Published and draft legislation - Peru

Corporate governance and integrated risk management in companies within the Peruvian Financial System

Draft regulation on Corporate governance and integrated risk management

The Peruvian supervisor for banking, insurance and pension funds has put out a public consultation document, based on international standards and best practices, for the regulation of Corporate Governance and integrated risk management. The draft aims to amend prevailing regulations to encourage better corporate government and risk management in the companies supervised within the Peruvian financial system.

 The draft regulation establishes the supervisor's criteria regarding corporate governance, independent directors, board committees, the remuneration system, stakeholders and the management of conflicts of interest. The supervisor also deals with aspects of integrated risk management in order to improve the performance and accountability of the companies under its supervision.

The bill covers the following matters, which were not dealt with in earlier regulations:

Corporate governance

1.The draft incorporates a definition of corporate governance and establishes the attributes and responsibilities of the general meeting of shareholders, the board of directors and the senior management; a similar practice followed by the Monetary Board of the Dominican Republic in the approval of the Regulation on Corporate Governance.

Companies are obliged to draw up regulations for their general meeting and their board of   directors,  setting forth the necessary policies and procedures to ensure they work correctly, for example: (i) procedures for convening the obligatory Annual General Meeting of shareholders; (ii) procedures for representation and proxies at General Meetings; (iii) policies for electing the members of the board and setting their remuneration; (iv) procedures for preventing, detecting, managing and revealing conflicts of interest; (v) succession planning; (vi) criteria for holding non-presential board meetings; (vii) criteria for technical and moral suitability when recruiting senior managers and others.

2. It includes more detailed rules regarding the participation of independent directors on the board, stating that the companies under supervision in the Peruvian financial system must at all times have at least two independent directors. These directors may not give their vote or proxy to any non-independent director.

3. It also gives a definition of stakeholders, based on international standards approved by the Bank of International Settlements (BIS), the International Association of Insurance Supervisors (IAIS) and the International Organization of Pension Supervisors (IOPS); and the Peruvian principles of good governance, Code of Good Corporate for Peruvian Corporations approved by its securities market commission, as discussed in Progreso 1.

4. It establishes that companies in the financial system must set up a board remuneration committee to propose the remuneration system for board members and management. The remuneration system must be in line with the company's risk appetite and avoid conflicts of interest.

5. The draft regulation establishes that the audit committee must be chaired by an independent director; and that the chair of the risks committee may not chair any other board committee.

Integrated risk management

1.The draft regulation makes it clear that integrated risk management must bring the company's decision-making processes into line with its risk appetite system. This will mean considering the company's risk appetite, risk capacity and risk ceiling, with reference to the international standards set forth by the Bank for International Settlements (BIS) and the Financial Stability Board (FSB).

2.Further details are given regarding outsourcing of one or more functions for managing risks and regulatory compliance.

3.The duties of Regulatory Compliance are explained in order to distinguish between such compliance and the work done by the internal audit unit.

The draft regulation is currently being reviewed by the financial supervisor, the SBS, after receiving feedback from public consultation. It is expected to be published and to come into force in the middle of 2016.