Technical Standards for Pension Fund Investments

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 1 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022

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

I. That Article 7, letter d) of the Law on Supervision and Regulation of the Financial System, establishes that Pension Fund Administrators are subject to the supervision of the Superintendent of the Financial System.

II. That by Legislative Decree No. 614, of December 20, 2022, published in the Official Gazette No. 241, Volume No. 437, of December 21, 2022, the Comprehensive Pension System Law was issued, which created the Pension System for workers in the private, public, and municipal sectors, comprising the set of norms and measures that Pension Administrators will apply.

III. That in accordance with Article 82 of the Comprehensive Pension System Law, the objective of Pension Fund investments is to obtain adequate profitability under conditions of due security, liquidity, and risk diversification.

IV. That in accordance with Article 82, twelfth paragraph, of the Comprehensive Pension System Law, Pension Fund Administrators may acquire, with resources from Pension Funds, derivative instruments in organized markets in El Salvador or abroad, which have the exclusive objective of covering the risks of the investments made.

V. That Articles 82, 83, and 84 of the Comprehensive Pension System Law establish the limits for the investment of Pension Fund resources, which each Pension Fund Administrator must comply with.

VI. That Article 88 of the Comprehensive Pension System Law establishes that, within the limits established for the investment of Pension Funds, each Pension Fund Administrator will have freedom to design the investment policy of the Fund it administers, which must be kept available to the public.

VII. That Article 93 of the Comprehensive Pension System Law allows Pension Fund Administrators to hold in checking accounts and fixed-term deposits of up to 360 days, up to a maximum equivalent to ten percent of the asset of the Pension Fund they administer.

VIII. That Article 159 of Legislative Decree No. 614, which approved the Comprehensive Pension System Law, establishes that the Central Reserve Bank of El Salvador will issue the Technical Standards and Resolutions necessary to allow the development of what is established in the aforementioned Law.

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:

TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS

CHAPTER I OBJECTIVE, SUBJECTS, AND TERMS

Objective Art. 1.- These Standards aim to define the criteria and guidelines that will be applied to carry out investments with resources from Pension Funds by Pension Fund Administrators, and to establish the minimum elements that Pension Fund Administrators must include in the document containing the Investment Policy of the Pension Fund.

Likewise, these Standards regulate the guidelines that Pension Fund Administrators must apply for the acquisition of derivative instruments in organized markets in El Salvador or abroad that have the exclusive object of covering the risks involved in the investments of Pension Funds.

Subjects Art. 2.- The subjects obligated to comply with the provisions established in these Standards are the Pension Fund Administrators.

Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning: a) AFP: Pension Fund Administrator; b) Central Bank: Central Reserve Bank of El Salvador; c) Risk Classification: Financial analysis performed by a Risk Classifier, whose main purpose is the risk classification of securities offered to the public, and the results of which are disseminated in the financial market. Internationally known as Credit Rating; d) Risk Committee: In accordance with Article 80 of the Comprehensive Pension System Law;

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 2 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022 desarrollo de lo establecido en la referida Ley. POR TANTO,

ten virtud de las facultades normativas que le confiere el artículo 99 de la Ley de Supervisión y Regulación del Sistema Financiero, ACUERDA, emitir las siguientes:

NORMAS TÉCNICAS PARA LAS INVERSIONES DE LOS FONDOS DE PENSIONES

CAPÍTULO I OBJETO, SUJETOS Y TÉRMINOS

Objeto Art. 1.-Las presentes Normas tienen por objeto definir los criterios y lineamientos que se aplicarán para realizar las inversiones que con recursos de los Fondos de Pensiones realicen las Administradoras de Fondos de Pensiones y establecer los elementos mínimos que deberán incluir las Administradoras de Fondos de Pensiones en el documento que contenga la Política de Inversión del Fondo de Pensiones. Asimismo, en las presentes Normas se regulan los lineamientos que deberán aplicar las Administradoras de Fondos de Pensiones para la adquisición de instrumentos derivados en mercados organizados en El Salvador o en el extranjero que tengan como objeto exclusivo la cobertura de riesgos que conllevan las inversiones de los Fondos de Pensiones. Sujetos Art. 2.- Los sujetos obligados al cumplimiento de las disposiciones establecidas en las presentes Normas son las Administradoras de Fondos de Pensiones.

