Technical Standards for the Investments of Voluntary Previsional Savings Funds

Alameda Juan Pablo II, between 15 and 17 Norte Ave, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-11/2022
NSP-60
TECHNICAL STANDARDS FOR THE INVESTMENTS OF VOLUNTARY PREVISIONAL SAVINGS FUNDS Approval: 12/30/2022 Effective Date: 12/30/2022

THE COMMITTEE OF STANDARDS OF THE CENTRAL RESERVE BANK OF EL SALVADOR, CONSIDERING:
I. That by Legislative Decree No. 614, dated December 20, 2022, published in the Official Journal No. 241 Volume No. 437, of the 21st of the same month and year, the Integral Law of the Pension System was issued.
II. That Article 133 of the Integral Law of the Pension System establishes that Voluntary Previsional Savings Funds shall be governed by the provisions of Chapter I of Title II of said Law, and where applicable, by the Investment Funds Law.
III. That Article 137 of the Integral Law of the Pension System establishes that the investments of Voluntary Previsional Savings Funds may be made in a stock exchange or organized markets in El Salvador or abroad, or over-the-counter. In the case of open investment funds, participation shares may be acquired directly from their managers or administrators.
IV. That Article 141 of the Integral Law of the Pension System establishes that the Central Reserve Bank of El Salvador will issue the necessary technical standards that allow the development of Chapter I of Title II of said Law.
V. That Article 159 of the Integral Law of the Pension System establishes that the Central Reserve Bank of El Salvador must issue the relevant Technical Standards for the application of the legal provisions of said Law.
VI. That Article 35 of the Law on Supervision and Regulation of the Financial System establishes that directors, managers, and other officials holding positions of direction or administration in the members of the financial system must conduct their business, acts, and operations complying with the highest ethical standards of conduct and acting with the due diligence of a good merchant in their own business.
VII. That the figure of Voluntary Previsional Savings Funds is a savings mechanism that allows increasing the mass of savings of individuals, which will complement the resources of affiliates made through mandatory prevision savings.

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:

Alameda Juan Pablo II, between 15 and 17 Norte Ave, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-11/2022
NSP-60
TECHNICAL STANDARDS FOR THE INVESTMENTS OF VOLUNTARY PREVISIONAL SAVINGS FUNDS Approval: 12/30/2022 Effective Date: 12/30/2022

TECHNICAL STANDARDS FOR THE INVESTMENTS OF VOLUNTARY PREVISIONAL SAVINGS FUNDS

CHAPTER I
OBJECTIVE, SUBJECTS, AND TERMS

Objective
Art. 1.- These Standards aim to establish guidelines and minimum provisions to be considered regarding investments made with resources from Voluntary Previsional Savings Funds, with the objective of obtaining profitability, based on the risk level of the Fund, liquidity requirements, diversification, and limits defined in the Fund's investment policy.

