Securities markets in Peru are regulated by two institutions: the Superintendence of Banks, Insurance and Pension is responsible for the supervision of private pension funds; and the National Supervisory Committee of Corporations and Securities (CONASEV) is in charge of the surveillance and control of compliance with the Securities Market Law and the Law on Investment Funds and their managers. CONASEV also regulates issuers of securities, including their disclosure of information, and enforces certain aspects of the General Companies Law on public companies. Reports by the International Monetary Fund (IMF) in 2007 confirm the Peruvian authorities' intention to develop and deepen domestic capital markets. Peru's domestic capital markets have already grown significantly, especially in long-term bond issues and the market capitalization of listed shares. According to the IMF's 2006 Article IV consultations report, to benefit from these positive developments, Peruvian authorities are planning to remove regulatory burdens, facilitate the issuance of securities, and allow the publication of a yield curve for private securities. However, there is not enough publicly available information to make an assessment as to Peru's overall level of compliance against the Principles of Effective Securities Regulation developed by the International Organization of Securities Commissions.

General Overview

In the 2006 Article IV consultations between the International Monetary Fund (IMF) and Peru, IMF staff reported that various reforms by the Ministry of Economy and Finance (Ministerio de Economia y Finanzas, or MEF) are under way to develop and deepen domestic capital markets. In recent years, Peru's domestic capital markets have grown significantly, especially in long-term bond issues and the market capitalization of listed shares. The IMF report noted that these improvements have been helped by the growing interest of international investors in Peruvian securities and by active government debt management, resulting in an extended yield curve for public securities. To capitalize further on these positive developments, according to the IMF report, Peruvian authorities plan to remove regulatory hindrances to "issuing securities, publishing a yield curve for private securities, unifying the tax treatment of securitized transactions, and clarifying the tax treatment of financial derivatives while aligning it with that for securitization transactions" (p. 25). The IMF found that these steps, together with planned reforms to the payments system, would benefit trading in the secondary market. The Peruvian authorities requested technical assistance from the Fund in the capital market area, and the July 2007 First Review under the Stand-By Arrangement between the IMF and Peru confirmed that reforms are under way. Specifically, the National Supervisory Committee of Corporations and Securities (Comisión Nacional Supervisora de Empresas y Valores, or CONASEV), in order to facilitate the issuance of securities, established a "fast-track" registration process for public offerings by accredited investors. Furthermore, the authorities are testing market conditions for a 30-year sol-denominated bond to further extend the domestic yield curve.

Financial markets are regulated by two institutions: the Superintendence of Banks, Insurance and Pension (Superintendencia de Banca, Seguros and AFP, or SBS), which is also responsible for the supervision of private pension funds; and CONASEV, which is in charge of surveillance and compliance control per the Securities Market Law and the Law on Investment Funds and their managers. CONASEV also regulates issuers of securities, including their disclosure of information, and enforces certain aspects of the General Companies Law on public companies. The 2004 World Bank assessment on Corporate Governance reported that CONASEV is a public institution with separate legal identity, reporting to the MEF, and employing a staff of 140. The World Bank noted that CONASEV's independence needed to be strengthened, suggesting that the board nomination process was subject to capture and conflicts of interests. In the view of the report, this is problematic "particularly because substantially all rulings of the administrative tribunal are appealed to the board" (p. 15). According to the 2004 World Bank assessment, independence could be enhanced by extending the term of the CONASEV board chairperson beyond the term of the executive, and by establishing seats on the board for representatives from the SBS, Central Bank, MEF, and other relevant institutions.

The 2004 World Bank assessment further noted that CONASEV's enforcement is carried out by the in-house investigation unit and an administrative tribunal. The in-house investigation unit can issue subpoenas, seize documents, and conduct on-site inspections The administrative tribunal consists of five independent lawyers who are appointed and removed by the board of CONASEV. At the time of the World Bank report, the enforcement statistics were not publicly available. The assessment criticized the CONASEV website's lack of consistency with regard to the publication of rulings. Lastly, the assessment noted that the facilitation of information exchange between CONASEV and the SBS would make investigations into insider trading easier.

The Lima Stock Exchange (Bolsa de Valores de Lima, or BVL) is a self-regulatory organization. The 2004 World Bank assessment reported that, at the end of 2003 the BVL listed 232 companies, 158 of which never trade. In 2006, the International Bank for Reconstruction and Development and the International Finance Corporation noted that the Peruvian financial market is highly concentrated, reflected in the ownership of Government debt. Overall, there are five private pension funds, twelve banks (80 percent of the assets being held by the five largest ones), four life insurance companies, and four fund managers.

In May 2002, the International Organization of Securities Commissions (IOSCO) endorsed a comprehensive multilateral memorandum of understanding (MMoU) to facilitate and reinforce international cooperation among securities regulators. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with its terms. The Ontario Securities Commission website explains that IOSCO members who complete the screening process but are found to lack the legal authority to fully comply with the terms of the IOSCO MMoU will be invited to become signatories to Annex B of the IOSCO MMoU, provided that they express their commitment to obtaining the necessary legal authority to become full signatories The IOSCO website lists CONASEV as a signatory to Annex B.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

Financial markets are regulated by two institutions: the SBS, which is also responsible for the supervision of private pension funds; and CONASEV, which is in charge of surveillance and compliance control, through provisions of the Securities Market Law and the Law on Investment Funds and their managers. CONASEV also regulates issuers of securities, including their disclosure of information, and enforces certain aspects of the General Companies Law on public companies. The 2004 World Bank assessment of corporate governance reported that CONASEV is a public institution with a separate legal identity that reports to the MEF. However, the assessment does not directly address Peru's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

According to the 2004 World Bank assessment, the independence of CONASEV needs to be strengthened. It also criticized the board nomination process as being subject to capture and to conflicts of interests. In the view of the report, this is problematic, "particularly because substantially all rulings of the administrative tribunal are appealed to the board" (p. 15). CONASEV's independence could be enhanced by altering the chairman's term of office to extend beyond that of the executive, and by granting seats on the CONASEV board to representatives of the SBS, Central Bank, MEF, and other institutions. However, the assessment does not directly address Peru's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

At the time of the 2004 World Bank assessment, 140 people worked at CONASEV. The assessment further noted that CONASEV's enforcement is carried out by the in-house investigation unit and an administrative tribunal. The in-house investigation can issue subpoenas, seize documents, and conduct on-site inspections The administrative tribunal consists of five independent lawyers appointed and removed by the board of CONASEV. However, the assessment does not directly address Peru's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

II

There is no publicly available information as to Peru's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

There is no publicly available information as to Peru's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

A 2000 study by the Center For Latin American Monetary Studies (CEMLA) reported that, within the context of a self-regulated supervisory regime, CONASEV regulation grants the BVL the power to govern its own activities and those of its members. The BVL must seek adequate supervision of its institutional members, in order to guarantee compliance with the regulation in force. The Law grants disciplinary powers to the BVL without prejudice of the prerogatives given to such effect to CONASEV. The Securities Market Law allows CONASEV to empower the Clearance and Settlement Company (CAVALI) with one or more of the supervisory powers over participants' settlement activities, i.e., brokerage firms. The Law grants the Lima Stock Exchange self-regulating powers with regard to its members. CAVALI, on the other hand, must select the settlement banks and establish the requirements they must meet to be selected. CAVALI must also ensure that the settlement banks comply with the requirements. However, the study does not directly address Peru's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

According to the 2000 CEMLA study, regulations establish the information that the CAVALI must provide to CONASEV. This includes audited financial reports at the end of every fiscal year (and unaudited quarterly reports), an annual report, and the reports of annual external audits from the Settlement Fund. The Stock Market Law and Securities and Settlement Company's Regulations require that CAVALI be authorized by CONASEV, which approves its Bylaws and Internal Regulations and modifications. CONASEV is also empowered to approve the rates and commissions to be applied for services provided. However, the study does not directly address Peru's compliance with this principle.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

There is no publicly available information as to Peru's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

II

The 2004 World Bank assessment noted that CONASEV's enforcement is carried out by the in-house investigation unit and an administrative tribunal. The in-house investigation unit can issue subpoenas, seize documents, and conduct on-site inspections. The administrative tribunal consists of five independent lawyers who are appointed and removed by the board of CONASEV. At the time of the World Bank report, the enforcement statistics were not publicly available. The the assessment criticized the CONASEV website's failure to consistently publish its rulings. Lastly, the assessment noted that the facilitation of information exchange between CONASEV and the SBS would make investigations into insider trading easier. However, the assessment does not directly address Peru's compliance with this principle.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

There is no publicly available information as to Peru's compliance with this principle.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

