Accounting Manual for Investment Banks

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

CONSIDERING: I. That Article 3, paragraph 3 of the Investment Banks Law establishes that, in accordance with the Law for the Supervision and Regulation of the Financial System, investment banks constituted in accordance with the Investment Banks Law shall have the status of members of the Financial System. II. That Article 4, letter c) of the Law for the Supervision and Regulation of the Financial System establishes that the Superintendency of the Financial System has among its powers to carry out individual and consolidated supervision of the members of the financial system, as well as the supervision of other regulated subjects. III. That Article 7 of the Law for the Supervision and Regulation of the Financial System establishes who are subject to the provisions of said Law and therefore to the supervision of the Superintendency of the Financial System. IV. That Article 35, letter f) of the Law for the Supervision and Regulation of the Financial System establishes that it is the obligation of the supervised entities to provide adequate accounting disclosure of their economic and financial reality, and to have the backing of their internal and external audits. V. That Article 99, letter c) of the Law for the Supervision and Regulation of the Financial System establishes that it is the responsibility of the Standards Committee of the Central Reserve Bank to approve the Technical Standards for the preparation, presentation, and dissemination of Financial Statements and supplementary information of the members of the financial system; to determine accounting obligations and the principles in accordance with which they must keep their accounts; and to establish criteria for the valuation of assets, liabilities, and the creation of provisions and reserves for risks.

THEREFORE,

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

AGREES to issue the following:

ACCOUNTING MANUAL FOR INVESTMENT BANKS

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CONTENTS

CHAPTER I GENERAL PROVISIONS Comprises the general provisions applicable to the recording of operations of the supervised financial entity and subject to this accounting framework.

CHAPTER II ACCOUNTING FRAMEWORK Comprises the accounting principles that entities will apply, which will be composed of sections indicating how to proceed for the accounting of regulated elements.

Sections of the Chapter: SECTION I. Recognition of interest on active credit risk operations. SECTION II. Accounting reclassification of loans, contingencies, and suspension of interest recognition. SECTION III. Write-off of impaired credit risk assets and subsequent recoveries. SECTION IV. Recognition, measurement, and presentation of extraordinary assets. SECTION V. Recognition of commissions on loans and contingent operations. SECTION VI. Creation of reserves for country risk. SECTION VII. Specific treatments defined for the presentation of financial statements. SECTION VIII. Preparation and publication of financial statements: presentation and disclosure. SECTION IX: Financial Investments. SECTION X: Cryptocurrencies

CHAPTER III CHART OF ACCOUNTS Comprises the list of accounts provided for the accounting of the respective operations.

CHAPTER IV ACCOUNTING APPLICATIONS MANUAL Comprises the description of the concept of the accounts and the main applications by which they will be affected.

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CHAPTER V FINANCIAL STATEMENTS Includes the models of financial statements.

CHAPTER VI OTHER PROVISIONS AND VALIDITY Comprises provisions corresponding to sanctions, repeals, transitional aspects, unforeseen aspects, and validity.

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CHAPTER I GENERAL PROVISIONS

1. INTRODUCTION This "Accounting Manual for Investment Banks," hereinafter referred to as the Manual, aims to present in a uniform and homogeneous manner the accounting recording of their operations. Thus constituting an essential tool for the integration of financial statements, which must faithfully reflect the financial situation, results of operations, and management of the entities, so that they constitute a useful instrument for the analysis of information and decision-making by administrators and shareholders, the Superintendency of the Financial System, hereinafter Superintendency; the Central Reserve Bank of El Salvador, hereinafter Central Bank, investors, users of financial services, and the general public. The accounting aspects contained in this Manual, for the recording of different types of operations related to the financial system that require prior authorization, do not constitute express authorization to carry out the operations referred to, and the entity subject to the application of this Accounting Manual must comply with the legal provisions and technical standards issued for such effect.

2. OBJECTIVES 2.1. General Objective To provide a technical instrument for the uniform recognition, measurement, presentation, and disclosure of economic events, based on the financial and regulatory frameworks established by the Central Bank through its Standards Committee, as well as international best practices for banking operations.

2.2. Specific Objectives To have integral, timely, and homogeneous information on the financial situation of the entity that contributes to decision-making by administrators, owners, supervisory and regulatory bodies, sophisticated investors, depositors, and other users of financial statements.

3. SCOPE The Manual consists of the General Provisions, Accounting Framework, Chart of Accounts, Accounting Applications Manual, and the Models of Financial Statements.

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The subjects obliged to comply with the provisions established in this Manual are Investment Banks.

4. PROCESSING OF ACCOUNTING OPERATIONS The entity subject to this Manual may process its accounting operations by the means it deems convenient, provided that it allows for analysis and supervision. To this effect, said entity must request authorization from the Superintendency regarding the accounting information processing system it will use, when it begins operations or when there is a change in said system. The documentary or electronic source of each accounting record must contain sufficient explanations about the operation being recorded.

