Guidelines for the Authorization of the Operation of the Technological Platform for Bitcoin and Dollar Services

CD-29/2021
GUIDELINES FOR THE AUTHORIZATION OF THE OPERATION OF THE TECHNOLOGICAL PLATFORM FOR BITCOIN AND DOLLAR SERVICES Approval 7/9/2021 Validity 7/9/2021

GUIDELINES FOR THE AUTHORIZATION OF THE OPERATION OF THE TECHNOLOGICAL PLATFORM FOR BITCOIN AND DOLLAR SERVICES

1. Objective

These Guidelines aim to establish the provisions applicable for the authorization of the operation of technological platforms for Bitcoin and United States Dollar services, which obligated entities wish to provide to their clients, whether natural or legal persons.

2. Subjects

These Guidelines apply to Banks, Cooperative Banks, Savings and Credit Societies, and Electronic Money Provider Societies in the country that wish to provide Bitcoin and Dollar services, which for these purposes will be referred to as Administrators of Bitcoin and Dollar Services, hereinafter Administrators.

Administrators may provide services related to Digital Wallets for Bitcoin and Dollars, digital exchange houses or exchanges, platforms, payment gateways or processors, among others.

3. Legal Basis

These Guidelines are issued in accordance with the following regulations:
a) Treaty on Payment Systems and Securities Settlement in Central America and the Dominican Republic; b) Article 3, letters g) and h) and Article 67 of the Organic Law of the Central Reserve Bank of El Salvador; c) Bitcoin Law and its Regulations; d) Article 51, letter w) of the Banking Law; e) Article 34, letter s) and Article 158, letter s), of the Law on Cooperative Banks and Savings and Credit Societies; and f) Article 2 of the Law for Facilitating Financial Inclusion.

4. Definitions

For the purposes of these Guidelines, the terms indicated below have the following meaning:

CD-29/2021
GUIDELINES FOR THE AUTHORIZATION OF THE OPERATION OF THE TECHNOLOGICAL PLATFORM FOR BITCOIN AND DOLLAR SERVICES Approval 7/9/2021 Validity 7/9/2021

a) Central Bank: Central Reserve Bank of El Salvador; b) Digital Wallet for Bitcoin: Digital record of Bitcoins and Dollars in favor of a natural or legal person, which will be supplied through a digital platform; c) Operations: Payments, collections, convertibility, transfers, purchase and sale operations of Bitcoin, and crediting of Bitcoin and Dollar records, carried out on digital platforms for Bitcoin and Dollars used to provide these services; d) Technological Platform: Hardware and software components on which information related to financial products and services offered by the entity is collected, processed, transmitted, and stored; and e) Record: Digital record that a client or affiliated merchant has enabled in the digital wallet for Bitcoin and Dollars.

5. Authorization of the Operation of the Technological Platform for Bitcoin and Dollar Services.

The Service Administrator must request authorization from the Central Bank for the operation of the technological platform for Bitcoin and Dollar services, for which it must present:
5.1 Letter signed by the official authorized for this purpose (Legal Representative or Attorney-in-Fact of the Requesting Entity), explaining the reasons for requesting approval, attaching the corresponding contact information.
5.2 Description and main characteristics of the Product or Service in accordance with section 6 of these Guidelines.
5.3 Market study; in its absence, a description of the target market and market segment to which it is directed must be presented.
5.4 Description of risks such as: Credit, counterparty, custody, liquidity, market, operational, cybersecurity, reputational, money laundering and asset financing and terrorism financing risks, as well as the policies adopted for their management.
5.5 Detail of the costs, fees, or commissions that clients will incur when contracting the product or service. If there are new charges, these must be clearly identified in the contracts, as well as the mechanism for client notification and acceptance.

CD-29/2021
GUIDELINES FOR THE AUTHORIZATION OF THE OPERATION OF THE TECHNOLOGICAL PLATFORM FOR BITCOIN AND DOLLAR SERVICES Approval 7/9/2021 Validity 7/9/2021

5.6 Procedures, deadlines, and other rules for the Administrator's attention to its clients regarding: inquiries made, handling and resolution of complaints, claims, among others.

