Technical Standards for the Establishment of Foreign Bank Branches

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

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

CONSIDERING:

I. That Article 26 of the Banks Law establishes that banks constituted in accordance with foreign laws that propose to establish branches in the country, to carry out banking operations through them, must obtain prior authorization from the Superintendency of the Financial System.

II. That Article 27 of the Banks Law establishes the requirements that foreign banks proposing to request the authorization referred to in Article 26 of the same Law from the Superintendency of the Financial System must observe.

III. That Article 28 of the Banks Law specifies the procedure to obtain authorization so that a foreign bank can establish itself and operate in the country.

IV. That Article 29 of the Banks Law establishes that foreign banks authorized to operate in the country will be subject to inspection and supervision by the Superintendency of the Financial System under the same terms as Salvadoran banks.

V. That Article 4, letter e) of the Law on Supervision and Regulation of the Financial System establishes that the Superintendency of the Financial System will have the power to authorize institutions or entities constituted in accordance with foreign laws that propose to operate as branches in the country and to authorize their closure.

VI. That Article 7, letter b) of the Law on Supervision and Regulation of the Financial System establishes that the supervision of branches of foreign banks established in the country corresponds to the Superintendency of the Financial System.

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 ESTABLISHMENT OF FOREIGN BANK BRANCHES

NRP-40
TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

CHAPTER I
OBJECT, SUBJECTS AND TERMS

Object
Art. 1.- These Standards aim to regulate the requirements and procedures that banks constituted in accordance with foreign laws must fulfill so that the Superintendency of the Financial System authorizes them to establish branches in El Salvador.

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are foreign banks interested in establishing branches in El Salvador.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Supervisory Authority: The authority responsible for the supervision of the foreign bank in the country of origin; b) Competent Authority: The authority responsible for authorizing an entity to function as a bank in its country of origin, which may or may not be the Supervisory Authority; c) Central Bank: Central Reserve Bank of El Salvador; d) Foreign Bank: Institutions or entities constituted in accordance with foreign laws authorized to operate as banks in their country of origin; e) Identity Document: May be the Unique Identity Document, Passport, or Residence Card, as applicable; f) Senior Executive: The President, Executive President, Executive Director, General Manager, or acting equivalent, and the executive positions reporting to them; g) Law: Banks Law; h) Branch: An office physically separate from the head office or central office, which may carry out those operations permitted and authorized by the competent authority of the country of origin, whose accounting is part of the consolidated financial statements of the head office; and i) Superintendency: Superintendency of the Financial System.

CHAPTER II
AUTHORIZATION PROCEDURE

Submission of Documents
Art. 4.- The foreign bank interested in establishing a branch in El Salvador must submit to the Superintendency the authorization request, signed by its legal representative or authorized attorney for these purposes, and it must be accompanied by the following documentation:
a) Deed of incorporation, bylaws, and any other document that proves the legal existence of the head office and the power to establish branches abroad; b) Certificate from an internationally known risk rating agency certifying that the head office of the applicant bank is classified as first-line; c) Economic and financial feasibility study that includes financial bases for the operations to be developed and commercial plans, as well as an organizational and administrative scheme of the company. This study must be prepared by a professional with extensive experience in the formulation and evaluation of projects or by a company backed by professionals of that category. The minimum content of the study is presented in Annex No. 1 of these Standards; d) Certificate issued by the competent authority, stating that the applicant entity is authorized to operate as a bank in the country of origin; e) Agreement of the head office authorizing the establishment of the branch in El Salvador; f) Authorization issued by the competent authority of the head office for the establishment of the branch in El Salvador; g) Report issued by the supervisory authority of the head office, containing a description of the prudential regulation to which it is subject; h) Certification of the agreement of the corresponding body of the applicant institution, in which there is an express declaration that they commit to:
i. Maintain permanently in the Republic of El Salvador, at least one representative with broad and sufficient powers to carry out all acts and contracts that must be celebrated and have effect in the national territory; for which they must grant a power of attorney to the representative in which it must be expressed clearly and precisely that the represented institution obligates itself to respond unlimitedly inside and outside the country for the acts and contracts celebrated in El Salvador, for which the formalities required by Salvadoran law and those of the country of origin of the head office must be complied with;
ii. Submit to the laws, courts, and authorities of El Salvador, regarding the acts and contracts celebrated in Salvadoran territory and that are to have effect therein; and
iii. Establish and maintain in the country the amount of capital and capital reserves that, according to the Law, corresponds to Salvadoran banks.
i) Basic financial statements of the last five years, with the corresponding external auditor's opinion; j) Report from the supervisory authority of the head office, regarding the financial situation of the latter, for the last five years;

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

k) Ratings of the last five years, issued by internationally recognized rating agencies; l) For future senior executives within the branch:
i. Curriculum Vitae;
ii. Sworn declaration of not having the disqualifications indicated in Article 33 of the Law, according to the model contained in Annex No. 2 of these Standards; and
iii. When applicable, certificate issued by the General Directorate of Penal Centers, stating no criminal record or sworn declaration before a notary.
m) Name of the firm that will conduct the external audit of the branch. This must be registered in the Register of External Auditors of the Superintendency; n) Sworn declaration or valid certification, indicating that the entity has an information security management program, business continuity plans, tests developed and test results, capacity to recover and resume service in the event of interruptions; o) Report on the compliance of information security management and business continuity; and p) Current audit report that includes compliance with the aspects established in letters n) and o) of this article. The request and documentation may be submitted through the means made available by the Superintendency, which may be electronic. In any case, the deadline referred to in the first paragraph of Article 7 of these Standards will begin to run from the next business day after the request has been submitted.

Legalization of Documents
Art. 5.- The documents mentioned in Article 4 of these Standards, except those contained in letters c), i), o) and p), must comply with the apostille procedure, in the case of countries 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 where such documents originate. The documentation presented originating from abroad, both photocopies and signatures appearing therein, must be authenticated or certified by a notary or foreign official, as applicable, following the respective procedure for legalization of signatures or apostille. Art. 6.- Documentation originating from a foreign country, written in a language other than Spanish, to have effect in El Salvador, must be translated into this language, in accordance with the Law on Notarial Practice of Voluntary Jurisdiction and Other Proceedings.

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

Authorization Procedure for Establishing Foreign Bank Branches Art. 7.- Upon receipt of the authorization request to establish foreign bank branches in accordance with Articles 4, 5, and 6 of these Standards, the Superintendency will proceed to verify compliance with the requirements defined in the Law and these Standards, having ninety days counted from the date of submission of the request and prior to the report from the Central Bank referred to in Article 13 of these Standards, for the authorization or denial of the authorization request to establish foreign bank branches.

If the request is not accompanied by complete and properly formatted information, as detailed in Articles 4, 5, and 6 of these Standards, the Superintendency, 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 Superintendency 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 submit a new request, which will give rise to a new procedure. If after the analysis of the documentation presented in accordance with Articles 4, 5, and 6 of these Standards, the Superintendency has observations or when the documentation or information presented is not sufficient to establish the facts or information intended to be accredited; the Superintendency will notify the respective applicant to remedy the deficiencies communicated or 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 Superintendency. The Superintendency 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. 8.- The applicant may submit to the Superintendency a request for extension of the period indicated in the fifth paragraph of Article 7 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.

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

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. 9.- The ninety-day period indicated in the first paragraph of Article 7 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 Superintendency are remedied.

Publication of Future Senior Executives
Art. 10.- The Superintendency, prior to granting the respective authorization, and at the expense of the interested parties, must publish the list of future senior executives of the branch, with the objective that any person who has knowledge that the aforementioned do not meet the requirements that the Law establishes for directors, may object to the status of these subjects for the performance of the position. The publication referred to in the previous paragraph, will be carried out only once in two printed media of national circulation or another digital publication platform with greater or equal coverage, or on its website, in accordance with the current legal framework. The publication aims to allow any person who has knowledge that any of the disqualifications contained in Article 33 of the Law, applies to the future senior executives who will be part of the foreign bank branch, to object to them. Objections must be submitted in writing to the Superintendency within a period of fifteen days counted from the day following the publication, attaching the relevant proof. The information will be confidential. The Superintendency will notify the person objected to, who must appear within the period of eight business days counted from the respective notification, must pronounce on the opposition raised, being able to attach all kinds of proof tending to support their arguments. After the aforementioned period concludes, the Superintendency will resolve within ten business days on the alleged disqualifications, must notify this circumstance in the manner previously provided. If any future senior executive is declared ineligible according to what is established in the Law to hold such status, the applicants must send to the Superintendency within a period of thirty days a new list in which the corresponding future senior executive has been excluded, attaching all documentation concerning the person who replaces them.

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

Notwithstanding the above, at any time during the authorization process, the Superintendency may ex officio or at the request of a party declare the ineligibility, prior to a hearing of the person objected to within the period of eight business days counted from the day following the notification, to exercise their right to defense. After the aforementioned period concludes, the Superintendency will resolve within ten business days on the alleged disqualifications, must notify this circumstance in the manner previously provided.

Modifications in Documentation
Art. 11.- If during the period referred to in the first paragraph of Article 7 of these Standards, any change occurs in the information or documentation presented to the Superintendency in accordance with Article 4 of these Standards, the applicants must send to the Superintendency the updated information or documentation, within five days following the occurrence of the change. Additionally, when a change occurs in the information published in the notice referred to in Article 10 of these Standards, the publication must be repeated under the same terms and periods established in said article.

Memorandum of Cooperation
Art. 12.- Prior to granting the respective authorization, the Superintendency will sign a memorandum of cooperation with the supervisory authority of the country of the head office of the applicant bank, with the objective of coordinating the exchange of information and the mechanisms that enable consolidated supervision, ensuring the confidentiality of such information.

Report from the Central Bank
Art. 13.- In addition to the information required from foreign banks, the Superintendency must have a report from the Central Bank, for which it will provide the necessary data.

The Central Bank will have a period of fifteen business days counted from the receipt of the request by the Superintendency, to send the report referred to in the first paragraph of this article.

Resolution
Art. 14.- Upon receipt of the Central Bank's report, the Superintendency will approve or deny the authorization request to establish foreign bank branches.
In case all requirements established in the Law have been met, the Superintendency will grant the established permit and authorization to operate when, in its judgment, the projected financial bases, as well as the seriousness, solidity, and responsibility of the institution, offer protection to the interests of the public.

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

When the resolution is favorable, the inscription in the Commercial Register of the constitutive instruments of the institution in question or a certification of the same will be authorized in the same. If the resolution is denying, the notification will contain in a reasoned manner the causes for which it is denied. The Superintendency will proceed to communicate the corresponding resolution to the applicant within a maximum period of three business days, from the date of its issuance.

CHAPTER III
START OF OPERATIONS

Deposit and Submission of Manuals
Art. 15.- Within a period of ninety calendar days counted from the date of notification of the resolution containing the authorization for inscription in the Commercial Register, the applicants must deposit in the Central Bank the capital assigned to the branch; and submit the manuals of functions and operational procedures, with the requirements contained in Annex No. 3 of these Standards, and the description of the furniture and equipment to be used, the surveillance systems, and the insurance to be contracted.

Authorization of Start of Operations
Art. 16.- Having fulfilled all requirements, verified their internal controls and procedures, and inscribed the constitutive instruments in the Commercial Register, the Superintendency will issue a certificate that the branch may start operations. The certificate will be valid for one year. The Superintendency will publish, at the expense of the branch, in the Official Diary and in two newspapers of national circulation or another digital publication platform with greater or equal coverage, or on its website, only once the aforementioned resolution, in accordance with what is established in Article 20 of the Law.

Extension for Start of Operations
Art. 17.- If after the period indicated in the first paragraph of Article 16 of these Standards has elapsed, the entity has not started its operations, it may request from the Superintendency an extension period of up to one hundred and eighty days, for which it must present the documentation supporting such request, through the means made available by the Superintendency, which may be electronic.

Revocation of Authorization
Art. 18.- If upon expiration of the period or extension, referred to in Articles 16 and 17 of these Standards, the branch has not started operations, it will be considered that there is impossibility to achieve the main purpose; therefore, the Superintendency will proceed to revoke the authorization to operate.

NRP-40
TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

Start of Operations
Art. 19.- The branch must inform the Superintendency, through the means made available, which may be electronic, thirty days in advance, the following:
a) The day it will open its doors to the public; b) List of executive personnel and facsimile of authorized signatures; and c) Tax Identification Number (NIT) of the branch.

CHAPTER IV
CLOSURE OF OPERATIONS

Cessation of Operations
Art. 20.- In the case where the head office of the foreign branch established in El Salvador decides to suspend or terminate its operations, it must inform the Superintendency at least sixty days in advance, through the means made available by it, which may be electronic, attaching at least the following documentation:
a) Date when public service will cease; b) Agreement of the head office authorizing the cessation of operations of the branch in El Salvador; and c) Action plan on the liquidation of operations d

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

d) Plan for the payment of obligations to depositors and other creditors, ensuring the protection of their rights; e) Certificate from the Superintendency of the Financial System stating that the branch has no pending legal proceedings or administrative sanctions that could affect the liquidation process; and f) Any other document required by the Superintendency to ensure the orderly closure of operations.

Procedure for Cessation of Operations
Art. 21.- Upon receipt of the request for cessation of operations, the Superintendency will verify compliance with the requirements established in Article 20 of these Standards. If all requirements are met, the Superintendency will authorize the cessation of operations and the subsequent liquidation process.

The Superintendency will monitor the liquidation process to ensure that the rights of depositors and other creditors are protected and that the liquidation is carried out in an orderly manner.

The Superintendency may require additional information or documentation from the branch during the liquidation process to ensure compliance with the legal and regulatory framework.

Final Liquidation
Art. 22.- Upon completion of the liquidation process, the branch must submit a final liquidation report to the Superintendency, including a detailed account of all assets and liabilities, and the distribution of remaining assets, if any, in accordance with the legal priority order.

The Superintendency will review the final liquidation report and, if it finds that the liquidation has been carried out in accordance with the law and these Standards, will issue a certificate of final liquidation, which will mark the formal closure of the branch.

The certificate of final liquidation will be published in the Official Diary and in two newspapers of national circulation, or in another digital publication platform with greater or equal coverage, or on the Superintendency's website, in accordance with the current legal framework.

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

Supervision and Control
Art. 23.- The Superintendency of the Financial System will exercise supervision and control over foreign bank branches established in El Salvador, in accordance with the provisions of the Banks Law, the Law on Supervision and Regulation of the Financial System, and these Standards.

The Superintendency will have the power to conduct inspections, request information, and impose sanctions on foreign bank branches that do not comply with the legal and regulatory framework.

The Superintendency will coordinate with the supervisory authorities of the country of origin of the foreign bank to ensure effective consolidated supervision and to exchange information necessary for the supervision of the branch.

Sanctions
Art. 24.- In case of non-compliance with the provisions of these Standards, the Superintendency may impose sanctions on the foreign bank branch, in accordance with the provisions of the Law on Supervision and Regulation of the Financial System.

The sanctions may include fines, suspension of activities, revocation of authorization to operate, and other measures established by law.

The Superintendency will ensure that the imposition of sanctions is proportionate to the severity of the violation and that the rights of the affected party are respected.

Transitory Provisions
Art. 25.- Foreign bank branches established in El Salvador prior to the entry into force of these Standards must comply with the requirements established in these Standards within a period of one hundred and eighty days counted from the date of their entry into force.

Art. 26.- The Superintendency of the Financial System will issue the necessary resolutions and guidelines to facilitate the compliance with these Standards by foreign bank branches.

Final Provisions
Art. 27.- These Standards will enter into force on the date of their publication in the Official Diary.

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TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

Annex No. 1
Minimum Content of the Economic and Financial Feasibility Study

1. Executive Summary
2. Description of the Head Office
   a. History and background b. Organizational structure
   c. Main business lines
   d. Market position and competitive advantages
3. Description of the Proposed Branch
   a. Location and facilities b. Target market and customer profile
   c. Business plan and strategic objectives
   d. Projected financial statements for the first five years
4. Risk Management
   a. Identification and assessment of risks b. Risk mitigation strategies
   c. Internal controls and compliance procedures
5. Human Resources
   a. Organizational chart of the branch b. Qualifications and experience of key personnel
   c. Training and development plans
6. Information Technology and Security
   a. IT infrastructure and systems b. Information security policies and procedures
   c. Business continuity and disaster recovery plans
7. Regulatory Compliance
   a. Compliance with Salvadoran laws and regulations b. Coordination with supervisory authorities
8. Conclusion and Recommendations

Annex No. 2
Model for Sworn Declaration of No Disqualifications

I, [Name], holder of Identity Document No. [Number], in my capacity as [Position] of [Foreign Bank Name], hereby declare under oath that I do not have any of the disqualifications established in Article 33 of the Banks Law, and that I meet all the requirements to serve as a senior executive of the branch of [Foreign Bank Name] in El Salvador.

Signed in [City], on [Date].

[Signature]
[Name]
[Position]

Annex No. 3
Requirements for Manuals of Functions and Operational Procedures

1. Manual of Functions
   a. Organizational structure of the branch b. Job descriptions for all positions
   c. Reporting lines and responsibilities
   d. Delegation of authority matrix
2. Operational Procedures Manual
   a. Customer onboarding and due diligence procedures b. Transaction processing procedures
   c. Credit approval and monitoring procedures
   d. Treasury and liquidity management procedures e. Accounting and financial reporting procedures f. Compliance and anti-money laundering procedures g. Information security and data protection procedures h. Business continuity and disaster recovery procedures

NRP-40
TECHNICAL STANDARDS FOR THE ESTABLISHMENT OF FOREIGN BANK BRANCHES Approval: 28/06/2023 Validity: 14/07/2023

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