Technical Standards for the Diversification of Investments of Guarantee Societies and Reinsurance Companies of Guarantee Societies

CNBCR-11/2023
NRP-49
TECHNICAL STANDARDS FOR THE DIVERSIFICATION OF THE INVESTMENTS OF GUARANTEE COMPANIES AND REINSURANCE COMPANIES OF GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024 Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv

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

CONSIDERING:
I. That Article 62 of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes the investment regime for Guarantee Companies, stipulating the limits and types of securities in which they may invest their liquid resources.
II. That Article 63 of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes the diversification limits by issuer and issuance that a Guarantee Company may not exceed, in investments in deposits and securities issued or guaranteed by the same entity or business group.
III. That Article 88, letter a) of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes that Reinsurance Companies are prohibited from investing their resources in shares and participations of companies.
IV. That Article 7, letter h) of the Law of Supervision and Regulation of the Financial System establishes that the Superintendence of the Financial System is responsible for the supervision of Guarantee Companies and their local Reinsurance Companies.
V. That Article 99, third paragraph, letter a) of the Law of Supervision and Regulation of the Financial System establishes that it is the responsibility of the Committee of Standards of the Central Reserve Bank of El Salvador to approve technical standards on any other aspect inherent to risk management by the supervised entities.
VI. That in accordance with Article 101, fourth paragraph of the Law of Supervision and Regulation of the Financial System, the powers to approve, modify and repeal technical standards that must be complied with by the members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador.

THEREFORE,

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

AGREES to issue the following:

TECHNICAL STANDARDS FOR THE DIVERSIFICATION OF THE INVESTMENTS OF GUARANTEE COMPANIES AND REINSURANCE COMPANIES OF GUARANTEE COMPANIES

CHAPTER I
OBJECT, SUBJECTS AND TERMS

Object
Art. 1.- These Standards aim to establish the investment regime for Guarantee Companies and Reinsurance Guarantee Companies, considering for this purpose the limits and diversification.

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are:
a) Guarantee Companies; and b) Reinsurance Companies of Guarantee Companies.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Central Bank: Central Reserve Bank of El Salvador; b) Development Bank: Development Bank of the Republic of El Salvador; c) Business Group: In accordance with Article 5 of the Securities Market Law, it is that in which a company or set of companies has a common controller, who acting directly or indirectly participates with fifty percent (50%) as minimum in the share capital of each of them or that have common shareholders who, directly or indirectly, are holders of fifty percent (50%) as minimum of the capital of another company, which allows to presume that the economic and financial performance is determined by common interests or subordinate to the group; d) Law: Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises; e) Liquid Resources: Cash, bank deposits and investments in financial instruments; f) Reinsurance Company(ies): Reinsurance Company(ies) of Guarantee Companies; g) Company or Companies of Guarantee: Company or Companies of Guarantee Reciprocal; h) Affiliated Company: According to what is established in Article 5 of the Securities Market Law, it is that in which another company, called the controlling one, without controlling it, participates in its share capital, directly or through other companies, with more than ten percent (10%) of the shares with voting rights; and i) Superintendence: Superintendence of the Financial System.

CHAPTER II
CLASSES AND LIMITS IN INVESTMENTS

Investment of liquid resources
Art. 4.- Guarantee Companies must invest at least eighty percent (80%) of their liquid resources in the following financial instruments and according to the respective percentages, as follows:
a) Deposit Certificates from financial institutions supervised by the Superintendence, up to 15%; b) Securities issued by the Ministry of Finance, up to 40%; c) Securities issued by the Central Bank, up to 40%; d) Securities issued by the Development Bank, up to 40%; e) Securities issued by autonomous or official credit institutions, excluding the Social Housing Fund, up to 20%; f) Securities issued by the Social Housing Fund, up to 15%; g) Securities issued by Banks, up to 30%; h) Shares and convertible securities of national companies, up to 10%; and i) Other public offering instruments, up to 20%. All the instruments detailed, with the exception of deposit certificates referred to in letter a) of this article, when applicable, must be registered in a Stock Exchange of El Salvador, comply with the requirements of the respective Salvadoran securities market legislation and have been subjected to a risk classification by classifiers authorized by the Superintendence. Securities issued by the Ministry of Finance, Central Bank and Development Bank are exempt from risk classification.

For the case of Reinsurance Companies, the content of this article will be applicable, except for letter h) in order to comply with letter a) of Article 88 of the Law.

Diversification limits by issuer and issuance
Art. 5.- The sum of investments in deposits and securities issued and guaranteed by the same entity or business group may not exceed the following limits:
a) 20% of the total assets of the Guarantee Company or Reinsurance Company, at the start of its operations, or in general, on December 31, or June 30 of the last accounting year, the date closest to the operation; b) 20% of the issuer's assets; and c) 20% of the assets of the issuing business group. The diversification by issuer and issuance will be detailed in accordance with Annex No. 2.

Investments in securities issued or guaranteed by the Ministry of Finance, the Central Bank and the Development Bank are exempt from this provision. In the event that two or more Guarantee Companies are affiliated, it shall be understood that the limits indicated in this article apply to the sum of the investments of all affiliated companies.

Calculation period and submission of information Art. 6.- Guarantee Companies and Reinsurance Companies must calculate the limits of their investments at least at the end of each month. The results will be sent to the Superintendence within the first five business days of the following month, according to Annexes Nos. 1 and 2, with the entity's seal and the signature of the manager or whoever holds an equivalent position; except for those corresponding to the months of June and December of each year, in which cases they will be sent within the first ten business days of the immediately following month. Notwithstanding the foregoing, the Superintendence may request the calculation on any date it deems convenient.

Valuation of investments
Art. 7.- For the calculation of the limits established in these Standards, investments will be taken at their net value of reserves for restructuring or for loss of value or any other estimate to adequately value the assets.

CHAPTER III
OTHER PROVISIONS AND VALIDITY

Sanctions
Art. 8.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law of Supervision and Regulation of the Financial System.

Repeal
Art. 9.-
Investments of Guarantee Companies and Reinsurance Companies of -01), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-42/2003 of October 8, 2003, whose Organic Law was repealed by Legislative Decree No. 592 which contains the Law of Supervision and Regulation of the Financial System, published in the Official Diary No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen aspects
Art. 10.- Aspects not provided for in the matter of regulation in these Standards

will be resolved by the Central Bank through its Committee of Standards.

Validity
Art. 11.- These Standards will enter into force from January 2, 2024.

Annex No. 1
DETERMINATION OF LIQUID RESOURCES

NAME OF THE SGR or RSGR: ______________________________________________

REFERENCE DATE: __________________________

Concept value
111 Available Funds $
112 Temporary Acquisition of Documents
113 Financial Investments
Total Liquid Resources $

Investment Requirement (80% of liquid resources) $ Signature of responsible official:_____________________________ Entity Seal: ______________

NAME OF THE GUARANTEE COMPANY OR REINSURANCE COMPANY:
INVESTMENTS AT:
Legal Basis
CONCEPT Minimum Investment % of Investment Investments Required Required Computable Art.62, lit a) Deposit Certificates from Financial Institutions supervised by the Superintendence $ 15 - (Detail Financial Inst., No. of Deposit, interest rate, granting, maturity, and term) Art.62, lit b) Securities issued by the Ministry of Finance $ 40 - (Detail instrument class, denomination, series and issuance) Art.62, lit c) Securities issued by the Central Reserve Bank of El Salvador 40 - (Detail instrument class, denomination, series and issuance) Art.62, lit d) Securities issued by the Development Bank of the Republic of El Salvador $ 40 -

(Detail instrument class, denomination, series and issuance) Art.62, lit e) Securities issued by autonomous or official credit institutions, excluding the FSV $ 20 - (Detail issuing institution, instrument class, denomination, series and issuance) Art.62, lit f) Securities issued by the Social Housing Fund 15 - (Detail instrument class, denomination, series and issuance) Art.62, lit g) Securities issued by Banks $ 30 - (Detail issuing institution, instrument class, denomination, series and issuance) Art.62, lit h) Shares and convertible securities of national companies $ 10 -

(Detail the class of shares, value of the shares, numbers of the share certificates; denomination, domicile and term of the issuing company of the shares) (Not applicable for Reinsurance Companies) Art.62, lit i) Other public offering instruments $ 20 - (Detail issuing institution, instrument class, denomination, series and issuance) T O T A L S . . . $ -
Annex No. 2
COMPUTABLE INVESTMENTS
(Article 62 of the Law of Guarantee Companies) ---

Technical Standards for the Diversification of Investments of Guarantee Societies and Reinsurance Companies of Guarantee Societies

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