Norm on Deposit and Financial Investment Limits for General Warehouses of Deposit

Resolution CD-SIBOIF-683-2-JUL6-2011
Date: July 6, 2011

NORM ON DEPOSIT AND FINANCIAL INVESTMENT LIMITS FOR GENERAL WAREHOUSES OF DEPOSIT

The Board of Directors of the Superintendence of Banks and Other Financial Institutions,

CONSIDERING

I
That pursuant to Article 51 of Law 734, Law on General Warehouses of Deposit, published in La Gaceta, Official Gazette, Numbers 201 and 202, on October 21 and 22, 2010, respectively, General Warehouses of Deposit may invest their equity and resources obtained from third parties.

II
That the final part of said Article 51 empowers this Board of Directors to establish, through a general rule, the conditions and limits of such operations.

III
That General Warehouses of Deposit are classified as auxiliary non-bank financial credit entities; and in that sense, Articles 55 and 56 of Law 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, published in La Gaceta, Official Gazette No. 232, on November 30, 2005, establish limits on active operations between financial institutions, both with their related parties and those that are not.

IV
That in accordance with the considerations set forth above and based on the authority established in Article 2 of Law 734; Article 2, fourth paragraph, and Article 3, numeral 13), of Law 316, Law of the Superintendence of Banks and Other Financial Institutions, and its reforms.

In exercise of its powers;

HAS ISSUED

The following:

NORM ON DEPOSIT AND FINANCIAL INVESTMENT LIMITS FOR GENERAL WAREHOUSES OF DEPOSIT

CHAPTER I
CONCEPTS, OBJECT AND SCOPE

Art. 1. Concepts.-
1 For the purposes of applying the provisions contained in this norm, the terms indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:

a) AGD: General Warehouse of Deposit. b) Calculation Base: Definition contained in the Operational and Financial Norm of General Warehouses. c) First-rate international rating: First-rate rating that takes into account country risk as established in Chapter VII of this norm. d) First-rate local rating: First-rate rating that does not take into account country risk as established in Chapter VII of this norm. e) Institution or Financial Institution: National banks and financial companies. f) Warehouse Law: Law 734, Law on General Warehouses of Deposit, published in La Gaceta, Official Gazette, Numbers 201 and 202, on October 21 and 22, 2010, respectively; and contained in Law No. 974, Law of the Nicaraguan Legal Digest of the Banking and Finance Sector, published in La Gaceta, Official Gazette No. 164, on August 27, 2018. g) General Law of Banks: Law 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, published in La Gaceta, Official Gazette No. 232, on November 30, 2005; and contained in Law No. 974, Law of the Nicaraguan Legal Digest of the Banking and Finance Sector, published in La Gaceta, Official Gazette No. 164, on August 27, 2018. h) MMDA/MMSA; Money Market Deposit Account/Money Market Savings Account: a type of savings account that pays interest and only allows a limited number of withdrawals per month. This concept includes all money market accounts, which despite having different denominations than MMDA/MMSA, have the aforementioned characteristics. i) FINRA: Acronym in English for the Financial Industry Regulatory Authority of the United States of America.

1 Art. 1, amended on October 16, 2018 – Resolution CD-SIBOIF-1077-1-OCTU16-2018

j) SIPC: Acronym in English for the Securities Investor Protection Corporation of the United States of America. k) Superintendence: Superintendence of Banks and Other Financial Institutions. l) Superintendent: Superintendent of Banks and Other Financial Institutions. m) Series negotiable securities: Those issued by the same issuer, with homogeneous and fungible characteristics among themselves. n) LD/FT/FP: Money Laundering, Terrorism Financing and Financing of the Proliferation of Weapons of Mass Destruction.

Art. 2. Object and scope.- This norm aims to establish the requirements and limits of deposits and investments that AGDs may carry out.

CHAPTER II
RESPONSIBILITIES

Art. 3. Responsibility of the Board of Directors.- The Board of Directors of the AGDs shall have, among others, the following responsibilities:

a) Approve strategies, guidelines and policies for the prudent management of deposits and investments as established in Article 43, numeral 9) of Law 734; and b) Ensure that relevant AGD personnel have knowledge of the policies and the content of this norm.