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are the following:
a) Banks regulated by the Banks Law; b) Cooperative Banks regulated by the Law on Cooperative Banks and Savings and Credit Societies; c) Investment Fund Managers regulated by the Investment Funds Law; d) Pension Fund Administrators, regulated by the Integral Law of the Pension System; e) Savings and Credit Societies regulated by the Law on Cooperative Banks and Savings and Credit Societies; f) Investment Administrators of Voluntary Previsional Savings Funds authorized by the Superintendence of the Financial System, who work for an Institution Administrator of Voluntary Previsional Savings Funds; and g) Members of the Investment Committee, in case the Institution Administrator of Voluntary Previsional Savings Funds has constituted one.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Investment Administrator: A natural person who is an employee of an Institution Administrator of Voluntary Previsional Savings Funds, for the purpose of managing the decision-making and execution of investments made with resources from Voluntary Previsional Savings Funds, in accordance with the Prospectus and the investment policy defined for said Fund. This category includes the Investment Manager or their substitute, according to the organizational structure of the institution; b) Contributions: Resources or sum of money that are delivered to an Institution Administrator of Voluntary Previsional Savings Funds by a natural person or by the employer to the individual voluntary savings account of the participant; c) Central Bank: Central Reserve Bank of El Salvador; d) Financial Conglomerate: In accordance with Article 113 of the Banks Law, it is a set of companies characterized by the fact that more than fifty percent of their respective share capital is owned by a controlling company, which is also a member of the Conglomerate. The controlling company of the Conglomerate may be a company with a specific purpose or a bank constituted in the country; e) Employer: A natural or legal person who agrees through a contract or institutional plan to make contributions to the individual account of a natural person with whom they have a labor relationship; f) Funds: Voluntary Previsional Savings Funds; g) Business Group: In accordance with Article 5 letter n) of the Securities Market Law, it is one in which a company or set of companies have a common controller, who acting directly or indirectly participates with at least fifty percent in the share capital of each of them or that have common shareholders who, directly or indirectly, are holders of at least fifty percent of the capital of another company, which allows presuming that the economic and financial performance is determined by common interests or subordinate to the group; h) Administrator Institution: Financial institution that offers Voluntary Previsional Savings Funds which are registered in the Public Registry of the Superintendence of the Financial System. The administrator institutions that can offer Voluntary Previsional Savings Funds are those indicated in Article 2 of these Standards; i) Intermediary: A natural or legal person whose object is the intermediation of financial instruments, whose basic function is to contact those who wish to buy with those who wish to sell and perfect the respective operation, receiving a commission for their services, if applicable; j) Funds Law: Investment Funds Law; k) SP Law: Integral Law of the Pension System; l) Governing Body: A collegiate body in charge of the administration of the entity, with functions of supervision, direction, and control or an equivalent body. For the purposes of these Standards, it refers to the Board of Directors or Board of Administration; m) Participant: A natural person in whose name the individual voluntary prevision
savings account is held; n) Related or linked persons or entities: Refers to persons or entities in which another company, without controlling it, participates in its social capital, directly or through other companies. For the purposes of each of the applicable subjects of these standards, the provisions of Article 204 of the Banks Law, Articles 50 and 161 of the Law on Cooperative Banks and Savings and Credit Societies, Article 5 of the Securities Market Law, Article 90 of the Integral Law of the Pension System, and Article 29 of the Investment Funds Law shall be considered; o) Investment Policy: Corresponds to the guidelines defined in the Prospectus of each Fund, which indicates the characteristics and diversification of the securities in which the Voluntary Previsional Savings Fund invests, the minimum and maximum investment limits in each of the types of assets; p) Prospectus: Corresponds to the instrument that contains the characteristics of each Voluntary Savings Fund, as well as the description of its operation; and q) Superintendence: Superintendence of the Financial System.

CHAPTER II
PERMITTED INVESTMENTS AND MECHANISMS

Permitted Investments and Operations
Art. 4.- Investments with resources from the Funds, without prejudice to the amounts kept in cash, current account deposits, savings, or time deposits, may be made in a stock exchange or in organized markets in El Salvador or abroad, or over-the-counter.
In accordance with what is established in the Securities Market Law, organized markets are considered to be stock exchanges, electronic markets, over-the-counter markets, or their equivalent, which have similar or superior regulatory and supervision requirements compared to those of El Salvador. In the case of Open Investment Funds, participation shares may be acquired directly from their managers or administrators.

Art. 5.- The resources of the Funds may be invested according to the investment policy in the following securities:
a) Securities issued or guaranteed by the State of El Salvador or by autonomous institutions of El Salvador; b) Securities issued by the State of El Salvador and the Central Reserve Bank of El Salvador, placed over-the-counter; c) Bonds and other securities issued or guaranteed by local banks; d) Bonds and other securities issued or guaranteed by cooperative banks, savings and credit societies, and federations regulated by the Law on Cooperative Banks and Savings and Credit Societies; e) Securities representing the individual participation of the investor in a collective credit of Salvadoran companies or securities that represent participation in the equity of Salvadoran companies, such as bonds and shares; f) Participation shares of Open or Closed Funds; g) Securities issued in a securitization process, in accordance with Salvadoran regulation; h) Repos with securities, defined in the Fund's Prospectus; i) Securities issued or guaranteed by foreign states, central banks, or foreign banking entities or international organizations; shares and bonds issued by foreign companies; securities issued in a securitization process abroad and participation shares of foreign investment funds; and j) Other public offer securities that the Committee of Standards of the Bank authorizes through modification of these Standards. In addition to the above, Funds may acquire shares and participation shares of Closed Investment Funds in the primary market. In the case of exercising the preemptive right, Funds that invest in the subscription of shares and participation shares for capital increases may have the possibility to subscribe the proportional part that corresponds to them directly with the Issuer, Managers, or administrators.

