Regulation on Stablecoins Issuance and Public Offering

1 National Digital Assets Commission

Whereas:

1. On January 11, 2023, Decree No. 643 promulgated the "Digital Assets Issuance Law of El Salvador," which was published in the Official Gazette, Volume 16, No. 438, on the 24th of the same month;
2. According to Article 9, paragraph q, of the Digital Assets Issuance Law, the duties of this Commission include: issuing guidelines and technical regulations applicable to stable currencies, including proof of funds or value for such currencies, as well as all relevant documents that issuers of such digital assets must submit to the Commission for public offerings;
3. According to Article 32, paragraph 5, the situation of stable currencies being accepted or applied for acceptance on digital platforms registered in El Salvador is not within the scope of mandatory submission of relevant information documents.
4. For the normal implementation of the aforementioned laws and regulations, it is necessary to establish a corresponding regulatory mechanism to ensure all aspects of the stable currency issuance process;
5. This regulation involves the relevant rules specified in the "Digital Assets Issuance Law of El Salvador" applicable to stablecoin issuance.

Regarding the Management Measures for the Public Offering of Stablecoins Purpose Article 1--The purpose of this regulation is to implement and promote the provisions of the "Digital Assets Issuance Law" concerning the public offering of stable currencies, as well as the provisions allowing stable currencies to be traded on digital platforms.

Scope of Application: Article 2--This regulation applies to digital asset service providers officially registered with the National Digital Assets Commission that issue stablecoins or accept stablecoins on their digital platforms, as well as other issuer groups specified in Article 3, paragraph (3) of this regulation. However, this regulation does not apply to stablecoin issuers based on algorithms.

2 Stable Currency Issuers Article 3: The following entities may become stable currency issuers: a) The State and its affiliated institutions; b) Independent institutions; c) Banks, cooperative banks, pension fund management institutions, insurance companies, investment fund management institutions, and savings and credit companies authorized by the Superintendence of the Financial System; d) Foreign financial institutions recognized as first-tier banks by the Central Reserve Bank under current laws and regulations and registered as digital asset service providers; e) Digital asset service providers officially registered with the National Digital Assets Commission; and f) Issuers not belonging to the above categories but registered with the National Currency Issuance Office and authorized to issue stable currencies. In any of the above cases, the issuer must complete its registration with the National Digital Assets Commission in accordance with Article 5, paragraph (5) of this regulation.

Definitions Article 4: To ensure the implementation of this regulation, the following definitions are interpreted: a) API: API refers to relevant Application Programming Interfaces, understood as a set of definitions and protocols mainly used for designing and integrating related application software; b) Stable Currency Issuer: Refers to a national or individual, whether natural or legal person, whether private or public institution, who sells or trades stable currencies on exchanges or trading platforms (whether centralized or decentralized, regulated or unregulated), offers or promotes stable currencies to the public, or seeks to receive stable currencies, and meets one or more of the following three conditions: i) Individuals with domicile within El Salvador;

3 ii) Individuals without domicile within El Salvador but using trading platforms within El Salvador; iii) Individuals without domicile within El Salvador whose purpose is to promote or publicly offer digital assets to potential buyers within El Salvador, except where potential buyers establish commercial relationships with such digital asset issuers in their own name. Digital asset service providers authorized to trade stable currencies on their platforms are not equivalent to issuers on such platforms; A national or individual, whether natural or legal person, whether private or public institution, wishing to register or seek authorization to promote the issuance of stable currencies to the public, must first obtain approval from the National Digital Assets Management Commission before providing the functions or services defined in the stable currency definition and any associated additional functions or services. c) Stable Currency: A digital asset designed to minimize price fluctuations and referenced, represented, or backed by international reserve assets or a basket of assets; d) International Reserve Assets: Any currency, asset, or basket of assets widely circulated in local and international markets, legal currency defined by the Salvadoran government (including Bitcoin), cash or cash equivalents, debt securities considered low risk (such as certificates of deposit, money market funds, reverse repurchase agreements, and treasury bills), gold and other commodities, other stable currencies approved by the National Digital Assets Management Commission for use as stable currency reserve assets, loans collateralized by liquid assets (cash, cash equivalents, and Bitcoin), and other investments recognized by this management committee as meeting standards. Assets allowed in reserves must meet the definition of 30-day liquidatable assets or assets liquidatable in more than 30 days. Thirty (30) day liquidatable assets refer to assets that can be converted into cash or used to settle financial debts within thirty (30) working days or less without causing significant loss or fluctuation in their market value. Assets liquidatable in more than thirty (30) days refer to assets that require more than thirty (30) days to convert into cash or be used to settle financial debts, but can be sold in a timely manner without causing a significant impact on the fair market value of the assets. Considering the redemption rights of investors and public demands, the Commission will provide definitions and approvals for the relevant parties involved in the above provisions.

4 Considering that the above requirements and definitions cannot cover all situations, the National Digital Assets Commission reserves the power to exempt one or more issuers from complying with any regulations regarding reserve requirements in circumstances it deems appropriate. e) Redemption: The ability to automatically or promptly exchange international reserve assets for stable currencies; f) Asset Reserves: Refers to international reserve assets: the assets available to the issuing entity to fulfill redemption obligations for the stable currencies it issues; g) Fair Market Value: Fair market value refers to the current value of an asset or its selling price in the open market.

Registration Application and Information for Stablecoin Issuers Article 5--Entities intending to become stable currency issuers must submit a registration application to the National Digital Assets Commission. The legal representative or agent of interested entities, wishing to become a stablecoin issuer and obtain registration, must submit the relevant application to the Management Commission, accompanied by the following documents: a) If a legal entity, provide a general description of its business or usual scope of business, domicile, and attach a copy of the issuer's articles of incorporation and its amendments (if any) registered in the Commercial Registry, as well as a copy of the current bylaws (if applicable) formally archived in the corresponding registry, or a decree of creation (if applicable); b) If the applicant is a legal entity, provide a list of partners, collaborators, or shareholders, indicating their proportion in the company's capital, the type and number of valid ID documents, and tax identification numbers (if applicable). The above list must contain the latest information up to the date of submission of the application, and copies of valid ID documents and tax identification numbers for persons with shareholdings equal to or exceeding 10% of the issuer's capital. If a shareholder is a company, information on the ultimate beneficiary must be submitted; this is not required if the company is a listed enterprise on an organized and regulated securities market; c) If a legal entity, provide a list of the issuer's board of directors, noting the type and number of ID documents, tax identification numbers, and copies of full powers registered in the corresponding registry for board members, administrative agents, and directors, noting their respective terms of office, along with copies of current ID documents, tax identification numbers, and resumes proving the professional or commercial experience of each director; d) If a natural person, provide full name, ID number, resident ID or passport, and specific residential address;

5 e) If a natural person, provide a list of enterprise managers, the type and number of each manager's ID or passport, and tax number; f) Audited financial statements for the three fiscal years prior to the issuer's application, prepared by an external auditor. If the issuer has been established for less than three years, audited financial statements held up to the date of application must be submitted. In any case, if the company does not have audited financial statements but can prove it has been active in the local or international digital asset market for more than three years, a limited review report by an external auditor (commonly referred to as a "certification") may be submitted. If the issuer cannot provide audited financial statements on the date of obtaining qualification to issue stable currencies, the company must comply with the above provisions within 6 months after the end of its fiscal year as a stable currency issuer registered in El Salvador by submitting a copy of the financial statements prepared by the audit team to the National Digital Assets Commission; g) Copy of the issuer's tax identification number; h) Clearly state the LRU port algorithm data on its homepage; i) Clearly indicate the jurisdiction, country, or region where its business is located; j) Provide a list of digital assets already publicly issued. During the application process, the issuer should indicate the location or method for receiving notifications, and designate an agent to handle this procedure. Any changes or updates to the registration information must be submitted to the Management Commission within ten (10) working days after the change or update. The documents related to this application are confidential. The issuer's registration and issuance procedures may also be conducted simultaneously. For the Ministry of Finance, the Central Reserve Bank, and autonomous entities issuing stable currencies, the intention to join the issuer registry must be explicitly stated in the application form, and relevant registration requirements must be met. In any case, if the issuer lists or trades stable currencies on its own or third-party platforms, it must first register as a digital asset service provider with the National Digital Assets Commission.

