Instruction for the Process of Change of Custodian Agent and Use of Liquid Assets under NRP-87

Financial Stability and Public Policies Management April 2025

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INDEX

1. Generalities ................................................................................................................... 3
1.1 Background ............................................................................................................. 3
1.2 Legal Basis .................................................................................................................. 4
1.3 Scope of Application ............................................................................................... 4
2. Objective ........................................................................................................................... 4
3. Definitions .................................................................................................................... 5
4. General Rules .......................................................................................................... 5
5. Specific Rules ......................................................................................................... 6
7. Non-Compliance and Sanctions ...................................................................................... 9
8. Special Provisions .............................................................................................. 9
9. Validity, Distribution and Dissemination ........................................................................... 9
10. Annexes ........................................................................................................................... 10

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1. Generalities

1.1 Background

Article 49-C of the Banks Law establishes that, without prejudice to the liquidity reserve established in Article 44 of said Law, the Superintendence shall establish as a prudential measure, a liquidity requirement for all banks in the system, consisting of a certain percentage of liquid assets, which relates to their payable liabilities.

Article 99, subsection a) of the Law on Supervision and Regulation of the Financial System, establishes that it is the responsibility of the Standards Committee of the Central Reserve Bank of El Salvador to issue resolutions such as the approval of technical norms, instructions, and provisions that the laws regulating supervised entities establish must be issued to facilitate their application, especially those related to solvency and liquidity requirements.

The Standards Committee in Session No. CN-01/2025 of January 24, 2025, agreed to invalidate the agreement taken in Session No. CN-03/2020 of February 26, 2020, which established the monthly submission to the Superintendence of the Financial System of information related to investments, deposits, and obligations by banks, cooperative banks, savings and credit societies, and federations formed by cooperative banks and savings and credit societies.

The development and implementation of this Instruction is framed within the previous actions established in the Agreement with the International Monetary Fund regarding strengthening the liquidity buffers of the financial system, as well as evaluating the future development of the environment.

The Standards Committee in Session No. CN-01/2025 of January 24, 2025, approved the “Technical Norms for the Requirement of Liquid Assets for Financial Entities that Capture Deposits” (NRP-87), effective from February 8, 2025.

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PAGE No 3 / 13
CODE 980506
REVISED
Manager of Financial Stability and Public Policies.
Signature and seal: Central Reserve Bank of El Salvador - Financial Stability and Public Policies Management

APPROVED BY:
Session No. CD-E10/2025 of April 11, 2025
Signature and seal: Central Reserve Bank of El Salvador - Presidency

1.2 Legal Basis

This Instruction is issued in accordance with the provisions established in the following articles:

1.2.1 Article 49-C, and Article 63, subsection 1°, of the Banks Law.
1.2.2 Article 31, Article 41, subsection 1°, and Article 155 of the Banks Law for Cooperative Banks and Savings and Credit Societies.
1.2.3 Article 99, subsection a) of the Law on Supervision and Regulation of the Financial System.

1.3 Scope of Application

The measures contained in this Instruction will be applied by the Financial Stability and Public Policies Management through the Financial System Stability Department, for the process of change of custodian agent and use of liquid assets, applicable to obligated subjects, in compliance with the Technical Norms for the Requirement of Liquid Assets for Financial Entities that Capture Deposits (NRP-87).

The obligated subjects referred to in art. 2 of the aforementioned Norm are:

a) Banks constituted in El Salvador; b) Branches of foreign banks established in El Salvador; c) The Mortgage Bank of El Salvador, S.A.; d) The Agricultural Development Bank, insofar as it does not contradict its creation law, nor what is provided by the Court of Accounts; e) Savings and credit societies; f) Cooperative banks; and g) Federations formed by cooperative banks and also by savings and credit societies.

2. Objective

The objective of this Instruction is to define the Guidelines to authorize the change of custodian agent for the safeguarding of easily realizable assets, as well as the authorization for the use of liquid assets when an unexpected deficiency in the liquidity of the entities arises, which entails the need for funds to attend to deposit withdrawals and the first tranche of the liquidity reserve has been exhausted, according to what is established in articles 10 and 17 of the Technical Norms for the Requirement of Liquid Assets for Financial Entities that Capture Deposits (NRP-87).

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3. Definitions

3.1. Liquid Assets: is the amount of constituted liquid assets that entities must maintain in foreign securities that are easily realizable, deposits in foreign banks, or deposits in the Central Reserve Bank of El Salvador.