Art. 4. Responsibilities of Management.- The Management of the AGD shall have, among others, the following responsibilities:

a) Ensure that the strategies, guidelines and policies dictated by the Board of Directors for the management of deposits and investments are complied with; and b) Keep the Board of Directors timely informed about the deposits and investments made.

CHAPTER III
DEPOSITS AND INVESTMENTS IN DOMESTIC SECURITIES

Art. 5. Investments in central government and Central Bank of Nicaragua securities.- AGDs may invest in the country, solely with respect to government securities, in the following instruments in córdobas or foreign currency:

a) Series negotiable public debt securities issued by the Ministry of Finance and Public Credit (MHCP), in accordance with the relevant law; b) Series negotiable public debt securities issued by the Central Bank of Nicaragua, in accordance with the relevant law; and c) Repo operations with negotiable securities issued by the Central Bank of Nicaragua and the Central Government.

The aforementioned investments must comply with the limits and provisions of Article 8 of this norm.

Art. 6. Deposits and investments in securities of financial institutions and other legal entities of the country.- AGDs may maintain deposits or invest, in córdobas or foreign currency, solely in securities or instruments issued by the following entities:

a) Financial institutions that have a first-rate local risk rating:
1) In demand deposits (checking and savings accounts) or time deposits;
2) In series negotiable securities: Commercial paper, bonds and other similar series negotiable securities issued by financial institutions, which are traded on the stock exchange or regulated market of the country.
b) Legal entities that issue public offering debt securities, registered in the Securities Registry kept by the Superintendence for such purposes in accordance with Law 587, Capital Market Law. The acquisition of these securities shall be subject to the following restrictions:

1) Have a local rating of at least AA or higher or the equivalent used by the respective rating agency.
2) Issued by Nicaraguan public, private or mixed entities. In the case of mortgage or other guarantees, these must be located within national territory.
3) Issued by entities operating in the following productive sectors, such as: agricultural, industrial, exporters, port and airport administrators, electricity generation, telecommunications, infrastructure and construction.
4) The issuances or issuance programs must be for amounts greater than US$3 million United States dollars or its equivalent in córdobas.

The deposits and investments indicated in this article must comply with the limits and provisions indicated in Article 8 of this norm.

CHAPTER IV
DEPOSITS AND INVESTMENTS IN FOREIGN SECURITIES

Art. 7. Deposits and investments in foreign securities.- 2 AGDs may maintain deposits or invest abroad, solely in the following instruments in foreign currency:

a) In banks with first-rate international rating:
1) In checking account deposits;
2) In MMDA/MMSA and savings accounts;
3) Time deposits not exceeding one year;
4) Debt instruments and/or Series negotiable Deposit Certificates, which are traded on the stock exchange or regulated market of the corresponding country.
b) In checking account deposits in banks that are not first-rate rated, but that meet the following minimum requirements:

1) Be domiciled in a country with a first-rate sovereign risk rating, as established in Chapter VII of this norm;
2) Not be subject to any public exception regime (Memorandum of Understanding, Cease and Desist Order, or other equivalent measure);
3) Maintain physical and operational presence in the country where the banking license was granted and be subject to supervision;
4) That the country where the institution is located is not sanctioned or suspended by international organizations working in the fight against

2 Art. 7, amended on October 16, 2018 – Resolution CD-SIBOIF-1077-1-OCTU16-2018

LD/FT/FP and/or in favor of international transparency, such as FATF, Egmont Group and the UN; and,
5) Maintain a solid and solvent financial position, documented by the AGD through an analysis of its financial statements no older than twelve months, and equity of no less than fifteen million United States dollars.
c) In checking account deposits in banks with first-rate local rating and meet the requirements established in numerals 2), 3), 4) and 5) of the previous letter b). d) In Money Market or similar accounts maintained with a stock exchange broker authorized to operate in the United States of America and member of FINRA and SIPC. These accounts must be connected with a securities custody account and shall only be used to carry out clearing and settlement operations. e) Other Instruments:

1) Any type of series negotiable debt securities issued or guaranteed by the U.S. Department of the Treasury or by institutions or companies of the U.S. Federal Government, quoted on the Stock Exchange or regulated market of the United States of America;
2) Series negotiable debt securities issued by Multilateral Credit Organizations (Inter-American Development Bank, World Bank, Central American Economic Integration Bank) of which the country is a member, quoted on the Stock Exchange or regulated market of the United States of America; and
3) Series negotiable debt securities issued by Central Banks and Central Governments of countries with first-rate sovereign risk rating and quoted on the stock exchange or regulated market of the corresponding country.

