Capital and Financial Market Alert – January 2025

The Superintendency of Banking, Insurance and Private Pension Fund Administrators (“SBS”) authorizes the dissemination of the Draft of the new “Regulations for the Trading and Accounting of Derivative Financial Instruments in Companies of the Financial System” (the “Draft”)

By means of Resolution SBS No. 04414-2024, published in the Official Gazette El Peruano on January 6, 2006, the SBS authorized the dissemination of the aforementioned Draft, which would replace the current Regulations for the Trading and Accounting of Derivative Financial Products in the Financial System Companies, approved by Resolution SBS No. 1737-2006. The Draft responds to the SBS’s interest in adapting its accounting regulations regarding the treatment of derivative financial instruments to the International Financial Reporting Standards (“IFRS”).

The main changes proposed in the Draft are as follows:

• The scope of application of the regulation is extended to investment banks.
• The definitions of the regulation related to derivative financial instruments are reformulated, and new ones are included, such as “Credit Valuation Adjustment (CVA)”, “Debit Valuation Adjustment (DVA)”, “Intrinsic Value”, among others.
• New criteria are established for the initial recognition and subsequent measurement of derivative instruments, emphasizing their valuation at fair value (i.e. the price that would be received or paid in an orderly transaction between participants in the principal market (or the most advantageous available) on the measurement date and under current market conditions).
• It is established that fair value measurements of derivative instruments must include adjustments for credit risk (i.e. the risk that the counterparty or the company itself will default on contractual payments before the maturity of the transaction).
• It is established that companies may contract derivative instruments whose underlying instruments are instruments in which they cannot invest directly.
• Specific guidelines are established for the accounting of derivative instruments, including embedded derivatives (i.e. a component of a hybrid contract, in which a host contract that is not a derivative is also included, with the effect that some of the cash flows of the combined instrument vary in a similar manner to a non-hosted derivative), distinguishing between derivatives for trading purposes and derivatives for accounting hedging purposes.
• The disclosure requirements for derivatives in the financial statements are expanded, requiring more detailed information on the nature, risks and financial effects of the instruments used.
• The content of the “Report to carry out operations with Derivative Instruments” that companies must prepare in order to request authorization from the SBS to carry out such operations is expanded.

The deadline for interested parties to submit their comments and observations to the SBS on the Draft is 30 calendar days from January 6, 2025.