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2023-12-14 | NRP-49

Technical Standards for the Diversification of Investments of Reciprocal Guarantee Societies and Reinsurance Companies of Reciprocal Guarantee Societies

The Standards Committee of the Central Reserve Bank of El Salvador issued Technical Standards NBCR-11/2023 to regulate the investment regimes and diversification limits for Reciprocal Guarantee Societies and their Reinsurance Companies. The regulations mandate that at least 80% of liquid resources be invested in specific financial instruments, subject to strict per-issuer and per-issuance concentration limits not exceeding 20% of total assets. These standards, which supersede previous regulations, became effective on January 2, 2024, and require monthly reporting of investment calculations to the Financial System Superintendence.

El Salvador

Superintendencia del Sistema Financiero

NBCR-11/2023 NRP-49 TECHNICAL STANDARDS FOR THE DIVERSIFICATION OF INVESTMENTS OF RECIPROCAL GUARANTEE SOCIETIES AND REINSURANCE COMPANIES OF RECIPROCAL GUARANTEE SOCIETIES Approval: 12/14/2023 Validity: 01/02/2024 Alameda Juan Pablo II, between 15 and 17 Norte Ave, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 1 of 7

THE STANDARDS COMMITTEE OF THE CENTRAL RESERVE BANK OF EL SALVADOR,

CONSIDERING: I. That Article 62 of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes the investment regime for Reciprocal Guarantee Societies, stipulating the limits and types of securities in which they may invest their liquid resources. II. That Article 63 of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes the diversification limits by issuer and issuance that a Reciprocal Guarantee Society may not exceed in investments in deposits and securities issued or guaranteed by the same entity or business group. III. That Article 88, letter a) of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes that Reinsurance Companies are prohibited from investing their resources in shares and participations of societies. IV. That Article 7, letter h) of the Law of Supervision and Regulation of the Financial System establishes that the Superintendence of the Financial System is responsible for the supervision of Reciprocal Guarantee Societies and their local Reinsurance Companies. V. That Article 99, third paragraph, letter a) of the Law of Supervision and Regulation of the Financial System establishes that the Standards Committee of the Central Reserve Bank of El Salvador is responsible for approving technical standards on any other aspect inherent to risk management by supervised entities. VI. That in accordance with Article 101, fourth paragraph of the Law of Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical standards that must be complied with by members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador.

THEREFORE,

by virtue of the regulatory powers conferred by Article 99 of the Law of Supervision and Regulation of the Financial System, AGREES to issue the following:

TECHNICAL STANDARDS FOR THE DIVERSIFICATION OF INVESTMENTS OF RECIPROCAL GUARANTEE SOCIETIES AND REINSURANCE COMPANIES OF RECIPROCAL GUARANTEE SOCIETIES

CHAPTER I OBJECT, SUBJECTS AND TERMS

Object Art. 1.- These Standards aim to establish the investment regime for Reciprocal Guarantee Societies and Reinsurance Companies of Reciprocal Guarantee Societies, considering for this purpose the limits and diversification.

Subjects Art. 2.- The subjects obliged to comply with the provisions established in these Standards are: a) Reciprocal Guarantee Societies; and b) Reinsurance Companies of Reciprocal Guarantee Societies.

Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning: a) Central Bank: Central Reserve Bank of El Salvador; b) Development Bank: Development Bank of the Republic of El Salvador; c) Business Group: In accordance with Article 5 of the Securities Market Law, it is that in which a society or set of societies has a common controller, who acting directly or indirectly participates with fifty percent (50%) as a minimum in the share capital of each of them or that have common shareholders who, directly or indirectly, are holders of fifty percent (50%) as a minimum of the capital of another society, which allows presuming that the economic and financial performance is determined by common interests or subordinate to the group; d) Law: Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises; e) Liquid Resources: Cash, bank deposits, and investments in financial instruments; f) Reinsurance Company(ies): Reinsurance Company(ies) of Reciprocal Guarantee Societies; g) Society or Societies of Guarantee: Society or Societies of Reciprocal Guarantee; h) Affiliated Society: According to what is established in Article 5 of the Securities Market Law, it is that in which another society, called the controlling society, without controlling it, participates in its share capital, directly or through other societies, with more than ten percent (10%) of the shares with voting rights; and i) Superintendence: Superintendence of the Financial System.

CHAPTER II CLASSES AND LIMITS IN INVESTMENTS

Investment of liquid resources Art. 4.- Reciprocal Guarantee Societies must invest at least eighty percent (80%) of their liquid resources in the following financial instruments and according to the respective percentages, as follows: a) Deposit Certificates from financial institutions supervised by the Superintendence, up to 15%; b) Securities issued by the Ministry of Finance, up to 40%; c) Securities issued by the Central Bank, up to 40%; d) Securities issued by the Development Bank, up to 40%; e) Securities issued by autonomous or official credit institutions, excluding the Social Housing Fund, up to 20%; f) Securities issued by the Social Housing Fund, up to 15%; g) Securities issued by Banks, up to 30%; h) Shares and convertible securities of national societies, up to 10%; and i) Other public offering instruments, up to 20%. All the instruments detailed, with the exception of deposit certificates referred to in letter a) of this article, when applicable, must be registered in a Stock Exchange of El Salvador, comply with the requirements of the respective Salvadoran securities market legislation, and have been subjected to a risk classification by classifiers authorized by the Superintendence. Securities issued by the Ministry of Finance, Central Bank, and Development Bank are exempt from risk classification.

