Regulation on the Issuance of Public Offerings of Stablecoins

THE NATIONAL COMMISSION OF DIGITAL ASSETS
CONSIDERING:

1. That by Legislative Decree No. 643 dated January 11, 2023, published in Official Gazette No. 438, Volume No. 16, on the 24th of that same month and year, the Law on the Issuance of Digital Assets of El Salvador was issued;
2. That, as provided in Art. 9, letter q), of the Digital Assets Issuance Law, it is within its authority: to issue guidelines and technical regulations applicable to stablecoins, including proof of funds or backing of the value of such coins, as well as all relevant documentation that issuers of such digital assets must present to the Commission to carry out public offerings;
3. That, as provided in Art. 32, fifth paragraph, it establishes that the obligation to present the Relevant Information Document is excluded for the admissions or applications for admission of a stablecoin on a digital platform domiciled in El Salvador.
4. That for the application of the Law referred to in the previous consideration, it is indispensable to establish regulatory rules that develop the necessary aspects of stablecoin issuances;
5. This regulation addresses the regulations applicable to the issuance of stablecoins as determined by the Law on the Issuance of Digital Assets of El Salvador.

REGULATION ON THE ISSUANCE OF PUBLIC OFFERINGS OF STABLECOINS

Object
Art. 1.- This Regulation aims to execute and develop the provisions contained in the "Law on the Issuance of Digital Assets" regarding the issuance of public offerings of stablecoins established in said Law, as well as the admission to trading of stablecoins on digital platforms.

Scope of Application
Art. 2.- This Regulation shall be subject to digital asset service providers duly registered as established by the CNAD, that carry out stablecoin issuances or admit stablecoins on their digital platforms, as well as the other issuers established in article three (3) of this Regulation. Stablecoin issuances backed by algorithms are excluded from this Regulation.

Stablecoin Issuers
Art. 3.- The following may be stablecoin issuers:
a) The State and its dependencies; b) Autonomous institutions; c) Banks, Cooperative Banks, Pension Fund Administrators, Insurance Companies, Investment Fund Administrators, and Savings and Credit Societies authorized by the Superintendence of the System; d) Financial institutions domiciled abroad with qualification by the Central Reserve Bank as first-line banks that are registered as digital asset service providers according to the law and current regulations; e) Digital asset service providers duly registered with the National Commission of Digital Assets; and f) Issuers who do not belong to the above categories and are registered and authorized by the CNAD to issue Stablecoins.

In any of the cases, the issuer must register with the CNAD according to what is established in article five (5) of this Regulation.

Definitions
Art. 4.- For the purposes of this Regulation, the following definitions will be used:
a) API: An API or application programming interface is a set of definitions and protocols used to design and integrate application software; b) Stablecoin Issuer: Refers to the State or a person, natural or legal, private or public, that carries out or promotes an offer to the public of stablecoins or that seeks the admission of a stablecoin with the objective of selling or commercializing it on a centralized or decentralized exchange or trading platform, regulated or not, and that meets one or more of the following three conditions:
i) It is domiciled in El Salvador; ii) It is not domiciled in El Salvador, but uses an exchange or trading platform that is domiciled in the country; iii) It is not domiciled in El Salvador, but its purpose is to promote or carry out a public offering of digital assets to potential acquirers in El Salvador, except in the case where potential acquirers initiate, on their own account, the commercial relationship with the offeror of said digital assets. A digital asset service provider that admits the trading of stablecoins on its trading platform is not, by the mere fact of accepting such trading on its platform, an issuer; A State or a person, natural or legal, private or public, that registers or applies for admission to promote an offer to the public of stablecoins may only offer features or additional services to those included in the definition of stablecoin if it has requested and obtained approval from the CNAD.

