Regulatory Alerts2024-10-31 | NCF-08Technical Standards for the Technical Provisions Fund of Reciprocal Guarantee Societies and Reinsurers of Reciprocal Guarantee Societies
The Norms Committee of the Central Reserve Bank of El Salvador issued technical standards establishing the accounting applications for the constitution, use, and recovery of the Technical Provisions Fund for Reciprocal Guarantee Societies and their reinsurers. These regulations mandate a minimum fund equal to 1% of the active risk portfolio, which must be maintained through net profit allocations, non-refundable contributions, and grants, while specifying strict accounting treatments for each source. The standards also define the hierarchical order for utilizing the fund to cover losses and repeal previous accounting norms from 2004.
| CNBCR-10/2024 | NCF-08 | |
|---|---|---|
| Approval: 10/31/2024 | TECHNICAL STANDARDS FOR THE TECHNICAL PROVISIONS FUND OF RECIPROCAL GUARANTEE SOCIETIES AND REINSURERS OF RECIPROCAL GUARANTEE SOCIETIES |  |
| Validity: 11/15/2024 | GOVERNMENT OF EL SALVADOR |
THE NORMS COMMITTEE OF THE CENTRAL RESERVE BANK OF EL SALVADOR,
CONSIDERING:
I. That Article 29 of the Law on the Reciprocal Guarantee System for Micro, Small, and Medium Rural and Urban Enterprises establishes that every Guarantee Society must establish a Technical Provisions Fund, which shall be part of its equity and shall serve to reinforce the solvency of the society.
II. That Article 7, second paragraph, of the Law on Supervision and Regulation of the Financial System establishes that the proper functioning of the Financial Supervision and Regulation System requires, from the members of the financial system and other supervised entities, compliance with current regulations and the adoption of the highest standards of conduct in the development of their business, acts, and operations, in accordance with what is established in the aforementioned Law, in other applicable laws, in regulations, and in the technical norms issued for such effect.
III. That Article 3, letter c), of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Superintendence of the Financial System to proactively monitor the risks of the members of the financial system and the manner in which they manage them, ensuring the prudent maintenance of their solvency and liquidity.
IV. That Article 7 of the Law on Supervision and Regulation of the Financial System establishes the entities subject to the supervision of the Superintendence of the Financial System.
V. That Article 99, third paragraph, letter a), of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Norms Committee of the Central Reserve Bank of El Salvador 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 accounting; and to establish criteria for the valuation of assets, liabilities, and the constitution of provisions and reserves for risks.
VI. That in accordance with Article 101, fourth paragraph, of the Law on Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical norms that must be complied with by the members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador.
Alameda Juan Pablo II, between 15th and 17th Avenue Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 1 of 5
| CNBCR-10/2024 | NCF-08 | |
|---|---|---|
| Approval: 10/31/2024 | TECHNICAL STANDARDS FOR THE TECHNICAL PROVISIONS FUND OF RECIPROCAL GUARANTEE SOCIETIES AND REINSURERS OF RECIPROCAL GUARANTEE SOCIETIES | |
| Validity: 11/15/2024 | GOVERNMENT OF EL SALVADOR |
THEREFORE,
by virtue of the regulatory powers conferred upon it by Article 99 of the Law on Supervision and Regulation of the Financial System,
AGREES to issue the following:
TECHNICAL STANDARDS FOR THE TECHNICAL PROVISIONS FUND OF RECIPROCAL GUARANTEE SOCIETIES AND REINSURERS OF RECIPROCAL GUARANTEE SOCIETIES
CHAPTER I OBJECT, SUBJECTS, AND TERMS
Object Art. 1.- These Norms aim to establish the accounting applications for the constitution, use, and recovery of the Technical Provisions Fund of the Reciprocal Guarantee Societies and the Reinsurers of Reciprocal Guarantee Societies for Micro, Small, and Medium Rural and Urban Enterprises.
Subjects Art. 2.- The subjects obligated to comply with the provisions established in these Norms are: a) Reciprocal Guarantee Societies; and b) Reinsurers of Reciprocal Guarantee Societies.
Terms Art. 3.- For the purposes of these Norms, the terms indicated below have the following meaning: a) Provisions Fund: Technical provisions fund; b) Reinsurer(s): Reinsurers of Reciprocal Guarantee Societies; c) Guarantee Society(ies): Reciprocal Guarantee Society or Societies; d) Superintendence: Superintendence of the Financial System.
CHAPTER II ON THE PROVISIONS FUND
Minimum Amount Art. 4.- The Provisions Fund shall serve to reinforce the solvency of the Guarantee Society and the Reinsurer, and the amount constituted shall form part of their equity. Its minimum amount shall be one percent (1%) of the active risk portfolio;
Alameda Juan Pablo II, between 15th and 17th Avenue Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 2 of 5
| CNBCR-10/2024 | NCF-08 | |
|---|---|---|
| Approval: 10/31/2024 | TECHNICAL STANDARDS FOR THE TECHNICAL PROVISIONS FUND OF RECIPROCAL GUARANTEE SOCIETIES AND REINSURERS OF RECIPROCAL GUARANTEE SOCIETIES | |
| Validity: 11/15/2024 | GOVERNMENT OF EL SALVADOR |
however, this percentage must be reviewed and adjusted every two years from the effective date of these Norms by the Superintendence, taking as a basis the Consumer Price Index or the annual variations in the ratio of defaulted guarantees to issued guarantees during the year, whichever is higher.