5. MODIFICATION OF THE MANUAL The coding and openings established in this Manual must be respected in their entirety; therefore, no new elements, classifications, headings, accounts, and sub-accounts different from those already established may be opened. However, designations may be added starting from digit 11 as necessary, provided they correspond to the nature of the account from which they originate. When an operation or transaction not foreseen in this Manual originates, the entity shall communicate this to the Central Bank, attaching the accounting criteria it intends to use, as well as the accounts to be used, describing the transaction or event and the reasons justifying the proposed treatment. Such communication shall be sent in physical form or by duly signed email by the responsible persons. The Central Bank will analyze the request, and if the proposed accounting application is appropriate and implies a modification of the Manual, the corresponding regulatory process for its approval will be activated. Prior to the modification of the Manual, the entity must account for the operation or transaction temporarily in sub-accounts corresponding to the heading designations identified by the entity, and when the Central Bank approves the referred modification, the entity must reclassify the transaction to the accounts that have been approved for such effects.

6. RESPONSIBILITIES 6.1. Accounting Records It is the responsibility of Management to record the operations of the entity, from the preparation of vouchers, documents, records, and files of transactions, to the formulation of financial statements and other reports for their corresponding analysis, interpretation, and accounting consolidation.

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6.2. Timeliness of Accounting Records Likewise, it is the responsibility of management to timely account for transactions, which shall be recorded in accounts whose title corresponds to their nature.

6.3. The Accountant It is the responsibility of management to hire the General Accountant, who must be a professional in public accounting, with sufficient training, capacity, and experience, and must meet the requirements established in the Law Regulating the Practice of Accounting and be authorized by the Council for the Supervision of the Public Accounting and Auditing Profession.

7. SUBMISSION OF INFORMATION 7.1. Timeliness The Investment Bank shall remit the corresponding financial information within the deadlines defined in this Manual. Lack of timeliness in the submission will be sanctioned in accordance with what is established in the Law for the Supervision and Regulation of the Financial System. The entity must designate an official responsible for timely compliance with information requests made by the Superintendency, without prejudice to the responsibility that falls on the legal representative, the internal auditor, and the general accountant.

7.2. Frequency

7.2.1. Weekly Balances Weekly financial position statements (cut off on Friday) shall be prepared and delivered to the Superintendency within the deadlines established in the Technical Standards for Submission and Collection of Information for the Accounting Statistical System of Investment Banks (NRP-91).

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7.2.2. Monthly Financial Statements The entity must obligatorily present monthly financial statements, which must be delivered to the Superintendency within the deadlines established in the Technical Standards for Submission and Collection of Information for the Accounting Statistical System -91).

7.3. Mechanisms The required financial information shall be remitted to the Superintendency by the entity, via digital network of information systems, modem, or any other data storage medium, according to the technical specifications contained in the Technical Standards for Submission and Collection of Information for the Accounting Statistical System of Investment Banks -91), without prejudice to paper supports that may be required according to circumstances.

7.4. Procedures Financial statements shall be remitted to the Superintendency according to the provisions established in this Manual. In order to guarantee that the transmission of financial statements is carried out free of arithmetic errors or in the structure of the file sent, the entity must perform validations on its files prior to sending. The Superintendency will confirm the correct receipt of the information transmitted by the entity, through automatic validations in accordance with the corresponding regulatory framework.

7.5. Level of Detail The minimum accounting information to be remitted to the Superintendency shall comprise sub-accounts up to 10 digits; without prejudice to norms requiring a greater level of detail.

8. ECONOMIC PERIOD The economic and accounting period shall comprise from January 1 to December 31 of each year.

9. ACCOUNTING RECORDS

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9.1. Accounting Books The movement and balance of accounts shall be recorded in main books and that of sub-accounts in auxiliary books as considered necessary. The main books that must be legalized are those indicated by the Code of Commerce. Accounting records must comply with what is established in Title II, of Book Two, of the Code of Commerce, insofar as applicable. In particular, in the Book of Financial Statements, the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Cash Flows, the Statement of Changes in Equity, and the corresponding notes shall be recorded, in accordance with what is established in Article 442 of the Code of Commerce and International Financial Reporting Standards (IFRS). The figures recorded in this book must be presented in thousands of United States dollars.

9.2. Tax Books Books of legal requirement must be kept, in accordance with current tax laws.

10. INTERNAL CONTROL APPLIED TO ACCOUNTING RECORDS Accounting records must contain the necessary detail regarding the characteristics of assets, liabilities, equity, income, and expenses so that all information contained in the different financial statements to be rendered can be clearly derived from them, which will maintain the necessary correlation both among themselves, when applicable, and with the accounting base. The entity must maintain at all times an auxiliary detail of each of the accounting sub-accounts, when the nature of the accounts so requires. The entity will establish internal control systems directed to reasonably ensure the reliability of accounting records, as well as the correct integration of operations, in accordance with the internal accounting policies of each entity. Therefore, independent of the accounts specified to form the financial statements, details will be established as deemed necessary for the preparation of the rest of the complementary informative statements, developing an analytical accounting that provides sufficient information for the calculation of costs and returns of the different centers, products, business lines, or other aspects of interest for adequate management control.

