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
Validity: 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, in the exercise of its functions, may hire services such as advisory, asset management of the Fund, 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 referred services must be previously submitted to the Financial System Superintendence for review.

II. That Article 59 of the Asset Securitization Law establishes that the assets constituting 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 do not constitute securities; empowering the Board of Directors of the Securities Superintendence to issue technical standards regarding custody and the information that entities providing said service must submit to said Superintendence, now the Financial System Superintendence, 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 Financial System Superintendence.

IV. That Article 99, letter e), of the Law on Supervision and Regulation of the Financial System, regulates that it corresponds to 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
Validity: 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 applicable provisions to the custody service of securitized assets, specifically the following:
a) Operating requirements of custodians; b) Minimum content and formalities for the execution of Custody Contracts for assets and the procedure for their respective approval by the Financial System Superintendence; and c) Determination of the information that custodians must deliver and make available to the Financial System Superintendence, 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 Superintendence 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 these provide the custody service for securitized assets; except when it concerns the custody of dematerialized securities 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 present 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. Furthermore, 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 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 constituting 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 Financial System Superintendence; h) Superintendence: Financial System Superintendence; i) Representative of the Holders: Representative of Security Holders; and j) Securitization Company: Securitization society registered in the Financial System Superintendence.

CHAPTER II
OPERATING REQUIREMENTS THAT CUSTODIANS MUST OBSERVE

Operating Requirements
Art. 4.- Custodians must have a registration system for the custodied assets, which allows, among other aspects, the following:
a) Effective segregation and identification of the ownership of the custodied assets, whether for 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 certain 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 registration 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, so 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 the same, 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 registration and transfer of information of the assets and their ownership, for damages derived from natural events, theft, and others that the administration considers important; d) For willful acts, fraud, and improper handling of funds by the 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 the Custodians
Art. 8.- The services that any Custodian may provide, in accordance with the nature of the assets constituting the Funds, are the following:
a) The 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 appropriate; c) The exercise of patrimonial rights, when applicable, consisting of the administration of all events related to the assets under custody, such as the collection of amortizations, interest, or dividends, as appropriate; d) To make available to the Superintendence, 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 Superintendence.

Responsibilities of the Securitization Company Art. 9.- Notwithstanding that a Securitization Company hires a Custodian for the custody service of the Assets of the Fund, this does not exempt it from responsibility in matters of maturity control, collection of principal and interest, management of dividends, return of commissions, notifications, early redemption of assets, and other operations related to the handling of the assets of the Fund. Likewise, it will be the responsibility of each Securitization Company to ensure that there are adequate procedures so that the operation, custody, or deposit orders, as appropriate, 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 places, 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 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 Superintendence, 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 Superintendence 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 Superintendence, which will conclude once it has verified that the society to be contracted is registered in the Registry or is expressly authorized by Law for such effect and that in the respective contract compliance is given to the requirements demanded in the regulations issued by the Central Reserve Bank through its Committee of Standards.

NDMC-32

TECHNICAL STANDARDS FOR ENTITIES PROVIDING CUSTODY SERVICES FOR SECURITIZATION FUND ASSETS

Approval: 12/14/2023
Validity: 01/02/2024

CHAPTER III
ON THE MINIMUM CONTENT AND FORMALITIES FOR THE EXECUTION OF THE CUSTODY CONTRACT

Formalities for Execution
Art. 15.- The Custody Contract must be executed 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 executed 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 execution, and Notary before whom the contract for the transfer of assets by the Originator to the Fund was executed, and the registration number 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 Superintendence 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 said subcontracting;
ii. Detail of each of the Assets that are subject to custody, which may consist in a document attached to the Custody Contract, in which case, the authorizing notary and the contracting parties must sign and seal each of the pages constituting the annex. In the Custody Contract, it must also be indicated that the aforementioned annex 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 form, periodicity, and date of payment. Such specification may be recorded in an annex that must be an integral part of the contract;
iv. Specify the accepted means for the reception of orders dictated 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 enforced with the Assets of the Fund, 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, willful misconduct, 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 account opened at the Custodian and indication in case of existing sub-accounts associated with the main account;
xi. Record the faculty 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 subject to custody;
xiii. The faculty of the Superintendence, the Securitization Company, and the Representative of the Holders, to verify periodically or at any time, the situation of each of the Assets subject to 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 constitute the Fund.

NDMC-32

TECHNICAL STANDARDS FOR ENTITIES PROVIDING CUSTODY SERVICES FOR SECURITIZATION FUND ASSETS

Approval: 12/14/2023
Validity: 01/02/2024

d) Information Obligations of the Custodian
i. To permanently make available to the Superintendence, the Securitization Company, and the Representative of the Holders, information regarding movements produced in the Fund 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 account on which the custody service has been contracted. In any case, the obligation of the custodian to inform said events in printed form in the offices of the aforementioned entities must be recorded;
ii. To permanently make available to the Superintendence, 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 Superintendence to examine the ownership of the securities in custody in its facilities and in the respective electronic records;
iii. To provide any kind of information requested by the Superintendence based on the faculty established in Article 32 of the Law on Supervision and Regulation of the Financial System;
iv. To 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. To inform in writing and immediately to the Securitization Company, the Representative of the Holders, and the Superintendence, of any relevant fact that affects or may negatively affect the Custodied Assets; and
vi. To 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 for expiration or early termination of the Custody Contract, providing that the Fund securities do not remain 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 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.

NDMC-32

TECHNICAL STANDARDS FOR ENTITIES PROVIDING CUSTODY SERVICES FOR SECURITIZATION FUND ASSETS

Approval: 12/14/2023
Validity: 01/02/2024

CHAPTER IV
PROCEDURE FOR THE REVIEW OF CUSTODY CONTRACT PROJECTS

Request for Review of the Contract Project
Art. 17.- The Securitization Company must request from the Superintendence prior to its execution, the review of the Custody Contract project, as well as any of its modifications or extensions,