In the second case, and if there is more than one Guarantee Society or Reinsurer, the adjustment shall be an average of said results. For this purpose, Guarantee Societies and Reinsurers must maintain records of such variations.
The active risk portfolio shall be determined by the balance recorded in account "911 Commitments Acquired by Guarantees and Reinsurance Provided."
Method of Constitution Art. 5.- The Provisions Fund shall be constituted by: a) The amount that the Guarantee Society or the Reinsurer allocates from the net profits of each fiscal year, without limitations and in the concept of insolvency provisions; b) Subsidies, donations, or other non-refundable contributions made to the Guarantee Society or the Reinsurer; and c) Any other contributions determined by regulations or statutes.
CHAPTER III CONSTITUTION AND USE OF THE TECHNICAL PROVISIONS FUND
Constitution of the Provisions Fund Art. 6.- The Provisions Fund must be constituted with the portion separated from the net profits of each fiscal year, according to the agreement of the Ordinary General Meeting of the Guarantee Society or the Reinsurer. The portion thus determined shall result in a debit to account 315002 Results to be Applied - Results of the Current Fiscal Year and a credit to account 3130010101 Technical Provisions Fund - Insolvency Provisions.
Art. 7.- For the purpose of maintaining the minimum requirement of one percent (1%) referred to in Article 4 of these Norms, the Guarantee Society may request this percentage from its participating members for the amounts guaranteed in the concept of sureties, bonds, and other financial guarantees, in accordance with what their statutes dictate. If this is the case, such contributions must be recorded in account 3130040101 Technical Provisions Fund - Non-refundable Contributions - from participating members.
Art. 8.- When the Guarantee Society or the Reinsurer receives subsidies for the Provisions Fund, the accounting treatment to be used for its recording shall be the Capital Method, in accordance with International Financial Reporting Standards. Consequently, such subsidies shall be recorded with a debit to the account of the asset received and a credit to account 313002 Technical Provisions Fund - Subsidies - detail account. If the contributions are made in non-monetary assets, such assets shall be recorded at their fair value, understood as the amount for which an asset can be exchanged between a willing buyer and a well-informed seller.
Art. 9.- When the Guarantee Society or the Reinsurer receives Donations for the Provisions Fund, the corresponding asset account shall be debited and account 313003 Technical Provisions Fund - Donations - detail account shall be credited. In the event that the donated resources are of a non-monetary nature, such goods shall be recorded at their fair value.
Art. 10.- When the Guarantee Society or the Reinsurer receives Non-refundable Contributions for the Provisions Fund, which are different from those established in Article 6 of these Norms, and whose purpose is to cover risks of a specific sector, the corresponding asset account shall be debited and account 313004 Technical Provisions Fund - Non-refundable Contributions - detail account shall be credited. The Guarantee Society or the Reinsurer must establish the necessary off-book controls to prepare the corresponding reports on the defaulted guarantees of the sectors covered by such contributions.
Art. 11.- If the Guarantee Society or the Reinsurer receives other contributions for the Provisions Fund that the regulations or the statutes of the Guarantee Society or the Reinsurer determine, a debit shall be made to the respective account and account 3130040801 Technical Provisions Fund - Non-refundable Contributions - Others shall be credited.
Use of Provisions Fund Art. 12.- The Provisions Fund shall be used exclusively to be applied to the losses of the fiscal year, once the annual profits of previous fiscal years and the voluntary reserves that the Guarantee Society or the Reinsurer has constituted by that date have been exhausted.
For this purpose, the application of losses of a fiscal year to the Provisions Fund shall be made in the following order: a) To that constituted with non-refundable contributions; b) To that constituted with the profits of each fiscal year and recorded as insolvency provisions; and c) To that constituted with subsidies and donations.
Alameda Juan Pablo II, between 15th and 17th Avenue Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 4 of 5
| CNBCR-10/2024 | NCF-08 | |
|---|---|---|
| Approval: 10/31/2024 | TECHNICAL STANDARDS FOR THE TECHNICAL PROVISIONS FUND OF RECIPROCAL GUARANTEE SOCIETIES AND REINSURERS OF RECIPROCAL GUARANTEE SOCIETIES | |
| Validity: 11/15/2024 | GOVERNMENT OF EL SALVADOR |
CHAPTER IV OTHER PROVISIONS AND VALIDITY
Art. 13.- The Provisions Fund must be invested in accordance with what is established in Articles 62, 63, and 88 of the Law on the Reciprocal Guarantee System for Micro, Small, and Medium Rural and Urban Enterprises.
Sanctions Art. 14.- Non-compliance with the provisions contained in these Norms shall be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.
Repeal Art. 15.- These Norms repeal the "Accounting Norms for the Technical Provisions Fund of Reciprocal Guarantee Societies and Reinsurers of Reciprocal Guarantee Societies" (NCSGR-003), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-50/2004 of December 22, 2004, 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.
Unforeseen Aspects Art. 16.- Aspects not provided for in the matter of regulation in these Norms shall be resolved by the Central Reserve Bank of El Salvador through its Norms Committee.
Validity Art. 17.- These Norms shall enter into effect as of November 15, 2024.
Alameda Juan Pablo II, between 15th and 17th Avenue Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 5 of 5