This content is from: Local Insights

Peru: Regulating investment banks

The Peruvian Banking Statute, issued in 1997, intended to regulate investment banking activities and established that a licence was required to conduct such activities in Peru

Juan Luis AvendañoJosé Villafuerte
The Peruvian Banking Statute, issued in 1997, intended to regulate investment banking activities and established that a licence was required to conduct such activities in Peru. It defined investment banks as limited liability corporations dedicated to promoting both domestic and offshore investments, by acting either directly as investor or intermediary. It also indicated that investment banks should not receive deposits from the public and not grant any kind of loans. The list of permissible activities includes structuring, underwriting and distributing public offering securities and operating with derivatives.

However, the SBS – the Peruvian banking regulator – never issued any rules or established any specific requirements for obtaining the investment bank licence. As a consequence, investment banking in Peru has been carried out by individuals and companies that do not hold a formal licence as investment banks.

This status quo is set to change, as the SBS is preparing a set of rules that will finally regulate the process for obtaining an investment bank licence in Peru. The capital requirements, limits and reporting and the business activities the bank engages in will be subject to the licence. The SBS published a draft of the new Investment Banking Rules in July 2014 and received comments and suggestions until August 2014. The Rules will soon be published in their final form.

Investment banks are prohibited from taking deposits from the public and from extending credit; further, retail investors are almost non-existent in Peru. It is therefore expected that the final draft of the new Investment Banking Rules will not include some of the costly regulatory measures that were contained in the original draft, which demanded capital requirements and risk management controls similar to those that are required for banks that operate with deposits from the public.

Juan Luis Avendaño and José Villafuerte

Instant access to all of our content. Membership Options | One Week Trial