c) Stablecoin: Is a type of digital asset designed to minimize the volatility of its price and that refers to, represents, or is backed by an international reserve asset or basket of assets; d) International Reserve Asset: Any currency, asset, or basket of assets widely circulated in local and international markets, legal tender according to the definition of the Government of El Salvador (including Bitcoin), cash or cash equivalents, debt securities considered low risk (such as certificates of deposit, money market funds, reverse repurchase agreements, and Treasury Bills), gold and other commodities, other stablecoins approved by the CNAD for use as reserve assets for stablecoins, loans secured by liquid assets (cash, cash equivalents, and Bitcoin), and other investments that the CNAD considers appropriate. The permitted reserve assets must meet the definition of being liquid assets in thirty (30) days or liquid assets in more than thirty (30) days. An asset liquidable in thirty (30) days is one that can be converted into cash or used to settle financial obligations in thirty (30) business days or less without incurring a significant loss of its value or Market Value. An asset liquidable in more than thirty (30) days is one that takes more than thirty (30) days to convert into cash or to be used to settle financial obligations, but that can be sold at the appropriate time without causing a significant impact on the Fair Market Value of the asset. Taking into account the refund rights of investors and public demands, the Commission will define and approve the appropriate manner. This definition and conversion requirements are not exhaustive, and the CNAD reserves the right to grant exemptions regarding any provision of the reserve requirements to one or more issuers when it deems appropriate. e) Redemption: The ability of a stablecoin to be converted automatically or within a prudent time by an International Reserve Asset:

f) Asset Reserves: Are the International Reserve Assets that the issuing entity has available to respond to its redemption obligations with the stablecoins it issues; g) Fair Market Value: Fair market value is a term that designates the current value of an asset, or the price at which it would be sold in the open market.

Application and Information for Stablecoin Issuer Registration Art. 5.- Entities interested in being stablecoin issuers must request their Registration with the CNAD. For authorization to enter the Register of Stablecoin Issuers, the legal representative or attorney of the interested entity must present to the CNAD an application, accompanied by the following documentation:
a) In the case of a legal person, provide a general description of its business or usual trade, domicile, and include a copy of the testimony of the social constitution deed of the issuer, of its modifications if any, registered in the Commerce Registry; as well as the current bylaws, if applicable, duly deposited in the corresponding registry or, in its case, legislative decree of creation; b) In the case of a legal person, a list of partners, associates, or shareholders, with their participation in the capital of the society, the type and number of the current identity document and Tax Identification Number, if applicable. The aforementioned list must contain updated information, as of the date of presentation of the application, as well as a copy of the current identity document and Tax Identification Number of persons whose participation is equal to or greater than ten percent (10%) of the social capital of the issuer. In case the shareholder is a company, information on the last beneficiary must be presented unless the company trades on an organized and regulated securities market, for which this requirement is not necessary; c) In the case of a legal person, a list of administrators of the issuer, indicating the type and number of identity document, Tax Identification Number, as well as a copy of the credentials of the Board of Directors, administrative attorneys, and administrators, indicating the respective term of office,

duly registered in the corresponding registry, attaching a copy of the current identity document, Tax Identification Number, and curriculum vitae that accredits professional or business experience of each of the administrators; d) In the case of a natural person, full name, Unique Identity Document number, residence card or passport, and domicile; e) In the case of a natural person, a list of administrators of their business, the type and number of identity document or passport and Tax Identification Number of each of them; f) Audited financial statements of the issuer, corresponding to the last three fiscal years prior to the application, by an external auditor. In the case of issuers that have less than three years of existence, they must present the audited financial statements they possess as of the date of the application. In any case, if the company does not have audited financial statements, but can demonstrate an active presence of more than three years in the local or international digital asset markets, it may present limited review reports (commonly known as "attestations" in English) performed by an external auditor. In the case where the issuer does not have audited financial statements, from the date of its authorization to issue stablecoins, companies must, within 6 months following the close of their fiscal year as a registered stablecoin issuer in El Salvador, comply by presenting a copy of the report of its auditor regarding its financial statements to the CNAD; g) Copy of the Tax Identification Number of the issuer; h) Indicate the URL of its main website; i) Clearly identify which jurisdictions, countries, or territories where they carry out their operations; j) Provide a list of the digital assets they have issued in public offerings. In the application, the issuer must establish the place or means to receive notifications and the designation of the persons commissioned for such effect. Any change or update of the information provided for registration must be sent to the CNAD in no more than ten (10) business days after the change or update. The documentation related to this application is confidential. The registration process as an issuer and issuance may be carried out simultaneously. In the case of the Ministry of Finance, the Central Reserve Bank, and Autonomous Entities that issue stablecoins, the registration requirement will be fulfilled with a request expressing their interest in being part of the register of issuers. In any case, if the issuer lists or trades the stablecoin on its own platform or a third party's, it must be registered as a digital asset service provider with the CNAD.

Information Required for Stablecoin Issuances
Art. 6.- Every stablecoin issuer must present to the National Commission of Digital Assets the following information:
a) A description of the amount of stablecoins to be issued, the type of international reserve asset to be used, and the amount of asset reserves in said currency; b) A description of their plans and the procedure related to the creation and destruction of the stablecoins to be issued; c) Indicate the URL of its main website; d) The Distributed Ledger Technology protocols, or similar or analogous technology that it uses. Once the information referred to in the first paragraph of this article has been presented to the National Commission of Digital Assets, it will issue a "Resolution of No Objection" within a maximum of five (5) business days, if it finds no inconvenience with the issuance. In case the information presented is incomplete, the National Commission of Digital Assets will warn the applicant and set a maximum deadline of fifteen (15) business days for the missing information and documentation to be present, and then issue its pronouncement within the period established in the previous paragraph. In case the missing information and documentation are not completed, a "Objection" resolution will be issued, and the applicant will not be able to proceed to issue its stablecoin. Additionally, a "Objection" resolution will also be issued if the National Commission of Digital Assets considers that the issuance of said stablecoin presents a risk to the stability of the digital asset system.

Admission of Stablecoins
Art. 7.- When a digital asset service provider admits on its digital platform stablecoins issued in other jurisdictions and that wish to be admitted on its digital platform, it must request the issuer the information established in the previous article and provide it to the National Commission of Digital Assets immediately. The issuers of said stablecoins will be subject to the process established in the previous article. Additionally, when a digital asset service provider admits stablecoins already duly registered with the CNAD, it will not be necessary to provide the information established in the previous article.

Creation and Destruction of Stablecoins
Art. 8.- Once the primary issuance of stablecoins has been carried out, the issuer must immediately inform the National Commission of Digital Assets and the digital asset service provider of the creation and issuance of additional amounts of stablecoins, as well as the destruction of any amount of said coins. The information regarding the creation and destruction of stablecoins will be provided monthly to the CNAD through an API.

Reserve Assets
Art. 9.- Stablecoin issuers will maintain at all times reserves backing their circulating stablecoins in a minimum proportion of one to one.
Art. 10.- The reserves must be invested at least seventy percent (70%) in assets liquidable in thirty (30) days and thirty percent (30%)

in assets liquidable in more than thirty (30) days. In any case, reserve assets cannot be invested in International Reserve Assets issued by companies linked to shareholders, main executives of the company, or with any relationship that could generate a conflict of interest.

Sworn Declaration
Art. 11.- The legal representative of the issuer will present monthly a sworn declaration to the CNAD, attesting to the information on the reserves backing its stablecoins, their amount, and the composition of these assets; Additionally, it must present quarterly independent assurance reports (known as "attestations" in English) performed by an external auditor on the accuracy of the amount of its reserves and the composition of the assets. The assurance reports must be published on the website of the stablecoin issuer.

Information Request
Art. 12.- The National Commission of Digital Assets may request the information it considers pertinent and timely from stablecoin issuers to verify what is established in the previous article.

Audit and Inspection
Art. 13.- The CNAD will carry out periodic reviews of stablecoin issuers in order to verify the amount of reserves they possess. These reviews can be carried out directly by the CNAD or by hiring an auditing or consulting firm.
The CNAD may initiate procedures for exhaustive and permanent reviews and inspections of stablecoin issuers, including the analysis and verification of the amount of reserves maintained for the issued stablecoins, when the CNAD has reasons to believe that a stablecoin issuer has failed to comply with its obligations under this Regulation.

Custody of Reserve Assets
Art. 14.- Stablecoin issuers must inform the National Commission of Digital Assets in which financial or digital institution, domiciled or not, they hold in custody the reserves referred to in the previous article, as well as when there is any change thereof. In any circumstance, the issuer must guarantee that the custody is carried out, directly or indirectly, in accordance with best practices and international standards. The National Commission of Digital Assets may request the information it considers pertinent to verify the information referred to in the previous paragraph.

Privileged Information
Art. 15.- Duly registered stablecoin issuers are subject to the established rules on the use of privileged information of issuers of public offerings of digital assets.

Time of Authorization of Stablecoin Issuances
Art. 16.- Once the National Commission of Digital Assets has issued a "Resolution of No Objection," the public offering of stablecoins will be considered enabled.
In the case of stablecoins issued in other jurisdictions, countries, or territories and that wish to be admitted on the digital platform of a digital asset service provider, the National Commission of Digital Assets must also issue a "Resolution of No Objection" for these stablecoins to be commercialized on said platform. In this sense, digital asset service providers must immediately present the list of stablecoins they have requested admission for on their platform.

Grounds for Cancellation of Stablecoin Issuances Art. 17.- The National Commission of Digital Assets may cancel the authorization of stablecoin issuances in any of the following situations:
a) When the issuer has failed in its obligation to redeem the stablecoins; b) When the issuer does not have the reserves referred to in this Regulation; c) When a stablecoin presents a systemic risk to the stability of digital assets;

d) When a stablecoin has been classified as high risk by any country, territory, or jurisdiction.

High Risk Classification
Art. 18.- The National Commission of Digital Assets will publish a list on its URL of stablecoins that are considered high risk to the public, and will make the pertinent modifications when it detects the systemic risk of the same. This list will be called the Risk List. The stablecoins mentioned in said list cannot be commercialized by any digital asset service provider, issuer, or acquirer of the digital asset market registered to operate under the Law on the Issuance of Digital Assets. This prohibition will be in effect within twenty-four (24) hours following its publication on the CNAD's URL. As a communication act, the CNAD may send emails to issuers and digital asset service providers regarding updates to this list.

Quarterly Report
Art. 19.- Issuers must submit a quarterly report, in the first twenty (20) days of the months of April, July, October of the current year, and January of the following year, regarding their issued stablecoins.
The report will contain at minimum the following:
a) Name of the Issuer; b) Name of the Stablecoin; c) Name of the Project; d) Date of commercialization start; e) Technical and commercial characteristics of said stablecoin;

f) Evolution of the inherent risks of the product and its management since the last report presented to the CNAD.
The Register will be updated according to the information provided by the Issuers.

Risk Issuers
Art. 20.- Stablecoin issuers will be considered risky for the public when:
a) The issuer or its representatives are involved in illicit activities, declared as such by the competent courts of El Salvador; b) When the information shared with the public in the context of a public offering has been misleading, asymmetric, or illicit; c) When the stablecoin issuer has not demonstrated that it has the sufficient reserves established by this Regulation; d) When it carries out stablecoin issuances without the National Commission of Digital Assets having received the information and enabled the issuance; e) When the issued stablecoin has been condemned by a competent authority for having defrauded the public in other jurisdictions, countries, or territories.

Fees and Charges
Art. 21.- The fees for the registration and administration services of the Register of Stablecoin Issuers, as well as for the enabling of public offerings, of the same will be the following:
a) Pay an amount equivalent to zero point zero one percent (0.01%) of the amount of the enabled public offering at the time of receiving the authorization for the issuance of stablecoins requested;

b) Pay fifty United States dollars (US$ 50), or its equivalent in Bitcoin, for each certification of the resolution issued by the enabling of the stablecoin issuance.
In the case of stablecoin issuers, they must inform of the amount of stablecoins they plan to issue during the next twelve (12) months and pay the corresponding fee for that amount. In case the amount issued is greater than projected at the end of the twelve (12) months, they must pay the corresponding fee for the stablecoins that were not included in the initial projection. In particular cases and due to the nature of the stablecoin where the issuance of the next twelve (12) months cannot be projected, and this is duly justified, the issuer must report its initial projection with a minimum of one (1) coin, pay for this, and at the end of the calendar year, calculate the actual net emission