Peru: Peruvian Law To Allow Netting Of Swap Transactions And Repurchase Agreements In Bankruptcy Proceedings

Last Updated: 3 August 2009
Article by Ian Cuillerier and Ernie Patrikis

Recent changes in Peruvian insolvency laws1 will now allow financial institutions and insurance company counterparties to close-out and net obligations under derivatives and repurchase agreements with Peruvian financial institutions or insurance companies which become subject to bankruptcy proceedings. The Banking, Insurance and Investments Regulator2 in Peru (the "Superintendent") recently issued regulations under Circular No G-142-2009, published in the Diario Oficial "El Peruano" on June 1, 2009 (the "Circular"), which became effective June 4, 2009, setting forth the requirements and conditions of netting payment obligations in the event of a bankruptcy by a Peruvian counterparty.

Requirements and Guidance for Netting Under the Peruvian Insolvency Regime

Requirements set forth in the Superintendent's Circular are as follows:

  • both counterparties must be either a financial institution or an insurance company, as defined under applicable law of the relevant jurisdiction of incorporation of each counterparty ("Qualifying Counterparties");
  • with respect to the scope of bankruptcy proceedings, the Peruvian counterparty must have become subject to an intervention by the Superintendent or dissolution and liquidation (henceforth referred to as "Bankruptcy Proceedings");
  • such payment obligations must be incurred pursuant to (1) an agreement in a form approved by the Superintendent (currently, such approved form agreements under the Circular are: (a) a "Master Repurchase Agreement" or a "Global Master Repurchase Agreement" published by The Bond Market Association ("BMA") or the International Securities Market Association ("ISMA") or (b) an "ISDA Master Agreement" published by the International Swaps and Derivatives Association ("ISDA")) and (2) which includes the following provisions: events of default, termination events with the ability to terminate all transactions thereunder, close-out calculation methods, single agreement, amendment upon consent of both counterparties, governing law and jurisdiction or other dispute mechanisms (the BMA, ISMA and ISDA Agreements comply with this requirement); and
  • a copy of the executed agreement must be filed with the office of the Superintendent before the commencement of any Bankruptcy Proceeding.

In bringing about the new netting regime, the Circular unfortunately does not address all details of its implementation.

Guidance for Form Approved Agreements.

First, the Circular does not provide guidance on repurchase or derivatives agreements that are not executed on the preapproved form agreements published by BMA, ISMA or ISDA. While the Superintendent may approve agreements in addition to those pre-approved, the Circular is not clear as to whether the Superintendent is likely to approve and apply the new netting regime if the parties executed a local master agreement, a form agreement of another association or an individually negotiated master agreement which includes the required contract provisions. If you otherwise qualify for netting under the requirements prescribed by the Circular, but have documented the transaction on an agreement that has not been pre-approved by the Superintendent, we would recommend that the parties submit the agreement for prior approval by the Superintendent before filing the agreement.

Guidance for Filing Requirements.

Second, the filing requirement is vague as to (1) the timing of the filing and (2) the nature of documentation and disclosure to be filed. With respect to timing, generally a Bankruptcy Proceeding commences upon its public announcement. Thus, we would recommend all filings to occur before the public announcement by the Superintendent that such financial institution or insurance company has become the subject of a Bankruptcy Proceeding. Unfortunately, any prior actions by the Superintendent aimed at bringing the institution back to stability through restructuring and avoiding bankruptcy are not public and counterparties will not be aware that a Peruvian counterparty risks being subject to Bankruptcy Proceedings. In all events, Qualifying Counterparties should promptly file any and all of their outstanding trades (as further described below) with the office of the Superintendent.

With respect to the nature of documents and type of disclosure to be filed, until further guidance and clarity is obtained from the Superintendent we recommend the following: (1) for derivatives agreements, we recommend filing the ISDA Master Agreement, Schedule, any applicable credit support annex and all related trade confirmations or other form agreement documenting a transaction under the ISDA Master Agreement as well as all subsequent amendments, modifications or supplements, and (2) for repurchase agreements, we recommend filing the Global Master Repurchase Agreement or Master Repurchase Agreement, all related financing documents governing such transaction as well as all subsequent amendments, modifications or supplements. If such trades are not documented on forms already approved by the Superintendent, we recommend first filing such agreement and all related amendments, modifications or supplements for prior approval and seeking guidance if necessary with respect to future filings. Counterparties should be guided by the principle that the Superintendent is seeking full disclosure on all outstanding obligations which may be subject to netting and the amounts of payments subject to such netting. Unless such documents are filed with the office of the Superintendent, a counterparty runs the risk of not being able to benefit from netting in the event of a bankruptcy of the Peruvian counterparty.

Recommendations for Existing and Future Agreements Among Qualifying Counterparties

In order to ensure the timely and proper filing of future derivatives agreements, we would recommend that parties include in their agreements a standard delivery requirement obligating parties to promptly file the form-approved master agreement and related documents as well as amendments, modifications or supplements (including all trade confirmations) upon their execution and delivery as well as provide a proof of filing. This requirement should be on-going throughout the life of the trading relationship or repurchase agreement to ensure that at all times the filings with the Superintendent show the current and existing obligations of the counterparties. Parties may also want to consider including (1) an additional termination right upon a failure by a counterparty to (a) promptly file the agreement and related documents or (b) provide a proof of filing and (2) an additional representation that the agreement has satisfied all of the obligations for netting in the event of a Bankruptcy Proceeding. Parties should also require pre-approval of the agreement if it is on a form other than one published by BMA, ISMA or ISDA.

For existing agreements among Peruvian counterparties with outstanding trades, counterparties will need to promptly file the pertinent documents. Counterparties should also consider amending their respective agreements to include delivery and filing obligations of such agreements and related trade confirmations as discussed above.

Limitations of Netting Under the Peruvian Insolvency Regime

While counterparties in transactions with Peruvian corporate institutions ("Corporates") will not be able to benefit from the new netting rights under the Peruvian insolvency laws, the Peruvian legislature has discussed extending such benefits to Corporates in the future. Despite such limitation on Corporates, the changes introduced by the Circular mark an important step forward in the standardization of the market and increasing market confidence and transparency in the derivatives space.


1 la Ley General del Sistema Financiero y del Sistema de Seguros y Orgánica de la Superintendencia de Banca y Seguros, Ley No 26702 y sus modificatiorias.

2 Superintendencia de Banca, Seguros y AFP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions