Technical Standards for Entities Providing Custody Services for Securitization Fund Assets

NDMC-32
TECHNICAL STANDARDS FOR ENTITIES PROVIDING CUSTODY SERVICES FOR SECURITIZATION FUND ASSETS Approval: 12/14/2023 Effective Date: 01/02/2024

THE COMMITTEE OF STANDARDS OF THE CENTRAL RESERVE BANK OF EL SALVADOR,

CONSIDERING:

I. That Article 26, first and third clauses, of the Asset Securitization Law establishes that the Securitization Company, for the exercise of its functions, may hire services such as advisory services, management of the Fund's assets, collection of fund flows, information processing, and others related to its operations; except those referring to structuring, integral administration of the Fund, as well as those related to the issuance of securities. The models of the contracts for the aforementioned services must be previously submitted to the Superintendency of the Financial System for review.

II. That Article 59 of the Asset Securitization Law establishes that the assets comprising the Securitization Fund, according to their nature, must be under the custody of an authorized or recognized entity to provide this service or by the Securitization Company in the case that they are not securities; empowering the Board of Directors of the Superintendency of Securities to issue technical standards regarding custody and the information that entities providing said service must submit to said Superintendency, now the Superintendency of the Financial System, a regulatory power that, by virtue of the entry into force of the Law on Supervision and Regulation of the Financial System, was transferred to the Central Reserve Bank, through its Committee of Standards.

III. That Article 7, letters q) and u), of the Law on Supervision and Regulation of the Financial System establish that securitization companies and other operations specified by laws are subject to the provisions of the Law on Supervision and Regulation of the Financial System and therefore to the supervision of the Superintendency of the Financial System.

IV. That Article 99, letter e), of the Law on Supervision and Regulation of the Financial System regulates that it is the responsibility of the Committee of Standards of the Central Reserve Bank of El Salvador to establish technical criteria to determine acts and operations considered contrary to stock market practices or sound market practices.

THEREFORE,

by virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System,

AGREES to issue the following:

NDMC-32
TECHNICAL STANDARDS FOR ENTITIES PROVIDING CUSTODY SERVICES FOR SECURITIZATION FUND ASSETS Approval: 12/14/2023 Effective Date: 01/02/2024

TECHNICAL STANDARDS FOR ENTITIES PROVIDING CUSTODY SERVICES FOR SECURITIZATION FUND ASSETS

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to develop the provisions applicable to the custody service of securitized assets, specifically the following:
a) Operational requirements for custodians; b) Minimum content and formalities for granting Custody Contracts for assets and the procedure for their respective approval by the Superintendency of the Financial System; and c) Determination of the information that custodians must deliver and make available to the Superintendency of the Financial System, the Securitization Company, and the Representative of the Holders.

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are the following:
a) Specialized societies for the custody and deposit of securities, which have been authorized by the Superintendency in accordance with the procedure indicated in Article 74 and following of the Securities Market Law; b) Entities that have been expressly recognized by their respective creation laws to exercise custody functions for securities, such as banks and stock exchanges, in the case that they provide the custody service for securitized assets; except when it concerns the custody of dematerialized or book-entry securities, since in accordance with what is provided in the sixth clause of Article 1 of the Law on Electronic Book-Entry Securities, this service may be provided only by the entities mentioned in letter a) of this article; and c) Securitization Companies, in the case that the custody of the assets of the Securitization Fund does not correspond to securities.

In any case, for the aforementioned entities to exercise custody functions for securitized assets, they must comply with the provisions established in these Standards. Additionally, in the case that the custody service is performed by the Securitization Company, it will assume all the obligations and responsibilities established in these Standards in the custody contract.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Asset(s): Securitization assets; b) Custody Contract: Asset Custody Contract; c) Custodian(s): Specialized Society in the Deposit and Custody of Securities registered as such in accordance with Article 6, letter d), of the Securities Market Law, a bank, or another financial entity authorized to provide said service, which by virtue of a contract assumes custody obligations for the assets comprising a Securitization Fund; d) Fund(s): Securitization Funds; e) Securitization Law: Asset Securitization Law; f) Originator: Person owning assets susceptible to securitization, which they alienate with the sole purpose of constituting or integrating a Securitization Fund; g) Registry: Public Registry of the Superintendency of the Financial System; h) Superintendency: Superintendency of the Financial System; i) Representative of the Holders: Representative of Securities Holders; and j) Securitization Company: Securitization society registered in the Superintendency of the Financial System.

CHAPTER II
OPERATIONAL REQUIREMENTS THAT CUSTODIANS MUST OBSERVE

Operational Requirements
Art. 4.- Custodians must have a registration system for custodied assets, which allows, among other aspects, the following:
a) Effective segregation and identification of the ownership of custodied assets, whether on their own account or for third parties; b) The generation of the history of movements and balances of the assets of each account as of a determined date. It will include the specification of the reason for the entry or exit of the asset, such as: sale or purchase, substitution, maturity, and others; c) The reconciliation of assets, according to the records of the internal system against the records of the Securitization Companies or other external records; d) The registration of liens or annotations affecting the account as a whole or specific assets of the account; and e) That the entry or exit of assets to the respective account is authorized and carried out by means of the digitization of an internal number or password assigned confidentially to persons previously authorized for this effect.

Art. 5.- Custodians must have policies and internal control procedure manuals, which include all their operations, such as: the recording of movements, the inflows and outflows of assets and cash in custody.

Art. 6.- Custodians must have facilities and equipment that allow them to preserve the physical and electronic security of the custodied assets, have operational staff dedicated to the tasks inherent to the custody activity, and likewise, must guarantee the segregation of functions, such that no official of the custodian has absolute control over the custody processes, movements, and withdrawals of the deposited assets. Likewise, when it comes to electronic files, they must have continuous update backup systems that allow attending contingencies of damage or disappearance of said files, observing for this purpose, the Technical Standards for the Business Continuity Management System -24) approved by the Central Reserve Bank, through its Committee of Standards.

Insurance
Art. 7.- Custodians must have insurance policies, which must cover at least the following:
a) For accidents in the physical facilities where the assets are custodied and for the computer equipment where the information of the assets and their ownership is registered; b) On custodied assets; c) For the technological infrastructure related to the recording and transfer of the information of the assets and their ownership, for damages derived from natural events, theft, and others that management considers important; d) For intentional acts, fraud, and improper handling of funds by officials or employees of the custodian; and e) For damages resulting from the entry, modification, or destruction of electronically registered data, carried out by persons unrelated to the custodian.

Services of Custodians
Art. 8.- The services that any Custodian may provide, in accordance with the nature of the assets comprising the Funds, are the following:
a) Physical or electronic custody of the Assets; b) The transfer and settlement of transactions, consisting of the physical delivery-receipt of instruments, titles, or securities, as applicable; c) The exercise of patrimonial rights, when applicable, consisting in the administration of all events related to the assets under custody, such as the collection of amortizations, interest, or dividends, as applicable; d) To make available to the Superintendency, the Securitization Company, and the Representative of the Holders daily information by Fund, of the portfolio under custody and of the accounts opened; and e) Other services authorized by the Superintendency.

Responsibilities of the Securitization Company Art. 9.- Notwithstanding that a Securitization Company hires a Custodian for the custody service of the Fund's Assets, this does not exempt it from responsibility in matters of maturity control, collection of principal and interest, dividend management, return of commissions, notifications, early redemption of assets, and other operations related to the handling of the Fund's assets. Likewise, it will be the responsibility of each Securitization Company to ensure that there are adequate procedures so that operation, custody, or deposit orders, as applicable, delivered to the Custodian effectively come from authorized personnel.

Sub-custodians
Art. 10.- For the provision of the deposit and custody service for the Funds, Custodians may hire sub-custodians from third local institutions, when they cannot provide them themselves, in certain locations, provided that these are empowered to exercise the custody service in accordance with what is established in Article 2 of these Standards.

Responsibility of Subcontracting
Art. 11.- In the case that the Custodian subcontracts the services of a sub-custodian, the review of the operational standards of these will be done by the Custodian, assuming this one all the responsibility for the operations carried out by them. Likewise, the Custodian must request monthly reports from the sub-custodian on the sub-custodied assets, which it must make immediately available to the Securitization Company, the Superintendency, and the Representative of the Holders. The foregoing, without prejudice to the immediate and permanent access that the Custodian must have regarding the Assets in sub-custody.

