Technical Standards for the Authorization of Share Transfers of Banks, Investment Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies

NRP-55
OF BANKS, INVESTMENT BANKS,
EXCLUSIVE PURPOSE HOLDING COMPANIES AND SAVINGS AND CREDIT SOCIETIES Approval: 02/29/2024 Validity: 03/15/2024

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

CONSIDERING:

I. That Article 11 of the Banks Law and Article 8 of the Investment Banks Law establish that natural or legal persons may be holders of shares in a bank or investment bank, respectively, representing more than one percent of the institution's capital, subject to prior authorization from the Financial System Superintendence. (1)

II. That Article 12 of the Banks Law and Article 18 of the Investment Banks Law establish the requirements that natural and legal persons considered relevant shareholders and direct relevant shareholders, respectively, must meet. (1)

III. That Article 14 of the Banks Law and Article 9 of the Investment Banks Law establish the timeframe within which banks or investment banks, respectively, must send to the Financial System Superintendence the report on share transfers registered in their Shareholder Register, which must be sent within the first ten business days of each month. Likewise, they must send a list of shareholders at the close of each fiscal year, within a period not exceeding thirty days after said close. (1)

IV. That Article 120 of the Banks Law establishes that the shares corresponding to the investments of the controlling company may be encumbered or transferred with the authorization of the Financial System Superintendence.

V. That Article 121 of the Banks Law establishes that, exclusive purpose holding companies shall be subject to the provisions on organization, administration, ownership, and functioning established in Articles 5 through 21 of said Law.

VI. That Article 125 of the Banks Law establishes that, the controlling company, with prior authorization from the Financial System Superintendence, may alienate at any time, totally or partially, the shares that are its property. The Financial System Superintendence will authorize such sales when they do not affect the consolidated equity requirement of the controlling company. When for any reason the exclusive purpose holding company loses majority share ownership of a member company, it must alienate the remaining shares within one hundred eighty days of losing majority ownership, except when the investment is joint.

NRP-55
OF BANKS, INVESTMENT BANKS,
EXCLUSIVE PURPOSE HOLDING COMPANIES AND SAVINGS AND CREDIT SOCIETIES Approval: 02/29/2024 Validity: 03/15/2024

VII. That Article 189, first paragraph, of the Banks Law establishes that, persons who acquire shares of banks in violation of the provisions of Articles 10, 11, and 12 of said Law, shall be suspended in the exercise of the right to vote; and additionally shall be sanctioned by the Financial System Superintendence with a fine of up to four hundred minimum monthly salaries, depending on the gravity of the infringement, its recurrence, and the economic capacity of the infringer.

VIII. That Article 209, letter a), of the Banks Law establishes that, banks may not carry out credit operations with guarantees of their own shares or with guarantees of shares of other banks or with guarantees of shares of companies belonging to the same Financial Conglomerate.

IX. That Article 209, letter b), of the Banks Law establishes that, banks may not grant loans to a person to subscribe to shares of their own capital or shares of companies belonging to the same Financial Conglomerate.

X. That Article 155 of the Cooperative Banks and Savings and Credit Societies Law establishes that, except as provided in Book Four of said Law, Savings and Credit Societies shall be subject to the provisions of the Banks Law.

XI. That Article 157 of the Cooperative Banks and Savings and Credit Societies Law establishes that, the provisions of the Banks Law contained in Title Two, relating to organization, administration, and functioning, shall apply to Savings and Credit Societies, with the modifications described in said article.

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 AUTHORIZATION OF SHARE TRANSFERS OF BANKS, INVESTMENT BANKS, EXCLUSIVE PURPOSE HOLDING COMPANIES AND SAVINGS AND CREDIT SOCIETIES (1)

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

NRP-55
OF BANKS, INVESTMENT BANKS,
EXCLUSIVE PURPOSE HOLDING COMPANIES AND SAVINGS AND CREDIT SOCIETIES Approval: 02/29/2024 Validity: 03/15/2024

Object
Art. 1.- These Standards aim to establish the requirements and procedures that interested parties must fulfill to obtain authorization to acquire shares of banks, investment banks, exclusive purpose holding companies, and savings and credit societies, in a percentage greater than one percent or ten percent of the issuing entity's social capital, and to establish the procedures and requirements that banks or exclusive purpose holding companies must fulfill, derived from the transfer of shares. (1)

Subject
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are:
a) Banks; b) Exclusive purpose holding companies; c) Savings and credit societies; d) Shareholders of banks, exclusive purpose holding companies, and savings and credit societies; (1) e) Natural and legal persons intending to acquire shares of banks, exclusive purpose holding companies, or savings and credit societies, in excess of one percent or by an amount equal to or greater than ten percent; and (1) f) Investment Banks. (1)

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Entity: Refers to Banks, Investment Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies; (1) b) Central Bank: Central Reserve Bank of El Salvador; c) Repealed (1); and d) Superintendence: Financial System Superintendence.

CHAPTER II
INFORMATION REQUIREMENTS ON SHARE TRANSFERS

Art. 4.- Any natural or legal person must request authorization from the Superintendence to acquire more than one percent of the share capital of an entity or when intending to acquire a percentage equal to or greater than ten percent.

For the determination of more than one percent mentioned in the first paragraph of this article, the applicant's own participation shall be added to the proportion corresponding to them when they participate in the equity of legal persons that are shareholders of the entity. In the case of more than ten percent, the shares of the holder or applicant shall be added to those of the spouse, relatives within the first degree of consanguinity, and the proportional share corresponding to them in shareholder companies of the entity, depending on the entity where they intend to acquire the shares.

When it concerns the acquisition of shares of an entity, the participation corresponding to them in the exclusive purpose holding company shall be added.

Application for authorization of share transfer Art. 5.- Interested parties in the transfer of shares of Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies, must present the application in accordance with the models established in Annexes No. 1 and 2 of these Standards, and in the case of Investment Banks, according to the models of Annexes No. 8 and 9 of these Standards, incorporating the following documentation:

(1) a) Sworn declaration, according to the models of Annexes No. 3, 4, and 5 of these Standards, in which they state that they are not in any of the circumstances established in Article 14 of these Standards, explicitly mentioning each of them. When it concerns the acquisition of shares of an Investment Bank, the sworn declaration must state that they are not in any of the causes indicated in Article 17 of the Investment Banks Law, according to the models of Annexes 10 and 11 of these Standards. (1)

This declaration must indicate that the funds for the acquisition of the shares come from legitimate activities, as well as the immediate source of obtaining the resources. When the applicant is a legal person, the sworn declaration must be signed by the legal representative;

The information referred to in this letter must be accompanied by documentation proving the origin of the funds;

b) Certificate issued by the Attorney General's Office, certifying that no judicial participation has been proven in activities related to drug trafficking and related crimes, and with money laundering, terrorism financing, and financing of the proliferation of weapons of mass destruction; or sworn declaration of the applicant, granted before a Notary, according to the model of Annex No. 6 of these Standards; (2)

c) Certificate issued by the General Directorate of Penal Centers, or sworn declaration of the applicant, issued before a Notary, of having no criminal records, according to the model of Annex No. 7 of these Standards;

d) Copy of the Unique Identity Document (DUI), when the applicant is a Salvadoran natural person;

e) Certified copy of the passport, when the applicant is a foreign natural person;

f) Copy of the Tax Identification Number (NIT), which shall be in accordance with what is established by the Tax Administration;

g) The last audited financial statements with their corresponding opinion and notes, when by legal provision the applicant is obliged to have an external auditor; in the case that the application is presented after June 30, the last trial balance must be attached, if the applicant is obliged to keep formal accounting;

h) Certification mentioning the names of the main shareholders or partners of the legal person applicant, with their corresponding equity participation;

i) Updated credentials of the Board of Directors of the applicant entity;

j) Share transfer agreement signed between the parties, in case the share acquisition is more than fifty percent of participation;

k) Resolution issued by the Competition Superintendence regarding economic concentration, in cases where such authorization is required in accordance with the Competition Law; and

l) In the case of being a legal person, report signed by the Compliance Officer or their equivalent according to the legislation of the country of origin of the applicant entity, regarding the due diligence of the origin of the funds (sources of funds, and verification of documentation) and regarding due diligence in the knowledge of the contributing shareholders, providing documentary evidence in each case. The previous requirements are extendable to their shareholders with participation equal to or greater than ten percent and Board of Directors members.

The application 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 10 of these Standards will begin to run from the next business day after the application has been presented.

Certification
Art. 6.- In the case of Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies, when the transfer of shares is one that requires authorization according to these Standards, said entities must obtain certification of the corresponding authorization granted by the Superintendence, prior to registration in the shareholder register. (1)

In the case of Investment Banks, when as a result of a share transfer, a shareholder owns more than ten percent of the capital of said Bank, the referred entity must obtain certification of the corresponding authorization granted by the Superintendence, prior to registration in the shareholder register. (1)

Share transfer report
Art. 7.- The share transfer carried out in accordance with what is established in these Standards must be communicated to the Superintendence in accordance with the "Technical Standards for the Information Collection Procedure for the Shareholder Register" (NRP-37), approved by the Central Bank through its Committee of Norms.

NRP-55
OF BANKS, INVESTMENT BANKS,
EXCLUSIVE PURPOSE HOLDING COMPANIES AND SAVINGS AND CREDIT SOCIETIES Approval: 02/29/2024 Validity: 03/15/2024

Presentation of sworn declaration
Art. 8.- In the case of Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies, shareholders holding more than one percent of the shares of certain entities must present to the Superintendence within the first ninety days of each year, through the entity, a sworn declaration in which they state that they are not in any of the circumstances established in Article 11 of the Banks Law. (1)

Presentation of financial statements
Art. 9.- Those who are holders of shares of an entity by a sum equal to or greater than ten percent of the social capital, in addition to what is established in Article 8 of these Standards, must present to the Superintendence within the first one hundred twenty days of each year, through the respective entity, their annual audited financial statements by an auditor registered in the External Auditors Register kept by the Superintendence.

In the case that the shareholder is a foreign entity, they must be audited by an internationally recognized audit firm.

CHAPTER III
AUTHORIZATION FOR THE TRANSFER OF SHARES

Procedure for the authorization of the transfer of shares Art. 10.- Upon receipt of the application for authorization for the transfer of shares, in accordance with what is established in Article 5 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined in the Banks Law, Investment Banks Law, and these Standards, having a maximum period of up to twenty business days for the authorization or denial of the corresponding application. (1)

If the application is not accompanied by the complete and proper information detailed in Article 5 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 interested parties when there are reasons justifying it.

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 application, reserving their right to present a new application.

If after the analysis of the documentation presented according to Article 5 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

NRP-55
OF BANKS, INVESTMENT BANKS,
EXCLUSIVE PURPOSE HOLDING COMPANIES AND SAVINGS AND CREDIT SOCIETIES Approval: 02/29/2024 Validity: 03/15/2024

will notify the applicant to remedy the deficiencies communicated or to present additional documentation or information required by the Superintendence.

The applicant will have a maximum period of ten business days counted from the next business day after 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 deficiencies notified so requires.

Extension period
Art. 11.- The applicant may present to the Superintendence a request for extension of the period indicated in the fifth paragraph of Article 10 of these Standards, before the expiration of said period, must express the grounds on which it is based and propose, if applicable, the relevant proof.

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

Suspension of the period
Art. 12.- The period of twenty business days indicated in the first paragraph of Article 10 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.

Resolution
Art. 13.- Once the complete and proper documentation is presented, the Superintendence will respond to the application for authorization for the transfer of shares through a resolution.

The Superintendence will proceed to notify the interested party and the corresponding entity of the resolution in which it authorizes or denies the application for authorization for the transfer of shares, within a maximum period of three business days from the date of issuance.

Regarding the denial of the application
Art. 14.- In the case of Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies, the Superintendence will deny the application to persons who are in any of the following cases: (1)

a) In a state of bankruptcy, suspension of payments, or creditors' agreement; b) Who has been convicted of any intentional crime; c) Who has been judicially proven to participate in activities related to drug trafficking and related crimes and with money laundering, terrorism financing, and financing of the proliferation of weapons of mass destruction; (2)

d) Who is a debtor of the Financial System for credits to which a reserve for stabilization of fifty percent or more of the balance has been required;

e) Who has been an administrator, director, manager, or official of an entity of the Financial System, in which administrative responsibility is demonstrated for said entity, since the validity of the Law on Privatization of Commercial Banks and Savings and Loan Associations, to have incurred:

i. Equity deficiencies of twenty percent or more of the minimum required by the Banks Law; (1)

ii. That has received contributions from the State or the Deposit Guarantee Institute for its stabilization;

iii. That has been intervened by the competent regulatory body; or

iv. That has been restructured and as a consequence, its authorization to operate as a bank has been revoked.

When it concerns the legal representatives, general manager, executive director, and directors with executive positions of financial entities, it will be presumed that they have had responsibility for any of the circumstances mentioned above. The presumption shall not apply in the case of those persons who ceased their functions two years before such situation occurred, nor to those who participated in the stabilization of financial institutions, based on what is prescribed in the Law on Stabilization and Strengthening of Commercial Banks and Savings and Loan Associations, without prejudice to the responsibility incurred subsequently to said stabilization;

f) Who has been convicted administratively or judicially for serious infringement of the laws and regulations governing the financial system, especially the collection of funds from the public without authorization, the granting or receipt of loans exceeding the permitted limit, and financial crimes;

g) Who cannot demonstrate the legitimate origin of the funds to acquire shares, either because they refuse to provide the information or if it is incomplete;

h) Who their financial and equity situation is not economically proportional to the value of the shares they intend to acquire;

i) Who are persons who were holders of more than one percent of the shares of an entity, which were fully cancelled to absorb losses; and

j) When it concerns relevant shareholders who have share participation in another entity equal to or greater than one percent; for the determination of this percentage, direct and indirect participation will be taken into account

NRP-55
OF BANKS, INVESTMENT BANKS,
EXCLUSIVE PURPOSE HOLDING COMPANIES AND SAVINGS AND CREDIT SOCIETIES Approval: 02/29/2024 Validity: 03/15/2024