Minimum Guidelines for Negotiable Deposit Certificates (CDN)

CD - 4/2021
MINIMUM GUIDELINES FOR NEGOTIABLE DEPOSIT CERTIFICATES (CDN) Approval:
02/02/2021

The Central Bank of Reserve of El Salvador establishes the following Minimum Guidelines that must be complied with by the Entities offering Negotiable Deposit Certificates (CDN), which shall be understood as time deposit contracts entered into between an Entity and a depositor, which have the particularity of being fully traded on the stock market, at the option of the latter.

DEFINITIONS USED
Stock Exchange: A joint-stock company with variable capital that facilitates transactions with securities and promotes the development of the stock market.
CCB: Stockbrokerage House.
CDN: Negotiable Deposit Certificate.
Custodian: Specialized Companies in the Deposit and Custody of Securities.
Entity or Entities: Banks, Cooperative Banks, and Savings and Credit Companies.
IGD: Deposit Guarantee Institute.

MINIMUM GUIDELINES FOR NEGOTIABLE DEPOSIT CERTIFICATES (CDN)

1. RULES
   1.1. The Entity must present a Rule based on these "Minimum Guidelines for Negotiable Deposit Certificates" and the "Instruction for New Financial Products and Services," developing all aspects of the Product to be offered, which must be presented to the Central Bank of Reserve of El Salvador for respective authorization by the Board of Directors.
   1.2. CDN may be offered only by the Entities.

2. OPENING
   2.1. The contracting may be carried out at the Entities' Agencies and through electronic or digital means made available by each Entity.
   2.2. The forms of ownership at opening are: Sole, co-ownership, alternative ownership, and in the name of third parties through an attorney with special powers for this purpose.
   2.3. CDN will not automatically renew, which must be established in the Deposit Contract.
   2.4. The minimum opening amount will be defined by the Entity according to internal policies.
   2.5. The Entity will establish the documentation and requirements for the opening of these by its clients, whether natural or legal persons.

CD - 4/2021
MINIMUM GUIDELINES FOR NEGOTIABLE DEPOSIT CERTIFICATES (CDN) Approval:
02/02/2021

3. ISSUANCE OF CDN
   3.1. Each Entity must approve a Securities Issuance Program which will be represented by a Macro-title.
   3.2. The amount of the Macro-title will define the maximum availability of individual CDN that each Entity can place, as well as their general characteristics.
   3.3. The issuance of CDN will be dematerialized, so the Entity will not issue a physical deposit certificate, but an electronic entry will be created to be traded in accordance with the Law on Electronic Entries of Securities in Account.
   3.4. The Entity will deliver a certificate in accordance with what is established in Article 1,201 of the Commercial Code, in case the client requires it; the Entity must provide it. If the CDN is subject to trading on the stock market, it will be the Custodian who issues said certificate.
   3.5. To trade a CDN on a stock exchange, the client will request the opening of a third-party securities account in a specialized company in the deposit and custody of securities, through the CCB of their preference; in this case, the CCB can trade the CDN in the secondary market.

4. CONTRACTING, INTERESTS, AND TERM
   4.1. The Entity must sign a Deposit Contract with the client in which the opening amount, interests, term, and other aspects specific to a deposit contract will be agreed upon. Entities must deposit the contract models with the Superintendence of the Financial System, to be verified jointly with the Consumer Ombudsman, in order to verify that it complies with the referred consumer rights and are considered in definitive deposit.
   4.2. The payment of interests may be agreed upon either periodically while the term lasts or at the end of the term.

5. NEGOTIABILITY
   5.1. CDN may be fully negotiable in the secondary market, through a stock exchange, through authorized CCB, as established by the Securities Market Law. Due to their banking nature, they cannot be subject to repurchase agreements (repo).
   5.2. In case the CDN is traded on a stock exchange, it will retain the form of ownership of its opening and the interest payment conditions and maturity term of the CDN.
   5.3. In case the CDN is traded on a stock exchange, the interests and capital payment on the maturity date will be carried out through the Custodian to the new holders of the CDN, following the operational processes already established in the Custodian's regulations.

CD - 4/2021
MINIMUM GUIDELINES FOR NEGOTIABLE DEPOSIT CERTIFICATES (CDN) Approval:
02/02/2021

5.4. The client will freely designate the CCB with which they wish to carry out their negotiations in the secondary market.
5.5. Between the Entity and the Custodian, there must be constant and permanent communication with the purpose that the Entity has updated information on the new holders of the deposits and their beneficiaries, in order for the Entity to comply with legal and regulatory obligations, as well as the sending of reports to the Superintendence of the Financial System, IGD, and other Institutions that might require the cited information in the exercise of their functions. Such exchange of communication is also necessary for the correct payment to the holders or beneficiaries, as applicable.