11. RECORDING AND ARCHIVING OF ACCOUNTING DOCUMENTATION

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Additionally, the entity is obliged to keep all administrative books required of it. The operations recorded in them must be backed by sufficient documentation proving the economic fact and complying with what is established in the Code of Commerce. Operations shall be recorded as they are carried out, in such a way as to avoid unnecessary delays. The entity must archive the documentation backing its operations, using the means it considers, provided that such means have all security and control measures. The retention time will be in accordance with what is regulated in the corresponding laws.

12. CONCEPTUAL FRAMEWORK OF ACCOUNTING 12.1. Generally Accepted Accounting Principles and Standards Accounting shall be governed according to the following precedence: a) Salvadoran legislation that establishes specific accounting treatments; b) Accounting Standards issued by the Central Bank through its Standards Committee; and c) International Financial Reporting Standards (IFRS), always adopting among the alternatives offered by these Standards the most prudent option and clearly disclosing such situation in the notes to the financial statements, the foregoing always provided that it does not contravene any provision contained in the Accounting Standards issued by the Standards Committee of the Central Bank. The entity will apply what is established in the Conceptual Framework of IFRS for the generation of general purpose financial information. The IFRS that the entity must apply are the standards and interpretations in Spanish version in force, which have been issued by the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB) and comprise: a) International Financial Reporting Standards (IFRS); b) International Accounting Standards (IAS); c) IFRIC Interpretations; d) SIC Interpretations; and e) International Sustainability Reporting Standards. Subsequent to the validity of this Manual, when changes in IFRS are approved or in case of issuance of a new IFRS by the IASB or ISSB, the entity may

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adopt such changes or new standards, provided that they do not contradict what is stated in Salvadoran legislation that establishes specific accounting treatments or in the Accounting Standards issued by the Central Bank through its Standards Committee, the latter two prevailing in case of conflicts.

12.2. Criteria for Accounting Recognition or Recording of Elements The initial recognition, subsequent measurement, presentation, and accounting disclosure of the elements of financial statements must be carried out following the provisions established in this Accounting Manual, in the regulatory framework or in IFRS, as applicable, attending to the type of transaction carried out. Based on the foregoing, for the estimation of expected credit losses for the investment portfolio, the entity will use the expected credit losses methodology established in IFRS for financial instruments in the investment portfolio recorded at amortized cost and at fair value through other comprehensive income. Prior to contracting financial derivatives for purposes other than risk hedging, the entity must request the appropriate authorization from the Central Bank to carry out this type of operations.

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CHAPTER II ACCOUNTING FRAMEWORK

SECTION I RECOGNITION OF INTEREST ON ACTIVE CREDIT RISK OPERATIONS

1. OBJECTIVE This Section aims to regulate the recognition of interest originated or incurred in active operations.

2. SCOPE This Section applies to all active financial operations related to credit risk assets, which imply the incurrence of interest.

3. RECOGNITION Interest receivable shall be recognized daily. The calculation of interest on active operations will be carried out from the day the resources are delivered to the user until one day before the repayment date, unless otherwise provided for the benefit of the debtor. Interest that, while in off-balance sheet accounts, becomes part of interest receivable, is integrated into the capital of a new credit, or is paid with loans granted by the same financial institution, must also be accounted for as a deferred liability. Such liability will decrease only by cash recoveries. The creditor and its debtors may freely agree on the form of payment of interest that, while in off-balance sheet accounts, becomes part of the asset.

SECTION II ACCOUNTING RECLASSIFICATION OF LOANS, CONTINGENCIES, AND SUSPENSION OF INTEREST RECOGNITION

1. OBJECTIVE This Section aims to regulate the transfer of loans from the current portfolio to the past-due portfolio, the conversion of a contingency into a loan, and the suspension of the recognition of interest originated on credit operations that are more than ninety days past due.

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2. SCOPE This Section applies to loans that are transferred to the past-due portfolio, contingencies that convert into loans, and the suspension of interest recognition.

3. GENERAL RULES A past-due status of more than ninety days of a quota or of the capital and interest balance will cause the capital to be classified as past-due portfolio. The past-due status may be of capital, interest, or both concepts.

For the purposes of this Section, extensions granted will not modify the delinquency condition of the loan. The deadlines for transfers established in this Section are maximums; therefore, the entity may reduce them. Accounting of interest on credit risk assets will be suspended in the following cases: a) Credit operations with more than 90 days past due; and b) Active credit operations with amortization quotas past due for more than 90 days. In cases of suspension of interest accrual, the entity must keep control of accrued interest in off-balance sheet accounts.

4. RECLASSIFICATION OF CREDIT RISK ASSETS It will be transferred to past-due portfolio