II

In May 2002, the International Organization of Securities Commissions (IOSCO) endorsed a comprehensive multilateral memorandum of understanding (MMoU) to facilitate and reinforce international cooperation among securities regulators. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998, and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with its terms. The Ontario Securities Commission website explains that IOSCO members who complete the screening process but are found to lack the legal authority to fully comply with the terms of the IOSCO MMoU will be invited to become signatories to Annex B of the IOSCO MMoU, provided that they express their commitment to obtaining the necessary legal authority to become full signatories The IOSCO website lists CONASEV as a signatory to Annex B. The Members of the Council of Securities Regulators of the Americas (COSRA) produced a Framework for Co-operation in the Americas following a meeting on June 23-24 1994. However, this information is insufficient to assign Peru a level of compliance for this principle.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

II

See Principle 11.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

II

See Principle 11.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

EN

The 2004 World Bank assessment benchmarked Peru against the Organization of Economic Cooperation and Development (OECD) Principles of Corporate Governance. Regarding Principle V "Disclosure and Transparency," Peru is assessed as partially observing the sub-principles regarding "Disclosure standards," "Standards of accounting and audit," and "Fair and timely dissemination," indicating that while the legal and regulatory framework complies with the Principle, practices and enforcement diverge. The sub-principle "Independent audit annually was rated as "Materially Not Observed," indicating that, despite progress, shortcomings are sufficient to raise doubts about the authorities' ability to achieve observance.

The same World Bank report notes that listed companies are required to file periodic financial information with CONASEV and the BVL. The World Bank deemed the implementation of accounting and auditing standards to be relatively satisfactory, albeit with clear cases of non-compliance on a few issues. In the words of the report: "The fact that 70 percent of all cases before the administrative tribunal of CONASEV are financial reporting cases suggests that (1) compliance needs to be further improved; (2) CONASEV is attempting to enforce disclosure requirements" (p. 10). According to the assessment, the crucial point of the Peruvian disclosure regime is an exception that allows companies to disclose material events when they materialize, so as not to harm business interests. This exception appears to be often granted by CONASEV.

15. Holders of securities in a company should be treated in a fair and equitable manner.

NC

The 2004 World Bank assessment benchmarked Peru against the OECD's Principles of Corporate Governance. Regarding Principle III "The Equitable Treatment of Shareholders," the assessment rates Peru as partially observant of the sub-principle requiring that "All Shareholders be treated equally," indicating that while the legal and regulatory framework complies with the Principle, practices and enforcement diverge. The subprinciples "Prohibit insider trading" and "Board/Management should disclose interests" are rated as "Materially Not Observed," indicating that, despite progress, shortcomings are sufficient to raise doubts about the authorities' ability to achieve observance. The 2004 World Bank Report argued that the high minority redress thresholds and the concentrated ownership structures prevalent in Peru have resulted in shareholders having few oppression remedies in practice. It also recommended that the threshold requirements should be harmonized for all listed companies.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

II

Peru uses International Financial Reporting Standards (IFRS), 2002 version. Annual financial statements are audited. The World Bank's 2004 assessment recommends that CONASEV should build the capacity to review and evaluate the quality of listed companies' financial reports. The assessment recommends that this be done on the "basis of a 'risk analysis' and on a periodic cycle, so that all firms are reviewed within e.g. two years" (p. 11). Further, CONASEV should be able to evaluate and react to material events when they occur. Lastly, the World Bank recommends a change in the definition of auditor independence to meet international standards, and suggests that Peru consider subjecting auditors to an independent oversight body. However, the assessment does not directly address Peru's compliance with this principle. For further information please refer to Peru's accounting and auditing assessment.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

There is no publicly available information as to Peru's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

There is no publicly available information as to Peru's compliance with this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

There is no publicly available information as to Peru's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

There is no publicly available information as to Peru's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

There is no publicly available information as to Peru's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

There is no publicly available information as to Peru's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

There is no publicly available information as to Peru's compliance with this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

There is no publicly available information as to Peru's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

There is no publicly available information as to Peru's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

There is no publicly available information as to Peru's compliance with this principle.

27. Regulation should promote transparency of trading.

II

There is no publicly available information as to Peru's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

There is no publicly available information as to Peru's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

There is no publicly available information as to Peru's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

FC

The 2005 Annual Report of the Bank of Peru stated that as part of the modernization process initiated in 2000 with the introduction of the RTGS and CCE S.A. systems, a system was also implemented for securities: the Sistema de Liquidación Multibancaria de Valores (Multibank Bond Settlement System), which is legally recognized by the CAVALI. This system started operating in November 2005, following a coordination process between the Central Bank and CONASEV. However, the assessment does not directly address Peru's compliance with this principle.