By Legislative Decree No. 1531, published on 19 March 2022, various provisions of the General Law of the Financial and Insurance Systems and Organic Law of the Superintendence of Banking and Insurance (“Banking Law“) were amended.
A few months ago, Congress authorized the Executive Power to legislate on financial matters in order to promote greater competition in the provision of transportation service and custody of money and values, with further aim of strengthening the solvency and stability of the financial system in order to safeguard savings account holders, optimize processes in the entities of the financial system, and foster greater competition in the financial entities that are under the supervision of the Superintendency of Banking and Insurance (SBS).
Here are some notes that we consider important:
- The “Credit Company” is introduced as a financial system company, whose specialty is to provide financing in various modalities, with resources from its own capital and other sources that do not include deposits from the public. The Credit Company must have a minimum share capital of PEN 678,000, which is updated quarterly in accordance with the Banking Law.
- The Credit Company replaces (in some way) the Small and Micro Enterprise Development Entity (EDPYME). The latter was the figure that some fintechs in the market saw as the Peruvian equivalent of the multiple object financial companies (SOFOM) that exist in Mexico and that several fintechs have been creating or acquiring in recent years. In that sense, any reference in the Banking Law to the EDPYME is understood as made to the Credit Company. Will we see in the coming months acquisitions of EDPYME — today, a Credit Company — by fintechs?
- As what happens with SOFOMS, the Credit Company does not capture savings from the public and can carry out different activities allowed to companies in the financial system.
- In that sense, the Credit Company can, among others, grant direct loans (with or without collateral) and discounts; grant advances on debt verification documents; grant guarantees and sureties; grant syndicated loans and certificates of deposit; carry out credit operations and factoring; conclude contracts for the purchase or sale of portfolios; carry out trust commissions; receive securities and documents in custody; carry out financial leasing and real estate capitalization operations; provide financial advisory services; act as fiduciaries; grant promissory notes; and act as originators in securitization processes.
- The above is expected to result in many fintechs that today grant only loans with resources from their own capital to venture into other lines of business — from factoring or financial leasing, up to the granting of bonds or acting as fiduciaries in trusts. In any case, this change should translate into greater competition in the financial system.
- Moreover, some fintechs that today participate in the loan market would become companies of the financial system, with all that that implies. While this suggests a need to meet increased regulatory burden, it should be remembered that with the amendments, it is established that the SBS will apply a simplified monitoring approach proportionate to the risks to the companies of the financial system that are not allowed to take deposits from the public. Also, aside from the fact that the Credit Company does not capture savings from the public, we would come to understand that as a company in the financial system, it can make use of the powers provided for in article 132 of the Law of Banks for the expedient recovery of credits granted (for example, exercising the right of setoff against the debtor’s assets for any reason in its power, the possibility of issuing payouts with executive merit).
- Likewise, the Credit Company will have tax treatment that corresponded to the EDPYME. The income received, among others, by the EDPYMES (today, Credit Company) for interest derived from the operations of these companies is not taxed with the IGV.
- Within the framework of the process of setting up an enterprise in the financial system, it is allowed to attach to the application not only a certificate of escrow for 5% of the minimum capital, but also some other financial instrument for such an amount that fulfills the same purpose, in accordance with what is established by the SBS.
- The operating authorization certificate must no longer be displayed in the company’s main office, but in a place visible and permanently accessible to the public (for example, on the company’s website).
- Only the opening by a financial system company authorized to take deposits from the public, or an insurance company or its branches or agencies, requires authorization from the SBS. The same holds for the transfer and closure of branches, agencies and special offices. In this sense, companies in the financial system that do not capture savings from the public (such as the Credit Company) can open, move and close branches, agencies and special offices without requiring authorization from the SBS.
- The provisions on cash assets applicable to companies in the financial system are modified, as well as the limits on the calculation of cash assets and the risk measurement methodologies used to calculate cash assets requirements, among others.
- Grounds for revocation of the operating authorization certificate are established for those companies in the financial system that do not collect deposits from the public. The revocation of the operating authorization is entered in public records on the sole merit of the resolution issued by the SBS.
- It is established that companies in the financial system must maintain conservation buffers, through economic cycle and market concentration risk, above the minimum requirements established by the Banking Law. Likewise, companies in the financial system must have a process that allows them to evaluate the adequacy of their cash assets based on their risk profile, with the board of directors being responsible for the companies having an effective equity above the global limit and the aforementioned buffers, depending on the risk profile of their business. The SBS will establish the cash capital requirements for additional risks.
- The minimum share capital of the Transportation, Custody and Cash Administration Company is updated considering the amount corresponding to the October 2021 quarter and subject to the quarterly update mandated by the Banking Law.
- Finally, companies in the financial system are allowed to perform digitally all the operations for which they are authorized. This change is not minor not only because of the much demanded need to be able to have financial system companies without a physical presence, but because we now operate under the ‘new normal’, where this possibility translates into what we could call an ‘operational simplification’ to constitute or operate a financial system company but also in important savings for financial system companies.
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