Technical Standards to Authorize Financial Entities to Make Equity Investments in Salvadoran Companies

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

CONSIDERING:

I. That Article 24 of the Banks Law establishes that banks may invest in shares of Salvadoran capital companies, subject to the authorization of the Financial System Superintendence. II. That Article 118 of the Banks Law establishes that the holding company must request authorization from the Financial System Superintendence to invest in a company that is operating or to invest in the formation of a company. III. That Article 71 of the Investment Banks Law establishes that, in addition to what is provided in said Law, Article 24 of the Banks Law shall apply to Investment Banks insofar as it does not contravene the Investment Banks Law. (1) IV. That Article 12 of the Cooperative Banks and Savings and Credit Companies Law establishes the types of companies and investment percentages in which cooperative banks may make equity investments prior to authorization by the Financial System Superintendence. (1) V. That Article 13 of the Cooperative Banks and Savings and Credit Companies Law establishes that cooperatives regulated by said Law that hold shares in the companies mentioned in Article 12 of the same Law, in amounts exceeding fifty percent of their total capital, must consolidate their financial statements with them. It also establishes that in no case may cooperatives operate as controllers of a financial conglomerate. (1) VI. That Article 154 of the Cooperative Banks and Savings and Credit Companies Law establishes that the provisions of Book Two of said Law shall apply to federations, insofar as they do not contravene the specific norms contained in Book Three of the same Law. (1) VII. That Article 155 of the Cooperative Banks and Savings and Credit Companies Law establishes that, except as provided in Book Four of said Law, savings and credit companies shall be subject to the provisions of the Banks Law. (1)

THEREFORE, by virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System,

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AGREES to issue the following:

TECHNICAL STANDARDS TO AUTHORIZE FINANCIAL ENTITIES TO MAKE EQUITY INVESTMENTS IN SALVADORAN COMPANIES

CHAPTER I OBJECT, SUBJECTS, AND TERMS

Object Art. 1.- These Standards aim to establish the requirements and procedures that banks, investment banks, federations, cooperative banks, savings and credit companies, and exclusive-purpose holding companies must fulfill to obtain authorization from the Financial System Superintendence to invest in shares of Salvadoran companies as subsidiaries or joint investment companies. (1)

Subjects Art. 2.- The subjects obligated to comply with the provisions established in these Standards are: a) Banks constituted in the country; b) Exclusive-purpose holding companies; c) Savings and credit companies; d) Cooperative banks; (1) e) Federations, both of cooperative banks and of savings and credit companies; and (1) f) Investment banks. (1)

Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning: a) Shareholder: Owners of the shares of the subjects obligated to apply these Standards; the term will also serve to refer to the members of Cooperative Associations subject to the application of these Standards; b) Holding Company: Companies owning at least fifty percent of the shares of other companies in the financial system; the holding company may be a bank or a company whose exclusive purpose is investment in other companies in the financial system; c) Exclusive-Purpose Holding Company: Companies owning at least fifty percent of the shares of other companies, and whose purpose is solely investment in shares of other companies in the financial system; d) Central Bank: Central Reserve Bank of El Salvador;

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e) Bank: This includes exclusive-purpose holding companies; f) Entity: Subjects obligated to comply with these Standards; g) Board of Directors: Collegiate body in charge of the administration of the entity, with functions of supervision, direction, and control, or equivalent body; in the case of Cooperative Associations, it will be the Board of Administration or as defined in its creation law; h) General Shareholders' Meeting or its equivalent: The highest authority of the entity. The Social Pact or Bylaws must recognize this attribution as well as its fundamental functions and competencies to adopt all kinds of agreements regarding its governance and, in general, all measures that require compliance with the Social Pact and the common interest of the shareholders. This term will also serve to refer to the General Meetings of Members of Cooperative Associations subject to these Standards; i) Subsidiary: Subsidiaries or affiliates are companies in which a controlling bank or exclusive-purpose holding company holds more than fifty percent of the social participation; j) Joint Investment Company: Those in which a bank, investment bank, cooperative bank, or savings and credit company, together with another entity, hold more than fifty percent of the common shares; and (1) k) Superintendence: Financial System Superintendence.

CHAPTER II CONDITIONS AND INFORMATION REQUIREMENTS FOR AUTHORIZATION

Investment in companies Art. 4.- Banks, investment banks, and savings and credit companies will request authorization from the Superintendence to invest in Salvadoran capital companies whose purpose or business involves foreign currency exchange houses, stockbroker firms, credit card issuing companies, general warehouses, payment, custody, and transport of securities companies, securities deposit and custody companies, financial leasing companies, and other companies that complement the financial services of banks. Exclusive-purpose holding companies may additionally invest in subsidiaries with the business of insurance companies and pension fund administrators. (1)

For their part, federations and cooperative banks may request authorization to make investments in shares of cooperatives, in international cooperative integration organizations, Salvadoran companies, and companies from other countries dedicated to carrying out activities that complement their financial services. In no case may they operate as controllers of a financial conglomerate.