Confidentiality
Art. 12.- Custodians and sub-custodians must keep absolute secrecy regarding the Assets placed under their custody by each Securitization Company; as well as regarding any information related to them or their administration.
Art. 13.- The Superintendency may examine the ownership and physical existence of the custodied Assets in the facilities or equipment of the Custodian, or if applicable, in the sub-custodians contracted by it; in addition to the electronic records of book-entry annotations and auxiliary records. Art. 14.- Securitization Companies may not hire a Custodian without prior review by the Superintendency, which will conclude, once it has verified that the society to be hired is recorded in the Registry or is expressly authorized by Law for such effect and that in the respective contract compliance with the requirements demanded in the regulations issued by the Central Reserve Bank through its Committee of Standards is given.

CHAPTER III
ON THE MINIMUM CONTENT AND FORMALITIES OF GRANTING THE CUSTODY CONTRACT

Formalities of Granting
Art. 15.- The Custody Contract must be granted by the Securitization Company in its capacity as administrator of a Fund and a Custodian, prior to the negotiation of the securities issued by the Fund.
The Custody Contract, as well as its respective modifications, if any, must be granted or recognized before a Salvadoran notary. Consequently, it must be recorded in a public deed or in an authenticated private document, and in any case, the formalities indicated by the applicable legislation must be complied with.

Minimum Information
Art. 16.- Every Custody Contract must contain at least the following information:
a) Legal Representation
i. General information and legal representation with which the legal representative or attorney-in-fact of the Securitization Company acts and the registry entry number of the latter in the Registry with indication of the date of the corresponding entry;
ii. Tax Identification Number of the Securitization Company;
iii. General information and legal representation with which the legal representative or attorney-in-fact of the Custodian acts and the number and date of the registry entry of the Custodian in the Registry, or in its case, the relationship of the legal provision by virtue of which said Custodian is empowered to perform said function; and
iv. Tax Identification Number of the Custodian.
b) Background
i. Date, time, place of granting and Notary before whom the asset transfer contract from the Originator to the Fund was granted and the number of registration of said act in the corresponding registry if applicable;
ii. The identification of the entity with which the Securitization Company has contracted the service of management of securitized assets, if applicable; and
iii. General information of the Representative of the Holders. In the case that said Representative is not a Bank or a Stockbrokerage House, the resolution by virtue of which the Superintendency agreed to authorize said Representative to act as such must be recorded.
c) Stipulations regarding the custody service
i. Specific detail of the services that the Custodian will provide to the Fund, expressly indicating if the Custodian will be empowered to use the services of sub-custodians and the conditions or limits of such subcontracting;
ii. Detail of each of the Assets that are the object of custody, which may be recorded in a document attached to the Custody Contract, in which case, the authorizing notary and the contracting parties must sign and stamp each of the pages comprising the attachment. In the Custody Contract, it must also be indicated that the aforementioned attachment is an integral part of it;
iii. Clearly specify the fees for which the Custodian will provide its services to the Fund, as well as the method, periodicity, and date of payment. Such specification may be recorded in an attachment that must be an integral part of the contract;
iv. Specify the accepted means for the receipt of orders issued by the Securitization Company;
v. Provisions regarding the issuance of certificates, referring to the periodicity of issuance, persons authorized to sign them, their content, etc.;
vi. The obligation of the Custodian to keep the assets separate from its own assets and from other assets in custody, so that the Securitization Company can dispose of them expeditiously when it so determines;
vii. The express declaration of the Custodian not to grant as guarantee for its own or third-party obligations, the Custodied Assets;
viii. The express recognition by the Custodian that the debts that the Securitization Company may have in its favor cannot be made effective with the Fund's Assets, whether they are securities or of another nature;
ix. The obligation of the Custodian to restore to the Funds the patrimonial losses that occur as a consequence of its own negligence, incompetence, fraud, or fault and that of its employees and officials, in the provision of the contracted services, and the obligation to pay the profitability that the Fund failed to receive;
x. Name of the Fund's account opened at the Custodian and indication in case of existing sub-accounts associated with the main account;
xi. Record the authority of the Custodian to execute all those acts that are necessary for the proper conservation of the custodied goods;
xii. Stipulate that, once the contract is terminated for any cause, the Custodian must make available to the Securitization Company, within the period stipulated in the respective contract, all the Assets that on that date are the object of custody;
xiii. The authority of the Superintendency, the Securitization Company, and the Representative of the Holders, to periodically or at any time verify the situation of each of the Assets object of custody; and
xiv. The obligation of the Custodian to keep a detailed and updated record of each of the custodied Assets that allows knowing the situation of each of them. Likewise, it must keep ordered files with the accessory documents regarding the Assets that comprise the Fund.
d) Custodian's Information Obligations
i. Permanently make available to the Superintendency, the Securitization Company, and the Representative of the Holders, information regarding movements produced in the Fund's accounts, such as inflows and outflows of Assets, coupon payments, interest collections, redemptions, maturities, or any other that implies a change in the pertinent records of the Fund's account on which the custody service has been contracted. In any case, the obligation of the custodian to inform said events in printed form at the offices of the aforementioned entities must be recorded;
ii. Permanently make available to the Superintendency, information concerning the financial instruments and accounts belonging to the Funds, which are in its possession or in its electronic records. Likewise, said entity must allow the Superintendency to examine the ownership of the securities in custody in its facilities and in the respective electronic records;
iii. Provide any kind of information requested by the Superintendency based on the power established in Article 32 of the Law on Supervision and Regulation of the Financial System;
iv. Provide any kind of information required by the Securitization Company and the Representative of the Holders, in the form and periodicity determined in the Custody Contract;
v. Inform in writing and immediately to the Securitization Company, the Representative of the Holders, and the Superintendency, of any relevant fact that affects or may negatively affect the custodied Assets; and
vi. Provide any kind of information requested by the Representative of the Holders, whose object is exclusively to verify the current situation of each of the custodied Assets.
e) Other contractual provisions
i. Causes of expiration or early termination of the Custody Contract, providing that the Fund's securities are never without the custody service at any moment;
ii. The form and mechanisms by which the contract may be extended or modified;
iii. Dispute resolution mechanisms; and
iv. Domicile to which the Securitization Company and the Custodian will submit in the case of judicial action, without prejudice to being able to submit the solution of controversies to any of the means established for such effect in the Law on Mediation, Conciliation, and Arbitration.