Information Required from Stable Currency Issuers Article 6--Stable currency issuers must submit the following information to the National Digital Assets Commission: a) Specify the quantity of stable currencies to be issued, the type of international reserve assets to be used, and the amount of reserve assets denominated in that currency;

6 b) Specify the issuance plan and procedures related to the minting and burning of the stablecoins to be issued; c) Clearly state the LRU port algorithm data on its homepage; d) Distributed ledger technology protocol, or similar technology used. After the information described in the first paragraph of this article is submitted to the National Digital Assets Commission, if the Commission finds no objections, it shall issue a "No Objection Resolution" within a maximum of five (5) working days. If the submitted information is incomplete, the National Digital Assets Commission shall warn the applicant and stipulate a period of up to fifteen (15) working days to submit the missing information and documents, and then make a ruling within the stipulated period. If the applicant fails to submit the missing information and documents, the competent authority will issue a "Opposition" resolution, and the applicant will not be able to continue issuing its stable currency. Furthermore, if the National Digital Assets Commission believes that issuing such stable currencies poses a risk to the stability of the digital asset system, it will also issue an "Opposition" resolution for the relevant application.

Acceptance of Stable Currencies Article 7--When a digital asset service provider accepts stable currencies issued in other jurisdictions on its digital platform and wishes to accept stable currencies on its own digital platform, it should require the issuer to provide the information required in the previous article and immediately provide this information to the National Digital Assets Commission. The issuers of such stable currencies shall comply with the procedures mentioned in the previous article. Furthermore, if a digital asset service provider accepts stable currencies that are officially registered with the National Digital Assets Commission, it is not required to provide the information specified in the previous article.

Creation and Destruction of Stable Currencies Article 8--After the initial issuance of stablecoins, the issuer shall immediately notify the National Digital Assets Commission and asset service providers of the additional issuance of stablecoins and the destruction of any quantity of stablecoins. Information on the creation and destruction of stablecoins will be provided to the Asset Commission monthly via Application Programming Interface (API).

Reserve Assets Article 9--Stablecoin issuers must always hold reserves supporting the circulation of their stablecoins, requiring a ratio of at least one-to-one.

7 Article 10--At least seventy percent (70%) of the reserves shall be invested in assets liquidatable within thirty (30) days, and thirty percent (30%) of the reserves shall be invested in assets liquidatable in more than thirty (30) days. In any case, reserve assets shall not be invested in international reserve assets issued by companies affiliated with the company's shareholders or senior executives, or any related industries that may produce conflicts of interest.

Guarantees Article 11 The legal representative of the issuer shall submit a guarantee to the National Digital Assets Commission monthly, certifying information regarding the reserves supporting its stable currency, the amount, and the composition of assets; additionally, an independent guarantee opinion (referred to in English as "attestations") on the accuracy of the reserve amount and the composition of assets must be provided quarterly by an external auditor. The guarantee opinion must be published on the website of the stable currency issuer.

Information Requirements Article 12 The National Digital Assets Commission may request stable currency issuers to provide information it deems relevant and timely to verify the provisions of the previous article.

Audits and Inspections Article 13 The National Digital Assets Commission will periodically review stable currency issuers to verify the quantity of reserves held. These reviews can be conducted directly by the National Digital Assets Commission or by hiring audit or consulting firms. If the National Digital Assets Commission has reason to believe that a stable currency issuer has failed to fulfill its obligations under this regulation, the Commission may initiate procedures for a comprehensive and continuous review and inspection of the stable currency issuer, including analysis and verification of the quantity of reserves held for the issued stable currencies.

Custody of Reserve Assets Article 14 Stable currency issuers must notify the National Digital Assets Commission of which financial or digital institution, whether with or without domicile, holds the reserves described in the previous article, and any changes to these reserves. In any case, the issuer must ensure that custody is conducted directly or indirectly in accordance with international best practices and standards. The National Digital Assets Commission may request information it deems relevant to verify the information described in the preceding paragraph.

8 Insider Information Article 15 Officially registered stable currency issuers shall comply with established rules regarding the use of insider information of issuers in the public offering of digital assets.

Authorization Time for Stable Currency Issuance Article 16 Once the National Digital Assets Commission has issued a "No Objection" resolution, the public offering of stable currencies shall be deemed enabled. For stable currencies issued in other jurisdictions, countries, or regions and wishing to enter the digital platforms of digital asset service providers, the National Digital Assets Commission shall also issue a "No Objection" resolution so that these stable currencies can be traded on the platform. In this sense, digital asset service providers shall immediately submit an application for the list of stable currencies entering their platform.

Reasons for Cancellation of Stable Currency Issuance Article 17 In any of the following circumstances, the National Digital Assets Commission may cancel the authorization to issue stable currencies: a) The issuer fails to fulfill the obligation to redeem stable currencies; b) The issuer does not possess the reserves stipulated in this regulation; c) When the stable currency poses a systemic risk to the stability of digital assets; d) When a stable currency is rated as high risk by any country, territory, or jurisdiction.

High-Risk Rating Article 18 The National Digital Assets Commission shall publish a list of stable currencies deemed to pose a high risk to the public on its website LRU port, and make appropriate modifications when warning of systemic risk. This list will be called the Risk List. Stable currencies mentioned on this list shall not be traded by any digital asset service provider, issuer, or buyer operating on digital asset markets registered under the Digital Assets Issuance Law.

9 This ban shall take effect within 24 hours after the publication on the National Digital Assets Commission website LRU port. As a communication act, the National Digital Assets Commission may send emails of this updated list to digital asset issuers and service providers.

Quarterly Reports Article 19 Issuers must submit quarterly reports on the stable currencies they issued within the first 20 days of April, July, October of this year, and January of the following year. Reports must include at least the following content: a) Issuer name; b) Name of the stable currency; c) Project name; d) Start date of the offering; e) Technical and commercial characteristics of this stable currency; f) Evolution of the product and its inherent risks since the submission of the previous report to the National Digital Assets Commission. The registry must be updated based on the information provided by the issuer.

Risk Issuers Article 20 In the following cases, the issuer of a stable currency shall be considered to pose a risk to the public: a) The issuer or its representatives participate in illegal activities declared by competent courts in El Salvador; b) Information shared with the public in the public offering is misleading, asymmetric, or illegal; c) The stable currency issuer fails to prove it possesses sufficient reserves as stipulated in this regulation; d) Issuing stable currencies without receiving information from the National Digital Assets Commission and allowing its issuance;

e) When the issued stable currency is convicted by competent authorities for deceiving the public in other jurisdictions, countries, or regions.

Fees and Charges Article 21 The fees for the registration and management services of stable currency issuers and public offerings are as follows: f) Upon obtaining the authorization to issue the applied stable currency, pay an amount equivalent to 0.01% of the public offering amount; g) For each certification of the resolution issuing the authorization to issue stable currencies, pay 50 US dollars or the equivalent in Bitcoin. For stable currency issuers, they must report the quantity of stable currencies they plan to issue in the next twelve (12) months and pay the corresponding fees for this. If the amount issued at the end of twelve (12) months exceeds the forecast, the corresponding fees must be paid for the stable currencies not included in the initial forecast. In special cases, due to the inherent characteristics of the stable currency, making it impossible to predict the issuance over the next twelve (12) months, if the reasons are reasonable, the issuer reports its initial forecast and pays at least one currency, and calculates the actual net issuance of the currency at the end of the calendar year, paying an amount equivalent to 0.01% of the provided net amount to pay the relevant fees. In any case, the payable amount shall not exceed 300,000 US dollars. However, the State, the Ministry of Finance, the Central Reserve Bank of El Salvador, and autonomous entities are not subject to the fees and charges stipulated in this article.

Unforeseen Other Aspects Article 22 Unregulated aspects of this regulation shall be addressed and resolved by the Board of Directors of the National Digital Assets Commission.

Vigencia (Validity) Article 23 This decree shall take effect eight (8) days after publication on the Commission's website. This regulation was approved by the Board of Directors of the National Digital Assets Commission in meeting No. CNAD-025-2023 held on July 10, 2023, and published on its website on July 11, 2023. (End)