6. Description of the Product or Service (Business Operational Model)

The business operational model must contain at least the following:
6.1 Terms and conditions for the use of the technological platform and technical description, as applicable;
6.2 Business volume and transactions expected to be handled in its first three years of operation;
6.3 Mechanisms for client identification, as well as activation, blocking, and deactivation of the same, guaranteeing registration for a single person, reversal of operations, grounds for rejection of operations, and the procedure for notifying the client;
6.4 Maximum balance limit and maximum amount per transaction achievable by clients, as well as description of the mechanisms to ensure compliance, if applicable;
6.5 Type of operations that the client may perform and description of the information that will be included in the platform, accompanied by the respective operational scheme that includes the role of the Administrator and other Participants, the phases considered in the service, and measures to ensure the confidentiality, availability, integrity, and functionality of the operations;

7. Processing of the Application at the Central Bank

Upon receipt of the documentation in proper form and having verified that the previous requirements have been met, the Board of Directors of the Central Bank will authorize the operation of the technological platform for Bitcoin and Dollar services or deny it, within a maximum period of fifteen business days, prior to the opinion of the Superintendency of the Financial System, which will be requested by the Central Bank and must be issued by the Superintendency within a maximum period of ten business days from receipt of the application.

The deadlines and stages established in the Administrative Procedures Law will apply to this authorization procedure.

Once the aforementioned authorization is issued, the Administrator will be responsible for ensuring compliance with these Guidelines and the regulatory framework applicable to its proper operation. Each Digital Wallet Administrator may only open one Digital Wallet record with Bitcoin and Dollars per client.

8. Restriction of Bitcoin and Dollar Services

In the event that a record in the digital wallet for Bitcoin and Dollars is opened with false documents, the use of the wallet for illicit purposes or purposes other than those intended is presumed, or other serious offenses are committed in the use of the services, the Digital Wallet Administrator must restrict the user's Wallet service and inform the Attorney General's Office of the Republic immediately and the Central Bank for its Payment Systems surveillance function within a maximum period of twenty-four hours.

This same procedure will apply to the rest of the Bitcoin and Dollar services established in these Guidelines.

9. Backing and Control of Digital Wallets for Bitcoin

The amounts that digital wallet clients for Bitcoin hold in Dollars must be backed one hundred percent. For these purposes, the wallet provider must comply with the following:
a) Dollar balances will be backed by a non-interest-bearing deposit at the Central Bank, previously constituted by the Wallet Administrator, as a guarantee to respond solely for the non-compliance of payment obligations incurred with the holders of instruments that register Dollars. This deposit will be immune from seizure for non-compliance with other obligations of said owner. The Central Bank will not consider this deposit for the calculation of the Liquidity Reserve. b) Bitcoin balances recorded in the Wallet must be backed by the custodian in the Blockchain environment, when the Wallet has such backing. Contracts with custodians must include clauses on the obligation to respond to clients when appropriate.

For compliance with what is established in this section, the Wallet Administrator must have the respective controls to ensure the backing of the amounts registered in favor of clients in the wallets at all times.

It will be understood that dollar backings will be variable based on the flow and

CD-29/2021
GUIDELINES FOR THE AUTHORIZATION OF THE OPERATION OF THE TECHNOLOGICAL PLATFORM FOR BITCOIN AND DOLLAR SERVICES Approval 7/9/2021 Validity 7/9/2021

movements of clients. The real-time status of the backing and its location must be freely accessible at all times for the Central Bank.

10. Surveillance of Payment Systems and Generation of Statistics

Administrators of Bitcoin and Dollar Services will keep at the disposal of the Central Bank all information that it requires regarding the surveillance of Payment Systems and for the generation of Economic and Financial Statistics.

For these purposes, the Central Reserve Bank of El Salvador will request information from Administrators through the Directory of Requested Information of the Financial System.

The Central Bank will charge for the surveillance it exercises over these systems, as established by its Board of Directors, considering the costs to carry out such surveillance.

11. Sanctions

Non-compliance with the provisions contained in these Guidelines will be sanctioned by the Central Bank, in accordance with what is established in articles 94 and 95 of its Organic Law, applying the Administrative Procedures Law where pertinent. The final resolution issued in the sanctioning process must be communicated to the Superintendency of the Financial System within a maximum period of five business days.

12. Unforeseen Aspects

Unforeseen aspects in matters of payment systems in these Guidelines will be resolved by the Board of Directors of the Central Bank.

13. Validity

These Guidelines will enter into force from the day of their communication.