The deposits and investments indicated in this article must comply with the limits and provisions of the following article.

CHAPTER V
LIMITS PER DEPOSITOR OR ISSUER

Art. 8. Limits per depositor or issuer.-
3 In the operations carried out in accordance with Articles 5, 6 and 7 of this norm, AGDs shall be governed by the following limits:

3 Art. 8, amended on October 16, 2018 – Resolution CD-SIBOIF-1077-1-OCTU16-2018

a) In series negotiable securities issued in national currency by the Central Government or Central Bank of Nicaragua and repo operations, indicated in Article 5 of this norm, up to 100% of the calculation base of the capital. In the event that the series negotiable securities are issued in foreign currency, up to fifty percent (50%) of the calculation base of the investing AGD, per issuer. b) In demand deposits (checking and savings) or time deposits, as well as, in series negotiable securities indicated in letter a) of Article 6 of this norm, up to thirty percent (30%) of the calculation base of the AGD, per issuer or depositor. c) In public offering debt securities referred to in letter b) of Article 6 of this norm, up to 10% of the calculation base of the AGD, per issuer. d) Checking, savings and MMDA deposits in first-rate rated banks, indicated in Article 7, letter a), of this norm, without limit, according to their operational needs. e) In time deposits not exceeding one year in banks with first-rate international rating, indicated in numeral 3) of letter a) of Article 7 of this norm, up to thirty percent (30%) of the calculation base of the AGD, per depositor. f) In Debt instruments and/or Series negotiable Deposit Certificates in banks with first-rate international rating, which are traded on the stock exchange or regulated market of the corresponding country to which Article 7, letter a), numeral 4) refers, up to fifteen percent (15%) of the calculation base of the AGD per issuer or depositor. g) Checking account deposits maintained in banks not rated as first-rate indicated in letter b), of Article 7 of this norm, up to fifteen percent (15%) of the calculation base of the AGD, per depositor.

Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by deposits made by persons or entities unrelated to the AGD, provided that such excess is regularized within a period not exceeding five (5) business days duly justified in communication sent to the Superintendent. h) In checking account deposits maintained in banks with first-rate local rating, referred to in Article 7, letter c) of this norm, up to fifteen percent (15%) of the calculation base of the AGD, per depositor.

Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by deposits made by persons or entities unrelated to the AGD, provided that such excess is regularized within a period not exceeding three (3) business days duly justified in communication sent to the Superintendent.

i) In accounts maintained in the stock exchange brokers indicated in letter d), of Article 7 of this norm, up to ten percent (10%) of the calculation base of the AGD, per depositor.

Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by temporary operations connected with pending investments to be executed, duly justified in communication sent to the Superintendent. j) In the instruments indicated in Article 7, letter e), numeral 1), of this norm, up to one hundred percent (100%) of the calculation base of the AGD, per issuer. k) In the instruments indicated in Article 7, letter e), numeral 2), of this norm, up to fifty percent (50%) of the calculation base of the AGD, per issuer. l) In series negotiable debt securities issued by Central Banks and Central Governments, indicated in Article 7, letter e), numeral 3) of this norm, up to fifteen percent (15%) of the calculation base of the AGD, per issuer.

Art. 9. Traded value (acquisition value).- The limits indicated in the previous article must be determined taking as a base the traded value (Acquisition Value) of the securities per depositor or issuer.