CHAPTER IV
PROCEDURE FOR THE REVIEW OF CUSTODY CONTRACT PROJECTS

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Request for Review of the Draft Contract

Art. 17.- The Securitization Company shall request from the Superintendence, prior to its execution, the review of the draft Custody Contract, as well as any of its modifications or extensions. In this case, it must submit a copy of any of said instruments, so that this body may proceed to verify that the presented draft does not contain provisions that are contrary to the Legislation, the Securitization Contract, or that may be considered violative of the interests of the investing public.

Art. 18.- The request for review of the draft Custody Contract must be accompanied by the following documentation regarding the custodian:

a) Notarially certified copy of the testimony of the public deed of incorporation of the company or its modification with the registration note in the Commerce Registry, and the latest credential of the election of its administrative body with the registration note in the Commerce Registry. If at that date the term for the election of administrators has already expired, a statement must be presented expressing that at that date no new administration has been elected and that, therefore, the previously elected one continues in the full exercise of its functions. It is understood that in accordance with what is provided in the second paragraph of article 265 of the Commercial Code, said statement will only be admissible in the case that six months have not elapsed from the expiration of the period for which the respective administrators were elected. After said period has elapsed, a copy of the credential of election of the new administration that is in force at that date must be presented, which must be registered in the Commerce Registry;

b) Legible, notarially certified copy of its Tax Identification Number and of the Taxpayer Registry, in the case that it is recorded as such in the respective registry;

c) In the case that the person to whom, by virtue of what is established in the copy of the testimony of the public deed of incorporation of the company or its modification with the registration note in the Commerce Registry, legal representation corresponds, does not appear in the respective contract, a notarially certified copy of the documentation by virtue of which they are authorized to appear on behalf and in representation of the Custodian must also be attached;

d) Legible, notarially certified copy of the personal identity document of the person appearing on behalf and in representation of the Custodian;

e) Legible, notarially certified copy of the certification of the point of the minutes where the representative is authorized to execute the administration contract, if applicable;

f) When it concerns the custody of securities, the Custodian's regulations and/or procedural manuals regarding operational procedures for the custody of securities, duly authorized by its Board of Directors and previously approved by the Superintendence, must be attached. When it concerns the custody of Assets that are not securities, said manuals must be attached only for informational purposes;

g) Description of the procedure for the deposit or withdrawal of Custodied Assets, including the model of the respective form;

h) Model of signature registration control; and

i) Contingency plan in case of possible loss of electronic records or physical documents.