3.2. Central Bank: Central Reserve Bank of El Salvador.

3.3. Custodian Agent: International institution specialized in providing custody services for financial instruments, administering the cash flows implicit in the purchase and sale of these, as well as managing the receipt of maturities and returns of these instruments.

3.4. Standards Committee: Standards Committee of the Central Reserve Bank of El Salvador;

3.5. Entities: Obligated subjects referred to in article 2 of the Technical Norms for the Requirement of Liquid Assets for Financial Entities that Capture Deposits (NRP-87).

3.6. Superintendence: Superintendence of the Financial System of El Salvador.

4. General Rules

4.1. The Financial Stability and Public Policies Management of the Central Bank through the Financial System Stability Department, will carry out the monitoring and management of the request for change of custodian agent and the use of constituted liquid assets by financial entities, when deficiencies arise that entail needs for funds for deposit withdrawals and that exhaust the first tranche of the liquidity reserve, in accordance with what is contemplated in the Technical Norms for the Requirement

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of Liquid Assets for Financial Entities that Capture Deposits (NRP-87).

5. Specific Rules

5.1. Change of Custodian Agent

Entities that request a change of custodian agent for the safeguarding of their liquid assets must send the request with all required annexes to the Central Bank with the request for change of custodian agent, which must contain:

a) Note of request for change of custodian agent addressed to the President of the Central Reserve Bank of El Salvador signed by its president, executive president, or official exercising these functions.

b) Detail of the reasons for the change of custodian agent.

c) Report of the last risk rating of the eventual new custodian agent, this rating must be at least A, issued by at least one of the following rating agencies: Standard & Poor's, Fitch Ratings or Moody's, valid at the time of the request.

d) Last general balance sheet published by the custodian agent, this must be available for consultation on the website of the referred bank or agent, to corroborate the amount of custodied assets.

e) The new custodian agent must meet a minimum of US$1,000 million in custodied assets

5.2. The Financial Stability and Public Policies Management will transfer the request for new custodian agent to the International Management, Financial Risk Management, and the Compliance Office, for the analysis and validation of the minimum requirements that the new custodian agent must meet, who must give a response within a maximum period of five business days.

5.3. Entities will receive a note, signed by the President of the Central Bank, with the approval or denial of the request, within a maximum of eight business days from the date of complete receipt of the request. The resolution of the request will be informed through the established communication channels and a copy of said resolution will also be sent to the Superintendence.

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5.4. If the request for change of custodian agent is not accompanied by the documentation required in subsection 5.1, the Financial Stability and Public Policies Management will notify the entity about this situation on the next business day after receiving the request. From this notification, the entity will have a maximum period of two business days to correct the observations, complete the missing documentation, and resubmit its request; if this deadline is not met, the request will be archived and the financial institution must initiate a new process.

6. Authorization to Use Liquid Assets

The constitution of the liquid asset requirement may be made in foreign securities that are easily realizable, deposits in foreign banks, or deposits in the Central Bank.

In the event that entities present deficiencies that entail needs for funds to cover deposit withdrawals and that exhaust the first tranche of the liquidity reserve, they must request authorization from the Central Bank for their use.

6.1. Process for the Use of Liquid Assets

6.1.1. Entities must send a request to the Central Bank, addressed to the President of the Central Bank, signed by the president, executive president, or official exercising these functions within the requesting entity, complying with all required annexes.

6.1.2. Content of the request:

a) Certification of Board of Directors agreement, where the use of liquid assets of the requesting entity is agreed upon.

b) Detail of the causes of the liquidity problem derived from the unexpected withdrawal of deposits, and the reason why the respective contingency plan was not activated.

c) Detail of the use that will be given to the resources.

d) Percentage of use of Tranche I of the Liquidity Reserve at the time of the request.

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6.2. The Financial Stability and Public Policies Management will receive from the Presidency of the Central Bank the request for the use of liquid assets that was sent by the financial entity for its analysis and validation of the minimum requirements that must be met.

6.3. In the case that the request for the use of liquid assets is not accompanied by the documentation required in subsection 6.1.2 of this Instruction, the Financial Stability and Public Policies Management, at the proposal of the Financial System Stability Department, will notify the entity about this situation on the next business day after receiving the request. From this notification, the entity will have a maximum period of two business days to correct the observations, complete the missing documentation, and resubmit the request; if the stated deadline is not met, the request will be archived and the financial institution must initiate a new process.

6.4. The Financial System Stability Department will send to the Financial Stability and Public Policies Management the results of the analysis of acceptance or rejection of the request, so that it can be transferred to the Presidency of the Central Bank for its authorization.

