on Clients Representing Single Risk Report 21 – Financing to Related Parties of the Company Report 21-A – Information on Legal Entities Related to the Company Report 23 – Exposure to Country Risk Reports 24-A and 24-B – Information on Claims Received from Users

The Forms, Annexes, and Reports mentioned above must be sent to the Superintendence via SUCAVE and/or in printed form, in cases indicated by Circular No. B-2108-2002, F-0447-2002, CM-0294-2002, EAF-0206-2002, CR-0163-2002, EDPYME-0092-2002, FOGAPI-0011-2002, ESF-001-2002 and their updates, and taking into account what is established in SBS Resolution No. 1270-2007. The Superintendence may request, via Official Letter, additional information to that mentioned above, if it considers it convenient for the purposes of its supervision and control work.

FINAL AND COMPLEMENTARY PROVISIONS

First.- Other Applicable Norms 2
In addition to those mentioned above in this Regulation, the following norms are applicable to investment banks, insofar as they are pertinent considering the operations they are authorized to carry out:

• Special Norms on Linkage and Economic Group, approved by SBS Resolution No. 5780-2015 or substitutes.
• Regulation on Subordinated Debt applicable to Financial System Companies, approved by SBS Resolution No. 975-2016 or substitutes.
• Regulation for the Computation of Reserves, Profits, and Capital-Representing Instruments in the Effective Equity of Financial System Companies, approved by SBS Resolution No. 4595-2009 and its modifying or substitute norms.

2 Provision modified by SBS Resolution No. 3966-2018 of 11/10/2018

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• Regulation for the Management of Country Risk, approved by SBS Resolution No. 7932-2015 or substitutes.
• Risk Report for New Products or Important Changes in the Business, Operational, or IT Environment, SBS Circular No. G-165-2012 and its modifying or substitute norms.
  Application of operational limits referred to in Articles 201 to 212 of the General Law – Circular No. B-2148-2005, F-0488-2005, S-0613-2005, CM-0335-2005, CR-0204-2005, EAF-0231-2005, EDPYME-0119-2005, FOGAPI-0026-2005 and their modifying or substitute norms.
• Internal and external evaluations of internal audit, approved by Circular G-161-2012.
• Business Continuity Management – SBS Circular No. G-139-2009 and its modifying or substitute norms.
• Information Security Management – SBS Circular No. G-140-2009 and its modifying or substitute norms.
• Regulation for the Management of Money Laundering and Terrorism Financing Risks, approved by SBS Resolution No. 2660-2015 and its modifying or substitute norms.
• Sanctions Regulation approved by SBS Resolution No. 816-2005 and its modifying or substitute norms.
• First Final Provision of the Regulation for the Consolidated Supervision of Financial and Mixed Conglomerates, approved by SBS Resolution No. 11823-2010 and its modifying norms, as indicated by the Superintendence.
• Regulation on Special Regimes and Liquidation of Financial System and Insurance System Companies approved by SBS Resolution No. 455-99 and its modifying or substitute norms.
• Regulation on Opening, Conversion, Transfer, or Closure of Offices and Use of Shared Premises, approved by SBS Resolution No. 4797-2015 or substitutes.
  The Superintendence may determine the application to investment banks of other norms and provisions issued by it.

Second.- Operations Realizable Through Subsidiaries Investment Banks must establish subsidiaries to carry out the following operations:

1. Intermediate securities or carry out any activity exclusive to stockbroker societies, in accordance with what is established in the legislation on the matter.
2. Establish and administer mutual fund and investment fund programs, in accordance with the legislation on the matter.
3. Act as trustees in securitization trusts, in accordance with the legislation on the matter.

Third.- First Risk Classification
The first risk classification may be carried out at 12 months from the start of operations of the investment bank.”

Article Second.- Modify the title of paragraph I of Annex “Planned Activities” of the Internal Audit Regulation, approved by SBS Resolution No. 11699-2008 and its modifying norms, in the following terms:
“I. COMPANIES INDICATED IN PARAGRAPHS A, B, AND C OF ARTICLE 16 OF THE GENERAL LAW (EXCEPT GUARANTEE AND SURETY COMPANIES), BANCO DE LA

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NATION, AGRICULTURAL BANK, MIVIVIENDA FUND AND DEVELOPMENT FINANCIAL CORPORATION (COFIDE):" Third Article.- Modify the title of numeral I of Annex "Supplementary Reports to be Prepared by External Audit Firms" of the External Audit Regulation, approved by SBS Resolution No. 17026-2010, in the following terms:
"I. REPORTS APPLICABLE TO THE COMPANIES INDICATED IN LETTERS A, B AND C OF ARTICLE 16 OF THE GENERAL LAW, TO THE NATIONAL BANK, TO THE AGRICULTURAL BANK, MIVIVIENDA FUND AND TO THE DEVELOPMENT FINANCIAL CORPORATION (COFIDE)" Fourth Article.- Modify the first paragraph of Annex 2 "Specific Infractions of the Financial System and of Complementary and Related Service Companies" of the Sanctions Regulation approved by Resolution SBS No. 816-2005 and its modifying norms, in the following terms:
"(Multiple operation companies, specialized companies, investment banks and others of similar nature under supervision, as well as representatives of financial companies not established in the country and supervisors of this group; to the complementary and related service companies and to the shareholders, directors, managers, workers and representatives of the supervised companies.)" Fifth Article.- Modify the first paragraph of numeral 1 of letter B of Chapter I "General Provisions" of the Accounting Manual, in the following terms:
"The entities that must apply this Manual are the companies indicated in letters A, B and C of article 16 of the General Law, the National Bank, the Agricultural Bank, the Development Financial Corporation - COFIDE, the MIVIVIENDA S.A. Fund, the Electronic Money Issuing Companies, and in the case of other companies when their application is required by the Superintendency." Sixth Article.- This Resolution enters into force the day after its publication in the official newspaper El Peruano. Register, communicate and publish, DANIEL SCHYDLOWSKY ROSENBERG Superintendent of Banking, Insurance and Private Pension Fund Administrators