For the case of Reinsurance Companies, the content of this article applies, except for letter h) in order to comply with letter a) of Article 88 of the Law.

Diversification limits by issuer and issuance Art. 5.- The sum of investments in deposits and securities issued and guaranteed by the same entity or business group may not exceed the following limits: a) 20% of the total assets of the Reciprocal Guarantee Society or Reinsurance Company, at the start of their operations, or generally, on December 31, or June 30 of the last accounting period, the date closest to the operation; b) 20% of the issuer's assets; and c) 20% of the assets of the issuing business group. The diversification by issuer and issuance will be detailed in accordance with Annex No. 2.

Investments in securities issued or guaranteed by the Ministry of Finance, the Central Bank, and the Development Bank are exempt from this provision.

In the event that two or more Reciprocal Guarantee Societies are affiliated, it shall be understood that the limits indicated in this article apply to the sum of the investments of all affiliated societies.

Calculation period and submission of information Art. 6.- Reciprocal Guarantee Societies and Reinsurance Companies must calculate the limits of their investments at least at the end of each month. The results will be submitted to the Superintendence within the first five business days of the following month, according to Annexes Nos. 1 and 2, with the entity's seal and the signature of the manager or whoever holds an equivalent position; except for those corresponding to the months of June and December of each year, in which cases they will be submitted within the first ten business days of the immediate subsequent month.

Notwithstanding the above, the Superintendence may request the calculation on any date it deems convenient.

Valuation of investments Art. 7.- For the calculation of the limits established in these Standards, investments will be taken at their net value of reserves for soundness or for loss of value or any other estimate to adequately value the assets.

CHAPTER III OTHER PROVISIONS AND VALIDITY

Sanctions Art. 8.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law of Supervision and Regulation of the Financial System.

Repeal Art. 9.- Investments of Reciprocal Guarantee Societies and Reinsurance Companies of Reciprocal Guarantee Societies (Norms No. 01), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-42/2003 of October 8, 2003, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law of Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen Aspects Art. 10.- Aspects not provided for in the matter of regulation in these Standards will be resolved by the Central Bank through its Standards Committee.

Validity Art. 11.- These Standards will enter into force from January 2, 2024.

Annex No. 1 DETERMINATION OF LIQUID RESOURCES

NAME OF THE RGS or RSGR: ______________________________________________

REFERENCE DATE: __________________________

Concept Value 111 Available Funds $ 112 Temporary Acquisition of Documents 113 Financial Investments Total Liquid Resources $

Investment Requirement (80% of liquid resources) $ Signature of responsible official:_____________________________ Entity Seal: ______________

NAME OF THE GUARANTEE SOCIETY OR REINSURANCE COMPANY: INVESTMENTS AS OF: Legal Basis CONCEPT Minimum Investment Value % of Investment Required Investments Invested Computable Art.62, lit a) Deposit Certificates from Financial Institutions supervised by the Superintendence $ 15 - (Detail Financial Inst., Deposit No., interest rate, granting, maturity, and term) Art.62, lit b) Securities issued by the Ministry of Finance $ 40 - (Detail instrument class, denomination, series, and issuance) Art.62, lit c) Securities issued by the Central Reserve Bank of El Salvador 40 - (Detail instrument class, denomination, series, and issuance) Art.62, lit d) Securities issued by the Development Bank of the Republic of El Salvador $ 40 -

(Detail instrument class, denomination, series, and issuance) Art.62, lit e) Securities issued by autonomous or official credit institutions, excluding the FSV $ 20 - (Detail issuing institution, instrument class, denomination, series, and issuance) Art.62, lit f) Securities issued by the Social Housing Fund 15 - (Detail instrument class, denomination, series, and issuance) Art.62, lit g) Securities issued by Banks $ 30 - (Detail issuing institution, instrument class, denomination, series, and issuance) Art.62, lit h) Shares and convertible securities of national societies $ 10 -

(Detail the class of shares, value of shares, share certificate numbers; denomination, domicile, and term of the issuing society of the shares) (Not applicable for Reinsurance Companies) Art.62, lit i) Other public offering instruments $ 20 - (Detail issuing institution, instrument class, denomination, series, and issuance) TOTALS . . . $ - Annex No. 2 COMPUTABLE INVESTMENTS (Article 62 of the Law of Reciprocal Guarantee Societies)