The request and documentation may be presented through the means made available by the Superintendence, which may be electronic. In any case, the period referred to in the first paragraph of article 19 of these Standards will begin to run from the next business day after the request has been presented.

Procedure for review of the custody contract

Art. 19.- Upon receipt of the request for review of the draft Custody Contract in accordance with what is established in article 18 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined in the Securitization Law and in these Standards, having a period not greater than fifteen business days counted from the date of presentation of the request, for its review.

Once this period has expired and without communicating observations to the requesting entity, it will be understood that the model has no observations.

If the request is not accompanied by the complete and duly formatted information detailed in article 18 of these Standards, the Superintendence, due to the lack of necessary requirements, may require the applicant to present the missing documents within a period of ten business days counted from the day following the notification, a period that may be extended at the request of the applicant when there are reasons justifying such extension.

The Superintendence in the same notice will indicate to the applicant that if they do not complete the information within the aforementioned period, it will proceed without further procedure to archive the request, leaving them free to present a new request which will give rise to a new procedure.

If after the analysis of the documentation presented in accordance with article 18 of these Standards, the Superintendence has observations or when the documentation or information presented is not sufficient to establish the facts or information intended to be accredited, the Superintendence will notify the respective applicant to remedy the deficiencies communicated or to present additional documentation or information requested.

The applicant will have a maximum period of ten business days counted from the day following the notification, to resolve the observations or present the additional information required by the Superintendence.

The Superintendence may, through a reasoned resolution, extend by up to another ten business days, the period indicated in the previous paragraph, when the nature of the observations or notified deficiencies so requires.

Extension period

Art. 20.- The applicant may present to the Superintendence a request for extension of the period indicated in the fifth paragraph of article 19 of these Standards, before the expiration of said period, expressing the grounds on which it is based, and proposing, if applicable, the relevant proof.

The extension period may not exceed ten business days and will begin from the next business day following the expiration date of the original period.

Suspension of the period

Art. 21.- The period of up to fifteen business days indicated in the first paragraph of article 19 of these Standards, will be suspended for the days that elapse between the notification of the request for information or documentation referred to in the second and fifth paragraphs of said article, until the observations required by the Superintendence are remedied.

Regarding the notification of review

Art. 22.- Once the review of the draft Custody Contract and the corresponding documents is finalized, the Superintendence will pronounce itself within the period referred to in the first paragraph of article 19 of these Standards.

Once the draft Custody Contract has been reviewed and the completion of its review has been notified, or the period mentioned in the previous paragraph has expired without an opinion being issued, the respective Contract may be executed.

Certification of photocopies and authentication of signatures

Art. 23.- Every photocopy presented to the Superintendence in compliance with what is provided in these Standards must be certified by a Salvadoran notary. In cases where the photocopies correspond to the Tax Identification Number (TIN), notarial certification will not be required in the case of legal entities.

Likewise, signatures that match any type of documentation must be legalized by a Salvadoran notary.

Notwithstanding the foregoing, if the documentation presented originates from abroad, both the photocopies and the signatures contained therein may be authenticated or certified, as applicable, by a notary or official abroad, as applicable, and follow the apostille procedure in the case of countries signatories to the "Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents"; in other cases, they must be legalized by the Head of the Diplomatic Mission, Consul, Vice-Consul, or Officer in Charge of Consular Affairs of El Salvador, or in their absence, by officials of the Ministry of Foreign Relations from which such documents originate.

CHAPTER V
OTHER PROVISIONS AND EFFECTIVE DATE

Sanctions

Art. 24.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal

Art. 25.- The "Technical Standards for Entities Providing Custody Services for Securitization Assets and for the Information to be Provided by Those Providing the Service -11/2008" approved by the Board of Directors of the Securities Superintendence in Session No. CD-23/2008 of June 17, 2008, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in the Official Diary No. 23, Volume No. 390, dated February 2, 2011.

Transitory

Art. 26.- The "Technical Standards for Entities Providing Custody Services for Securitization Assets and for the Information to be Provided by Those Providing the Service -11/2008" that were in process at the time these Standards enter into force, will continue and be concluded in accordance with the regulations under which they began.

Unforeseen Aspects

Art. 27.- Aspects not provided for in the regulatory matter in these Standards will be resolved by the Central Bank through its Standards Committee.

Effective Date

Art. 28.- These Standards will enter into force as of January two, two thousand twenty-four.