Términos Art. 3.- Para efectos de las presentes Normas, los términos que se indican a continuación tienen el significado siguiente: a) AFP: Administradora de Fondos de Pensiones; b) Banco Central: Banco Central de Reserva de El Salvador; c) Clasificación de Riesgo: Análisis financiero realizado por una Clasificadora de Riesgo, que tienen por finalidad principal la clasificación de riesgo de los valores objeto de oferta pública, y que se difundan los resultados del mismo, en el mercado financiero. Internacionalmente es conocido como Calificación de Riesgo; d) Comité de Riesgo: De conformidad al artículo 80 de la Ley Integral del Sistema de Pensiones;

e) Pension Fund: Refers to the Pension Fund mentioned in letter g) of Article 2 of the Comprehensive Pension System Law; f) FSV: Social Housing Fund; g) Instrument or security: Financial instrument; h) Derivative Instruments: Financial operations whose value is determined by the value of other financial instruments known as underlying assets, which have the exclusive object of covering the risks of the investments of Pension Funds and which, in accordance with what is established in Article 82 of the Comprehensive Pension System Law, may be carried out in organized markets in El Salvador or abroad; i) SP Law: Comprehensive Pension System Law; j) Primary Market: That in which issuers and buyers participate directly or through stockbrokerage firms, in the purchase and sale of securities offered to the public for the first time, in accordance with the Securities Market Law; k) Secondary Market: That in which securities are traded for the second or more times. In it, the issuers are no longer the offerors of said securities, in accordance with the Securities Market Law; l) Equity of Pension Funds: Composed of the set of Individual Savings Accounts for Pensions, the Solidarity Guarantee Account, Transfer Certificates that have been made effective, and the profitability of their investments, minus AFP commissions, as applicable; m) SP: Pension System; n) Superintendent: Superintendent of the Financial System; and o) Previsional Titles: By type of securities including Transfer Certificates, Complementary Transfer Certificates, and Previsional Obligations Certificates.

CHAPTER II GENERAL PROVISIONS

Art. 4.- Investments in securities acquired with Pension Fund resources must be carried out in a Salvadoran Stock Exchange; bank deposits and participation shares in open investment funds must comply with the requirements contemplated in the respective securities market legislation; have been subjected to a risk classification process where applicable; and be within the minimum classification established by the Risk Committee when applicable. Risk classification is exempt for Previsional Obligation Certificates.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 3 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022 Art. 5.- All instruments acquired by Pension Funds must comply with the requirements mentioned in the previous article and Article 87 of the SP Law. Additionally, preceded by the name of the corresponding AFP, in accordance with what is established in the second paragraph of Article 82 of the SP Law. Art. 6.- AFPs are authorized to invest Pension Fund resources in the securities market, in spot and cash operations, both in the primary and secondary markets, in accordance with what is established in the Securities Market Law, and other applicable regulations. Art. 7.- AFPs must report information on investments made in accordance with Article 19 of these Standards. Art. 8.- The directors of an AFP, its managers, administrators, and in general, any person who by reason of their position or role has access to privileged information regarding the operations, policies, and investment strategies of Pension Funds, must keep absolute confidentiality regarding these topics until such information becomes public. Likewise, the persons mentioned in the previous paragraph are prohibited from directly or indirectly using the reserved information to obtain for themselves or for others, other than the respective Pension Fund, advantages through the purchase or sale of securities. All of the foregoing without prejudice to administrative, civil, and criminal actions that may arise. Art. 9.- Investments made by the AFP, with resources from Pension Funds, in foreign securities and participation shares of Foreign Open and Closed Investment Funds, within authorized investment limits, may be carried out in both United States dollars and foreign currency, in accordance with what the Risk Committee establishes. Such investments must comply with regulations applicable to the Salvadoran Securities Market and to Investment Funds marketed in El Salvador. Art. 10.- The commissions, expenses, and fees incurred by the AFP for investments made with resources from Pension Funds, as well as the fees charged by deposit and custody societies for their services regarding financial instruments belonging to the Funds, will all be at the expense of the AFP. Art. 11.- In accordance with Article 93 of the SP Law, each AFP may hold in checking accounts and fixed-term deposits of up to 360 days, up to a maximum equivalent to ten percent of the asset of the Pension Fund it administers. AFPs, for diversification purposes, must establish within the Risk Management Policy a maximum percentage of concentration of fixed-term deposits of up to 360 days in the same financial entity supervised by the Superintendent, in order to manage the respective concentration risk.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 4 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022 On Investment Limits Art. 12.- AFPs are authorized to invest the resources of the Pension Funds they administer, according to the maximum limits within the ranges indicated in Article 82 of the SP Law established by the Risk Committee, and which are additionally subject to the provisions contained in the SP Law and in the Regulation on the Treatment of Investment Excesses of Pension Fund Resources. Investments in repos referred to in letter l) of Article 82 of the SP Law, in addition to being registered within the global limit of the aforementioned letter, will be considered within the calculation of limits by issuer, as applicable. Securities intended for the financing of infrastructure works with State participation Art. 13.- According to the SP Law, securities intended for the financing of infrastructure works that have the participation of the State through any dependency of the Central Government are subject only to the requirement of risk classification, in accordance with what is established by the Risk Committee, considering that the classifier societies use the methodology established for the type of security to be issued, considering the characteristics of the security and its structuring. Art. 14.- The Risk Committee will establish maximum limits, within the indicated ranges, for the following instruments: a) The total investments in shares issued by companies whose debt is greater than five times their equity, between 0% and 10% of the asset of the Pension Fund; b) The total investments in participation shares of Investment Funds whose portfolio is concentrated in more than 50% in the development of new companies, between 0% and 5% of the asset of the Pension Fund; c) The total investments in debentures with a term of more than one year issued by Salvadoran companies; shares and bonds convertible into shares of Salvadoran companies; financial instruments of the insured mortgage system or insured mortgage certificates; public offering securities issued by Salvadoran securitization companies, and fiduciary participation certificates; and in other public offering instruments, whose issuer has less than three years of operation, the limit will be determined between 0% and 10% of the asset of the Pension Fund; and d) Others determined by the Risk Committee, between 0% and 10% of the asset of the Pension Fund.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 5 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022 In any case, the sum of investments in the instruments indicated in this article will be restricted to a maximum investment limit to be set between 5% and 15% of the asset of the Pension Fund. Art. 15.- The Risk Committee will establish maximum limits for the total investments of Pension Funds in Deposit Certificates and Securities, issued or guaranteed by the same entity or business group, within the following ranges: a) Between 5% and 10% of the total asset of the Pension Fund; b) Between 5% and 20% of the asset of the issuer; and (1) c) Between 5% and 20% of the asset of the issuing business group. (1)

The Risk Committee will determine the limits for investments made with resources from Pension Funds in securities issued by Securitization Funds and Investment Funds, in relation to the asset of the Pension Fund. In this type of investments, limits relative to the asset of the issuer or business group indicated in letters b) and c) above will not apply.

Without prejudice to what is contemplated in the previous letters, the Risk Committee will establish investment limits, within the indicated ranges, for the investments of a Pension Fund in the following:

1. Securities of the same issuance, between 20% and 50% of said issuance;
2. Participation shares of the same Investment Fund, between 5% and 10% of the total asset of the Pension Fund; and
3. Direct or indirect investments in shares of the same company, between 5% and 15% of the capital of the issuing company. Art. 16.- When two or more Pension Funds are administered by affiliated companies, the investment limits indicated in these Standards apply to the sum of the investments of all Pension Funds administered by said companies. Art. 17.- It is prohibited for the AFP to invest the asset of the Pension Fund it administers in shares of the following entities: a) Securities issued by the State, the Central Reserve Bank of El Salvador, or any State Entity, with the exception of the Salvadoran Institute of Pensions; b) Pension Fund Administrators; c) Insurance Companies; d) Investment Fund Management Companies; e) Risk Classifier Companies; f) Stock Exchanges; g) Stockbrokerage Firms;

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 6 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022 h) Securities Custody and Deposit Companies; i) Price Providers; and j) Securitization Companies. Likewise, the AFP cannot grant or guarantee loans to its shareholders with resources from the Pension Fund, nor with its own resources. Art. 18.- In addition to the above prohibitions, the AFP cannot invest the resources of the Pension Fund it administers in securities issued or guaranteed by itself or its subsidiaries, nor by legal persons directly or indirectly related to the ownership or administration of the respective AFP. For the purposes of this article, persons will be considered related when they possess a minimum of three percent shareholding of the capital of the AFP, including the shares of the spouse and relatives in the first degree of consanguinity, in the case of natural persons, and administration will be limited to that exercised by the directors or managers of the entity. Related operations will also be considered the acquisition of securities issued or guaranteed by companies whose ownership is in any of the following circumstances: a) The companies in which a shareholder of the AFP, their spouse, and relatives in the first degree of consanguinity, own ten percent or more of the shares with voting rights, and at least three percent of the shares of the AFP; b) The company in which a director or manager of the AFP, their spouse, or relatives in the first degree of consanguinity, own ten percent or more of the shares with voting rights; c) The company in which two or more directors or managers of the AFP, their spouses, or relatives in the first degree of consanguinity, jointly own twenty-five percent or more of the shares; d) The company in which the shareholders, directors, or managers of an AFP, their spouses, or relatives in the first degree of consanguinity, jointly own twenty-five percent or more of the shares, and ten percent or more of the shares of the AFP in question; and e) Resources from Pension Funds cannot be invested in a company that is owned ten percent or more by another, in which the shareholders owning three percent or more of the AFP, the directors or administrators of the AFP, individually or jointly, own ten percent or more of the shares of the second referenced company.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 7 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022 Autonomous public institutions or companies are not considered related persons.

It is prohibited for the AFP to acquire, with resources from Pension Funds, securities of the related persons referred to in this article, which have the object of the development or alienation under any title of real estate. Likewise, resources from Pension Funds cannot be invested in securities issued or guaranteed by companies in which the AFP has shareholding participation.

Notwithstanding the above, the AFP may invest resources from Pension Funds it administers in deposit certificates and securities issued by related banks and financial institutions, up to a total of ten percent of the asset of the Pension Fund; in turn, this investment must not exceed five percent of the asset of the bank or financial institution, whichever is greater, and at the same time must comply with the rest of the investment limits.

AFPs must keep a register of natural and legal persons related to their ownership and administration, in accordance with the current legal and regulatory framework.

On Information to the Superintendent Art. 19.- AFPs will report to the Superintendent the purchase and sale movements of securities made with resources from Pension Funds, the valuation of the portfolio, the calculation of the share value and number of shares; as well as the collection of coupons and dividends generated by said investments, among others, in accordance with the formats and [missing text] for the Information Requirement to Pension Fund Administrators for the Control of [missing text] NSP-41), approved by the Central Bank through its Committee of Standards.

CHAPTER III MINIMUM ELEMENTS OF THE INVESTMENT POLICY OF PENSION FUND RESOURCES

Art. 20.- In accordance with what is established in Article 88 of the SP Law, within the limits established for the investment of the Pension Fund, each AFP will design and keep available to the public the Investment Policy of each type of Pension Fund it administers, in accordance with what is provided in Articles 26, 27, and 28 of these Standards. Art. 21.- The Investment Policy of the Pension Fund must be framed within the limits and prohibitions established in the SP Law, the agreements adopted by the Risk Committee, and what is established in these Standards, with the objective of obtaining adequate profitability under conditions of security, liquidity, and risk diversification.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 8 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022 Art. 22.- Each AFP will send to the Superintendent the documents containing the Investment Policies of the Pension Fund resources containing the following minimum elements: a) Name: Investment Policy of the Pension Fund AFP (Name of the AFP); b) Date of approval of the Investment Policy of the Pension Fund; c) Date of entry into force of the Investment Policy of the Pension Fund; d) Investment portfolio structure; e) List of positions of persons authorized to make investment decisions; f) Ethical and professional conditions required of internal or external personnel participating in the investment area; g) Internal control of compliance and modification of the Investment Policy of the Pension Fund, criteria and procedures to evaluate performance in investment management; h) Conflict of interest resolution policy, having as minimum elements the following: i. Definition and identification of potential conflicts of interest, derived from the function of administering pension resources with access to privileged information; ii. Criteria to prevent, manage, and overcome situations with conflict of interest that may affect the investment process, safeguarding at all events the interest of the Pension Funds; iii. Procedures and internal control norms that ensure adequate handling and resolution of conflicts of interest that may affect the AFP, its directors,

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 9 of 18 CNBCR-11/2022 NSP-53 TECHNICAL STANDARDS FOR THE INVESTMENTS OF PENSION FUNDS Approval: 12/30/2022 Validity: 12/30/2022 [End of provided text]