6. DESIGNATION OF BENEFICIARIES (1)
   6.1. The client may designate one or more beneficiaries before the Entity, for the purpose that upon their death, the deposited funds, with their respective interests, are delivered to them. In case the depositor trades their CDN in the secondary market, the information of the new holder and their beneficiaries will be registered in the specialized companies in deposits and custody of securities, which will be responsible for informing the Entity in a timely manner so that such information is updated.
   6.2. The client will indicate the proportion in which the CDN should be distributed among its beneficiaries, and in case they do not do so, it will be understood that the distribution will be in equal parts.
   6.3. Beneficiaries must be designated by their name in a clear and precise manner.
   6.4. The Entity is obligated to communicate in writing to the beneficiaries the designation made in their favor, within three days following the day on which it has certain knowledge of the client's death.
   6.5. The client can change beneficiaries at any time, through the means and documentation established by the Entity. The beneficiary's rights will be extinguished by their death, if it is a natural person. In the case of legal persons, it will be subject to what is provided for dissolution or liquidation of Companies, which is regulated by the current Commercial Code. (1)
   6.6. What concerns the rights corresponding to the beneficiary or beneficiaries of a CDN, will be subject to what is provided in Article 1,334 of the Civil Code. (1)
   6.7. In case of death of the holder of a CDN traded in the secondary market, the Custodian will annotate the CDN in favor of the designated beneficiaries, prior to presentation of the documents required by it, which must be communicated to the Entity so that it registers the new holders of the CDN. (1)
   6.8. In case of death of the client, whether the CDN has been or not traded in the secondary market, the beneficiaries must wait for the expiration of the term established in the respective CDN to withdraw the funds plus the accrued interest agreed upon. (1)

CD - 4/2021
MINIMUM GUIDELINES FOR NEGOTIABLE DEPOSIT CERTIFICATES (CDN) Approval:
02/02/2021

7. IGD GUARANTEE
   7.1. CDN, being bank deposits, will have the guarantee of the IGD established in Article 167 of the Banks Law, Articles 106 and 160 of the Cooperative Banks and Savings and Credit Companies Law, within the limits established therein; therefore, the Entity must have updated information on the holders of the CDN and transfer it in accordance with the applicable regulations to the IGD.

8. REGULATORY ASPECTS IN MATTER OF ANTI-MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM.
   8.1. The Entity and the CCB designated to carry out the trading of CDN in the secondary market will comply with their obligations of prevention and mitigation of the risk of money laundering and asset laundering, in accordance with the Law Against Money Laundering and Asset Laundering, its Regulation and Instruction, the applicable regulations, as well as their internal policies, either at the time of opening, as well as in the process of trading the CDN on the stock market. The Entity reserves the right to open or maintain a CDN in case the foregoing is not complied with, all in compliance with the laws and other applicable regulations.

9. FINANCIAL EDUCATION
   9.1. The Entity must provide financial education to its clients on the operation of CDN, in such a way that aspects such as the sale of CDN on the stock market, difference between savings and investment, commissions, IGD guarantee, designation of beneficiaries, and interest to be accrued, among others, are understood.

10. ON BANK SECRECY AND STOCK EXCHANGE SECRECY
    10.1. With the purpose of mitigating potential non-compliance with the obligation of secrecy to which deposits are subject, in accordance with Articles 232 of the Banks Law, 143 of the Cooperative Banks and Savings and Credit Companies Law, Entities must have explicit authorization from the deposit holder to share data with the custodian; likewise, the Custodian and the CCB, in accordance with Article 63 of the Law on Electronic Entries of Securities in Account, must have said authorization for the purpose of sharing such information with the Entities.

11. ON JUDICIAL ORDERS
    11.1. In case of seizure, extinction of domain, or other orders issued in judicial processes against the holders of a CDN, the Entities and the Custodians must maintain timely communication between themselves, to avoid non-compliance with the judicial mandate and prevent any eventual trading of the CDN on the stock market.

(Approved by the Board of Directors of the Central Bank of Reserve of El Salvador in Session No. 4/2021, of February 2, 2021) (1) Modified in Board of Directors Session CD-18/2021, of June 2, 2021, and effective from June 7, 2021.