6.5. Entities will receive a note, signed by the President of the Central Bank, with the approval or denial of the request within a maximum of two business days, if there are no observations, and of four business days, if there are observations, counted from the date of receipt of the request. The resolution of the request will be informed through the established communication channels and a copy will also be sent to the Superintendence.

6.6. If the request is approved, it will be communicated to the Financial Operations Management for the management of fund withdrawals in case the resources to be used are constituted in the accounts that entities maintain for such effect in the Central Bank.

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7. Non-Compliance and Sanctions

7.1. Entities that do not send the information requested in this Instruction, in a truthful, reliable manner, within the time, form, and period stipulated in the Technical Norms for the Requirement of Liquid Assets for Financial Entities that Capture Deposits (NRP-87), will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System; the sanctions will be imposed applying the respective legal procedure.

8. Special Provisions

8.1. The Central Bank may request the Superintendence to carry out field audits, in order to validate the truthfulness of the information sent by entities to the Central Bank.

8.2. The operational and contingency difficulties that arise in the execution of this Instruction, not contemplated in it, will be resolved by the Presidency of the Central Bank at the proposal of the Financial Stability and Public Policies Management.

8.3. The aspects not contemplated in this Instruction will be resolved by the Board of Directors of the Central Bank, at the proposal of the Financial Stability and Public Policies Management.

9. Validity, Distribution and Dissemination

9.1. This Instruction will enter into force from April 11, 2025.

9.2. The Board of Directors of the Central Bank will keep a copy of this instruction as support for the approval minutes and will send the original to the Risk and Strategic Management Management, for its custody; it will deliver an electronic copy to the Financial Stability and Public Policies Management and authorize delivering an electronic copy to the Financial System Stability Department.

9.3. The Board of Directors of the Central Bank will send a copy of this Instruction to the entities and to the Superintendence, following the established distribution and sending control mechanisms.

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9.4. The Risk and Strategic Management Management is authorized to publish this Instruction in the Administrative Instruments System, for general consultation.

9.5. This Instruction will be published in its entirety on the Central Bank's Web page, for the knowledge of the general public.

10. Annexes.
    Annex 1: Request for Change of Custodian Agent of Liquid Assets.
    Annex 2: Request for Use of Liquid Assets.

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MODIFICATION CONTROL TABLE

Revision No	Previous Version	Approved Version	Approval Date

ANNEX 1
FORMAT FOR REQUESTING CHANGE OF CUSTODIAN AGENT OF LIQUID ASSETS

San Salvador, XX of XXX of 20XX

Doctor, Licentiate, Engineer

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President
Central Reserve Bank of El Salvador
Present.

Dear Doctor, Licentiate, Engineer _________________:
Based on the provisions contained in article 49-c of the Banks Law / article 31 of the Banks Law for Cooperative Banks and Savings and Credit Societies and the technical norms for the Requirement of Liquid Assets for Financial Entities that Capture Deposits" (NRP-87), and as Legal Representative of the Bank/Cooperative Banks /Savings and Credit Society/Federation (or attorney) ___________, I request authorization for change in current custodian agent to ___________

Attached I present:

1. Detailed reasons for the change of custodian
2. Report of the last risk rating of the new custodian.
3. Published General Balance Sheet of the proposed custodian

Sincerely,

Legal Representative or attorney

ANNEX 2
FORMAT FOR REQUESTING USE OF LIQUID ASSETS

San Salvador, XX of XXX of 20XX

Doctor, Licentiate, Engineer

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President
Central Reserve Bank of El Salvador
Present.

Dear Doctor, Licentiate, Engineer _________________:
Based on the provisions contained in article 49-c of the Banks Law / article 31 of the Banks Law for Cooperative Banks and Savings and Credit Societies and the Technical Norms for the Requirement of Liquid Assets for Financial Entities that Capture Deposits" (NRP-87), and as Legal Representative of Bank/Cooperative Banks /Savings and Credit Society/Federation (or attorney) ___________, in compliance with Board of Directors agreement No XXX, taken in session XXXX, of XXXXXX of the month of XXXXX of 20xx, I request to use the constituted liquid assets in the amount of US$_____________, (amount in letters) ________________, due to ________________

Attached I present:

1. Certification of Board of Directors agreement
2. Detail of the causes of the liquidity problem and the reason why the respective contingency plan was not activated.
3. Detail of the use that will be given to the resources.
4. Detail of the available balances in accounts at the Central Bank, in foreign banks, and of securities that constitute the liquid asset requirement.
5. Percentage of use of Liquidity Reserve where the use of liquid assets of the requesting entity is agreed upon.

Sincerely,

Legal Representative or attorney