Investment in companies in the process of formation Art. 5.- Entities interested in investing in a subsidiary or joint investment company to be formed must submit a request signed by the legal representative and addressed to the Superintendence, accompanied by the following information: a) Certification of the agreement of the General Shareholders' Meeting or its equivalent or of the Board of Directors, as required by the entity's social pact, authorizing the investment; b) Draft deed of formation and bylaws of the company in the process of formation; c) Business plan including the following: background, objectives, advantages and benefits of making the investment, two-year business projections, and perspectives with the company or office to be formed; d) List of the future shareholders of the company with their share participation and their link with the entity; e) When it concerns investments of more than fifty percent in common shares of the company, indicate the manner in which the entity intends to direct and control the management of the company, such as the setting of policies and risk management, degree of autonomy, internal control systems, planned information flows, etc. When it concerns minority investments, the purposes the entity pursues by investing in a company it will not control must be indicated; f) Submit a request to acquire shares in excess of ten percent, in the case of relevant shareholders; g) Curriculum vitae of the future highest-level executives of the subsidiary, understood as such, the general manager and managers or deputy managers of areas or, in any case, those holding positions equivalent to the aforementioned; h) Effect on the entity's equity fund of the investment to be made, both individually and consolidated, in accordance with the Banks Law, Investment Banks Law, and Cooperative Banks and Savings and Credit Companies Law, respectively; (1) i) Report issued by the Risk Unit or whoever acts in its place, on the analysis of the risks to be assumed in making the investment and of the operations of the new company; and j) Description of the systems or monitoring mechanisms related to the prevention of money laundering and asset laundering, terrorism financing, and financing of the proliferation of weapons of mass destruction.

Investments in operating companies Art. 6.- Entities interested in investing in companies that are operating must submit a request signed by the legal representative and addressed to the Superintendence, accompanied by the following information:

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a) Certification of the agreement of the General Shareholders' Meeting or its equivalent or of the Board of Directors, as required by the entity's social pact, authorizing the investment; b) Deed of formation and bylaws of the company in which the investment will be made, with their modifications, if any; c) Business plan including the following: background, objectives, advantages and benefits of making the investment, two-year business projections, and perspectives with the company or office in which the investment will be made; d) List of the current shareholders of the company with their share participation and their link with the entity; e) When it concerns investments of more than fifty percent in common shares of the company, indicate the manner in which the entity intends to direct and control the management of the company, such as the setting of policies and risk management, degree of autonomy, internal control systems, planned information flows, etc. When it concerns minority investments, the purposes the entities pursue by investing in a company they will not control must be indicated; f) Curriculum vitae of the future highest-level executives of the subsidiary, understood as such, the general manager and managers or deputy managers of areas or, in any case, those holding positions equivalent to the aforementioned; g) Effect on the entity's equity of the investment to be made, both individually and consolidated, in accordance with the Banks Law, Investment Banks Law, and Cooperative Banks and Savings and Credit Companies Law, respectively; (1) h) Audited financial statements of the last two years with the reports of the external auditor; i) Offered price of the shares and the possible sellers; j) Report issued by the Risk Unit or whoever acts in its place, on the analysis of the risks to be assumed in making the investment and of the operations carried out by the company; and k) Description of the systems or monitoring mechanisms related to the prevention of money laundering and terrorism financing and financing of the proliferation of weapons of mass destruction.

If the companies in which the investment will be made are members of the financial system, the presentation of the requirements established in letters b), d), f), and h) of this article will be exempted.

Increases in share participation Art. 7.- Entities interested in increasing their share participation subsequent to the initial one, and which, when added, do not exceed fifty percent of share ownership, must submit a request signed by the legal representative and addressed to the Superintendence, accompanied by the following information: a) Authorization request letter for the increase in share participation, indicating the type of investment (joint or minority), amount of the investment to be made, current share percentage and the projected one with the increase in investment, mention of who the offerors of the shares are if applicable, and the origin of the funds for the investment when it concerns the purchase of shares; b) Certification of the agreement of the General Shareholders' Meeting or its equivalent or of the Board of Directors, as required by the social pact, authorizing the investment; and c) Business plan including the following: background, objectives, advantages and benefits of making the investment, two-year business projections, and perspectives with the company or office in which the investment will be made; this requirement is exempted when the increase in share ownership is through capitalization of profits.

The foregoing will also apply in the case where the investor is a holding company and the increase in share participation is to consolidate the control it already has in the member companies of the financial conglomerate.

The requests and documentation referred to in Articles 4, 5, 6, and 7 of these Standards, depending on each case, may be submitted through the means made available by the Superintendence, which may be electronic. In any case, the deadline referred to in the first paragraph of Article 8 of these Standards will begin to run from the next business day after the request has been submitted.