CHAPTER VI
PREVIOUS AND FOLLOW-UP REQUIREMENTS

Art. 10. Financial analysis.- The depositing AGD shall be responsible for verifying that the deposit-taking or investment institution meets the requirements mentioned in the preceding chapters and shall, for such purposes, maintain sufficient evidence demonstrating such compliance. For such purposes, AGDs must carry out, at a minimum, previously and while the deposit or investment is maintained, financial analyses of the deposit-taking institutions or securities issuers in which they place or invest their resources. These analyses must demonstrate that the fund-receiving institution enjoys a solid and solvent financial situation, and must be backed by pertinent documentation no older than twelve months (financial statements, reports, etc.), as well as pertinent verifications to ensure that the depositary entity falls within the requirements provided for in letters b) and c) of Article 7, and the requirement that the depositary entity be first-rate, for the case of letter a) of Article 7.

It shall not be necessary to carry out said financial analysis, in the case that the fund-receiving institution is rated by an internationally recognized risk rating agency as established in Article 11 of this norm. For this purpose, the institution must maintain a copy of the analysis carried out by the risk rating agency and other pertinent documentation no older than twelve months (financial statements, reports, etc.).

CHAPTER VII
RISK RATING AGENCIES

Art. 11. 4 Repealed.

Art. 12. Rating parameters.-
5 For the purposes of determining local or international rating, as well as sovereign risk, only the risk rating agencies and ranges established in the following table are considered:

Risk Rating Agency	Issuer Obligations	Short-term Obligations	Long-term Obligations	Sovereign Risk
Fitch IBCA	Rating BBB- or higher	Rating F3 or higher	Rating BBB- or higher	Rating BBB- or higher
Moody's Investors Services	Rating Baa3 or higher	Rating P-3 or higher	Rating Baa3 or higher	Rating Baa3 or higher
Standard & Poor's Corporation	Rating BBB- or higher	Rating A3 or higher	Rating BBB- or higher	Rating BBB- or higher
Dominion Bond Rating Services Limited	Rating BBB- or higher	Rating A3 or higher	Rating BBB- or higher	Rating BBB- or higher
Kroll Bond Rating Agency, Inc.	Rating BBB- or higher	Rating K3 or higher	Rating BBB- or higher	Rating BBB- or higher
Centroamerican Risk Rating Society, S.A. (Moody's Local)	Rating BBB- or higher	Rating ML A-3 or higher	Rating BBB- or higher	Rating BBB- or higher
Pacific Credit Rating, S.A. de C.V.	Rating BBB or higher	Rating P-3 or higher	Rating BBB or higher	Rating BBB or higher

The Superintendent may update the aforementioned table in case of new authorized risk rating societies registered in the registry kept by the Superintendence for these purposes, in accordance with the corresponding investment-grade ratings. Likewise, it may update it when new internationally recognized risk rating agencies are determined, or in case such entities modify their risk rating nomenclatures; which it will inform to the Monetary and Financial Board prior to the notification by means of circular to financial institutions.

For the purposes of this norm, in the case of more than one risk rating existing, the lower rating shall apply.
The current rating shall be the one available on the respective rating agency's website. For such purposes, the rating must be available to the public on the respective rating agency's website, as well as on the website of the rated financial institution, on a permanent basis.

CHAPTER VIII
GENERAL PROVISIONS

Art. 13. Evidence of existence of deposits and investments.- AGDs must maintain sufficient and appropriate evidence supporting the existence of deposits maintained in, or investments in securities issued by, other entities, as they appear in the financial statements of the audited AGD, regardless of whether these instruments are negotiable or non-negotiable, traded or not traded on a stock exchange or regulated market, physical or dematerialized.

Sufficient and appropriate evidence is considered to be purchase confirmations and account statements issued by the stock exchange broker or financial institution where the transaction was carried out, custody certificates of physical or dematerialized securities issued by the custody entity, and others considered appropriate by the Superintendent.

CHAPTER IX
FINAL PROVISIONS

Art. 14. Repeal.- The Norm on Deposit and Investment Limits, contained in Resolution No. CD-SIBOIF-581-2-ABR17-2009, dated April 17, 2009, published in La Gaceta, Official Gazette No. 116, on June 23, 2009, is hereby repealed.

Art. 15. Validity.- This norm shall enter into force upon its Notification, without prejudice to its publication in La Gaceta, Official Gazette.

(f) Gabriel Pasos Lacayo (f) V. Urcuyo V. (f) Fausto Reyes B. (f) illegible (Silvio M. Casco Marenco) (f) U. Cerna B.

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF