Resolution Reforming Articles 1, 7, 8, 11, and 12 of the Standard on Deposit and Financial Investment Limits for General Warehouses

Resolution No. CD-SIBOIF-1077-1-OCTU16-2018
Dated October 16, 2018

STANDARD REFORMING ARTICLES 1, 7, 8, 11 AND 12 OF THE STANDARD ON DEPOSIT AND FINANCIAL INVESTMENT LIMITS FOR GENERAL WAREHOUSES

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

CONSIDERING

I
That on July 6, 2011, the Standard on Deposit and Financial Investment Limits for General Warehouses was approved, contained in Resolution No. CD-SIBOIF-683-2-JUL6-2011, published in La Gaceta, Official Gazette, No. 171 of September 9, 2011.

II
That it is necessary to reform Articles 1, 7, 8, 11, and 12 of the aforementioned standard, in order to, among other aspects, update the list of credit rating agencies, for the purposes of the risk qualifications that entities and foreign investments in which General Warehouses deposit and invest must hold, where required.

III
That based on the authority conferred by Articles 2 and 139 of Law 734, General Warehouse Law; and Article 2, fourth paragraph, Article 3, item 13), and Article 10, item 2) of Law 316, Law of the Superintendence of Banks and Other Financial Institutions, and their reforms; both legal frameworks contained in Law No. 974, Law of the Nicaraguan Legal Digest of the Banking and Finance Matter, published in La Gaceta, Official Gazette No. 164, of August 27, 2018.

In exercise of its powers,

HAS ISSUED,

The following:

CD-SIBOIF-1077-1-OCTU16-2018

STANDARD REFORMING ARTICLES 1, 7, 8, 11 AND 12 OF THE STANDARD ON DEPOSIT AND FINANCIAL INVESTMENT LIMITS FOR GENERAL WAREHOUSES

FIRST: Articles 1, 7, 8, 11, and 12 of the Standard on Deposit and Financial Investment Limits for General Warehouses, contained in Resolution No. CD-SIBOIF-683-2-JUL6-2011, dated July 6, 2011, published in La Gaceta, Official Gazette, No. 171 of September 9, 2011, are hereby reformed, which shall read as follows:

"Art. 1. Concepts.- For the purposes of applying the provisions contained in this standard, the terms indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:
a) GW: General Warehouse. b) Calculation Base: Definition contained in the Operational and Financial Standard of General Warehouses. c) First-Rank International Rating: A first-rank rating that takes into account country risk in accordance with what is established in Chapter VII of this standard. d) First-Rank Local Rating: A first-rank rating that does not take into account country risk as established in Chapter VII of this standard. e) Institution or Financial Institution: National banks and financial companies. f) Warehouse Law: Law 734, General Warehouse Law, published in La Gaceta, Official Gazette, Numbers 201 and 202, of October 21 and 22, 2010, respectively; and contained in Law No. 974, Law of the Nicaraguan Legal Digest of the Banking and Finance Matter, published in La Gaceta, Official Gazette No. 164, of August 27, 2018. g) General Banking Law: Law 561, General Banking Law, Non-Banking Financial Institutions and Financial Groups, published in La Gaceta, Official Gazette No. 232, of November 30, 2005; and contained in Law No. 974, Law of the Nicaraguan Legal Digest of the Banking and Finance Matter, published in La Gaceta, Official Gazette No. 164, of August 27, 2018. h) MMDA/MMSA; Money Market Deposit Account/Money Market Savings Account: A type of savings account that pays interest and allows only a limited number of withdrawals per month. This concept includes all money market accounts that, despite having different denominations than MMDA/MMSA, possess the aforementioned characteristics. i) FINRA: Acronym in English for the Financial Industry Regulatory Authority of the United States of America. 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) Traded Securities: Those issued by the same issuer, with homogeneous and fungible characteristics among themselves. n) AML/CFT/CPF: Anti-Money Laundering, Countering the Financing of Terrorism, and Combating the Financing of Proliferation of Weapons of Mass Destruction.

Art. 7. Deposits and investments in foreign securities.- GWs may maintain deposits or invest abroad, only in the following instruments in foreign currency:
a) In banks with first-rank international rating:
1) In checking accounts;
2) In MMDA/MMSA and savings accounts;
3) Time deposits not exceeding one year;
4) Debt instruments and/or Negotiable Traded Certificates of Deposit, 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-rank rated, but that meet the following minimum requirements:
1) They are domiciled in a country with a first-rank sovereign risk rating, as established in Chapter VII of this standard;
2) They are not subject to any public exception regime (Memorandum of Understanding, Cease and Desist Order, or other equivalent measure);
3) They maintain physical and operational presence in the country where their banking license was granted and are subject to supervision;
4) The country where the institution is located is not sanctioned or suspended by international organizations working in the fight against AML/CFT/CPF and/or in favor of international transparency, such as FATF, Egmont Group, and the UN; and,
5) They maintain a solid and solvent financial position, documented by the GW through an analysis of their financial statements no older than twelve months, and with equity of no less than fifteen million United States dollars.
c) In checking account deposits in banks with first-rank local rating and meeting the requirements established in items 2), 3), 4), and 5) of subsection b) above. d) In Money Market or similar accounts maintained with an authorized stock exchange broker to operate in the United States of America and member of FINRA and SIPC. These accounts must be connected to a securities custody account and shall only be used to carry out clearing and settlement operations. e) Other Instruments:
1) Any type of traded debt securities issued or guaranteed by the U.S. Department of the Treasury or by institutions or

companies of the Federal Government of the United States of America, quoted on the Stock Exchange or regulated market of the United States of America;
2) Traded debt securities issued by Multilateral Credit Organizations (Inter-American Development Bank, World Bank, Central American Bank for Economic Integration) of which the country is a member, quoted on the Stock Exchange or regulated market of the United States of America; and
3) Traded debt securities issued by Central Banks and Central Governments of countries with first-rank 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.

Art. 8. Limits per depository or issuer.- In operations carried out in accordance with Articles 5, 6, and 7 of this standard, GWs shall be governed by the following limits:
a) In traded securities issued in national currency by the Central Government or Central Bank of Nicaragua and repo operations, indicated in Article 5 of this standard, up to 100% of the calculation base of the capital. In case the traded securities are issued in foreign currency, up to fifty percent (50%) of the calculation base of the investing GW, per issuer. b) In demand deposits (checking and savings) or time deposits, as well as, in traded securities indicated in subsection a) of Article 6 of this standard, up to thirty percent (30%) of the calculation base of the GW, per issuer or depository. c) In public offering debt securities referred to in subsection b) of Article 6 of this standard, up to 10% of the calculation base of the GW, per issuer. d) Checking, savings, and MMDA deposits in first-rank rated banks, indicated in Article 7, subsection a), of this standard, without limit, according to their operational needs. e) In time deposits not exceeding one year in banks with first-rank international rating, indicated in item 3) of subsection a) of Article 7 of this standard, up to thirty percent (30%) of the calculation base of the GW, per depository. f) In Debt instruments and/or Negotiable Traded Certificates of Deposit in banks with first-rank international rating, which are traded on the stock exchange or regulated market of the corresponding country to which Article 7, subsection a), item 4) refers, up to fifteen percent (15%) of the calculation base of the GW per issuer or depository. g) Checking account deposits maintained in banks not rated as first-rank indicated in subsection b), of Article 7 of this standard, up to fifteen percent (15%) of the calculation base of the GW, per depository. Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by deposits made by persons or entities unrelated to the GW, 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-rank local rating, referred to in Article 7, subsection c) of this standard, up to fifteen percent (15%) of the calculation base of the GW, per depository. Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by deposits made by persons or entities unrelated to the GW, 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 at the stock exchange brokers indicated in subsection d), of Article 7 of this standard, up to ten percent (10%) of the calculation base of the GW, per depository. Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by temporary operations related to pending investments, duly justified in communication sent to the Superintendent. j) In the instruments indicated in Article 7,
subsection e), item 1), of this standard, up to one hundred percent (100%) of the calculation base of the GW, per issuer. k) In the instruments indicated in Article 7, subsection e), item 2), of this standard, up to fifty percent (50%) of the calculation base of the GW, per issuer. l) In traded debt securities issued by Central Banks and Central Governments, indicated in Article 7, subsection e), item 3) of this standard, up to fifteen percent (15%) of the calculation base of the GW, per issuer.

Art. 11. Repealed.-

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

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
Centroamericana Rating Society, S.A.	Rating scr- BBB or higher	Rating SCR-4 or higher	Rating scr- BBB or higher	Rating scr- 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 and registered risk rating societies in the registry kept by the Superintendence for these purposes, according to the corresponding investment grade ratings. Likewise, it may be updated when new internationally recognized risk rating agencies are determined, or in case these entities modify their risk rating nomenclature; which shall be reported to the Board of Directors of the Superintendence prior to the notification made to financial institutions via circular.

For the purposes of this standard, in the case of more than one risk rating existing, the lower rating shall be applied.
The current rating shall be the one available on the website of the respective rating agency. For such purposes, the rating must be publicly available on the website of the respective rating agency, as well as on the website of the rated financial institution, permanently."

SECOND: This standard shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Gazette. (S) S. Rosales C. (S) V. Urcuyo V. (S) Fausto Reyes B. (S) Illegible (Silvio Moisés Casco Marenco) (S) Illegible (Rafael Ángel Avellán Rivas).

RAFAEL ÁNGEL AVELLÁN RIVAS
Secretary of the Board of Directors SIBOIF