CHAPTER III PROCEDURE FOR THE REQUEST

Authorization request to make equity investments in Salvadoran companies Art. 8.- Upon receipt of the authorization request to make equity investments in Salvadoran companies in accordance with what is established in Articles 4, 5, 6, and 7 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined in the Laws and in these Standards, having two months following to authorize or deny the authorization request to make equity investments in Salvadoran companies.

If the request is not accompanied by the complete and duly formatted information detailed in Articles 5, 6, and 7 of these Standards, the Superintendence, due to the lack of necessary requirements, may require the applicant to present the missing documents within a period of ten business days counted from the day following the notification, a period that may be extended at the request of the interested persons when there are reasons justifying it.

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The Superintendence in the same notice will indicate to the applicant that if the information is not completed within the aforementioned period, it will proceed without further procedure to archive the request, leaving the right to present a new request intact.

If after the analysis of the documentation presented in accordance with Articles 5, 6, and 7 of these Standards, the Superintendence has observations or when the documentation or information presented is not sufficient to establish the facts or information intended to be proven; the Superintendence will notify the respective applicant to remedy the deficiencies communicated or present additional documentation or information requested.

The applicant will have a maximum period of ten business days counted from the day following the notification, to resolve the observations or present the additional information required by the Superintendence.

The Superintendence may, through a reasoned resolution, extend by another ten business days the period indicated in the previous paragraph, when the nature of the observations or deficiencies notified so requires.

Extension period Art. 9.- The applicant may submit to the Superintendence a request for extension of the period indicated in the fifth paragraph of Article 8 of these Standards, before the expiration of said period, must express the grounds on which it is based and propose, if applicable, the pertinent proof.

The extension period may not exceed ten business days and will start from the next business day after the expiration date of the original period.

Suspension of the period Art. 10.- The two-month period indicated in the first paragraph of Article 8 of these Standards will be suspended for the days that elapse between the notification of the request for information or documentation referred to in the second and fifth paragraphs of said article, until the observations required by the Superintendence are remedied.

Resolution Art. 11.- Once the documents are presented in due form, the Superintendence will carry out the corresponding analyses and evaluate the feasibility of the investment, additionally considering the solvency requirements of the bank, cooperative bank, or savings and credit company, and of the company in which the investment will be made.

The Superintendence will proceed to notify the applicant of the resolution in which it authorizes or denies the authorization request to make equity investments in Salvadoran companies, within a maximum period of three business days from the day the resolution is issued.

Art. 12.- If the resolution mentioned in Article 11 of these Standards is favorable, the entity will have a period of up to one month to make the investment; when it concerns future companies, these must be formed within the following three months after authorization. At the request of the entity, the period may be extended once and for a maximum period of one month.

In the case that the established deadlines are not met, the Superintendence may revoke the authorization that was granted.

Art. 13.- If the resolution is one of denial, the notification will contain in a reasoned manner the causes for which it is denied.

CHAPTER IV OTHER PROVISIONS AND VALIDITY

Authorization for other financial businesses Art. 14.- The Superintendence, through a resolution of a general nature, will authorize other types of financial business entities, provided there is no express legal prohibition for it.

Modifications in the social pact and/or bylaws Art. 15.- Modifications subsequently introduced to the social pact and/or bylaws of the company in which the investments were made must be reported to the Superintendence.

Art. 16.- Subsidiaries and joint investment companies are subject to the supervision of the Superintendence, with all the powers conferred by the Law on Supervision and Regulation of the Financial System, without prejudice to the powers of other national or foreign supervisory bodies regarding the supervision of such companies. The Superintendence will have access to the information of each of them in order to exercise consolidated supervision, ensure their solvency, and in general, carry out its tasks of surveillance and control.

Sanctions Art. 17.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal Art. 18.- These Standards repeal the "Standards to Authorize Banks, Federations, Cooperative Banks, Savings and Credit Companies, and Exclusive-Purpose Holding Companies to Make Equity Investments in Salvadoran Companies" (NPB1-10), approved by the Board of Directors of the Financial System Superintendence in Session No. CD-53/2000 of October 12, 2000, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume No. 390, dated February 2, 2011.

Transitory Art. 19.- Requests submitted in accordance with what is established in the "Standards to Authorize Banks, Federations, Cooperative Banks, Savings and Credit Companies, and Exclusive-Purpose Holding Companies to Make Equity Investments in Salvadoran Companies" (NPB1-10) will be processed under the previous regulations until a final decision is reached, unless otherwise specified.

Alameda Juan Pablo II, between 15th and 17th North Avenue, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 6 of 9 CNBCR-09/2024 NRP-82 TECHNICAL STANDARDS TO AUTHORIZE FINANCIAL ENTITIES TO MAKE EQUITY INVESTMENTS IN SALVADORAN COMPANIES Approval: 09/23/2024 Validity: 10/09/2024

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