Actualidad Peru

New country risk management requirements

SBS Resolution Nº 7932-2015. Regulation of country risk management

In December 2015, the Banking, Insurance and Pension Fund Supervisor, Superintendencia de Banca, Seguros y AFP (SBS) adopted this regulation, which applies to local financial institutions with assets abroad. The regulation establishes a series of responsibilities incumbent on members of both the board and senior management, in their dealings with country risk.                                        

Country risk is defined as the possibility that economic, social and political events in a foreign country may have an adverse effect on the interests of an institution in the national financial system.

Thus, pursuant to the regulation, the Board will have to approve the review country risk management procedures and Management will have to apply them. Furthermore, management will have to appoint people and/or committees to handle this risk, with the responsibility for prudent management being held by the Risk Unit.

Assets, contingent claims and transactions with derivatives are affected by country risk, as is the product of transactions carried out with overseas residents, and under certain circumstances, with residents in Peru.  

The Regulation requires that country risk be included in each financial transaction’s integrated risk assessment and that the countries to which the financial institution has exposure be classified in one of eight categories, from lowest to highest risk, according to the international ratings agencies’ sovereign bond risk classification.  Nevertheless, the regulation provides for the possibility of developing and introducing internal country risk measurement models, if authorised by the SBS.

The institution will have to adjust the classification in the event of any of the countries being included in the list of jurisdictions with deficiencies, high risk or that do not cooperate in the fight against money laundering and terrorism financing.

The resolution will become law in July 2016.