Art. 6.- The investments of the Funds must be carried out diligently in order to obtain a return, in accordance with the limits and investment policy defined for each Fund.
In case investments are made in international markets, they must comply with the required documentation and be subject to the regulations of the jurisdiction in which they are made. The analyses carried out to make such investments must be duly documented and available to the Superintendence when requested.

Art. 7.- The Administrator Institution is authorized to carry out repo operations on behalf of the Funds, which may be made with securities defined in the Fund's Prospectus and in which the Funds will participate as lenders or sellers of Funds.
The Administrator Institution may carry out repo operations as borrowers, only to meet liquidity needs arising from the withdrawal of contributions by natural persons and employers or Fund expenses or other cases indicated in the Fund's Prospectus, which may not exceed twenty percent of the total asset of the Fund. The conditions of the operation, as well as the respective guarantees, must be established in accordance with what is regulated in the Securities Market Law, other laws, and applicable regulation for repo operations.

Alameda Juan Pablo II, between 15 and 17 Norte Ave, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-11/2022
NSP-60
TECHNICAL STANDARDS FOR THE INVESTMENTS OF VOLUNTARY PREVISIONAL SAVINGS FUNDS Approval: 12/30/2022 Effective Date: 12/30/2022

Mechanisms for Trading Securities
Art. 8.- Investments in securities with resources from the Funds must be made only if there is a documented analysis of their characteristics and risks and with the necessary information and experience for investment decision-making.
To carry out the Fund's investments, its follow-up, and monitoring, there must be tools, methodologies, and controls that allow ensuring compliance with the criterion taken to make the investments and to value the instruments to be acquired; if the above is not met, the Administrator Institution must not enter into negotiations of such instruments. Likewise, the Administrator Institution must ensure that commission and price conditions have been agreed upon with strict adherence to the interests of the participants and in accordance with established procedures.

Liquidity Requirements for Investments
Art. 9.- Funds must maintain at least twenty percent of their resources in cash, bank deposits, and in highly liquid and low-risk securities.
For these purposes, highly liquid and low-risk securities are understood to be those that meet the following requirements:
a) That the securities have a maturity of less than 365 days; b) That they can be received as collateral in passive operations; c) That their market price can be obtained through one or more price-providing sources, an international stock or financial information system recognized by the Superintendence, or that in its defect it can be obtained from a previously established methodology or another reliable source of prices; and d) That foreign securities must be investment grade and that local debt instruments have a long-term risk classification no lower than category BBB and N-2 for short-term instruments. Notwithstanding what is established in the second paragraph of this article, additionally, participation shares of open investment funds, both national and foreign, that contemplate redemption payment periods not exceeding ten business days from the time the request is presented, shall be considered highly liquid and low-risk, provided that, in the Internal Regulations, or the corresponding document in the respective jurisdiction, there are no restrictions that prevent it. (2) Investments whose maturity is one year or less, issued by the State of El Salvador and by the Central Reserve Bank of El Salvador, shall also be considered liquid.

In case any of the securities considered highly liquid and low-risk cease to meet the requirements established in this article, the Administrator Institution, in order to maintain the minimum limit established in this article, must substitute the referred securities no later than within five business days following the detection of the non-compliance. The Administrator Institution, for diversification purposes, must define in the investment policy the maximum limit of deposits that can be maintained in the same banking entity, in order to manage possible concentration risk.

Basic Conditions of Operability
Art. 10.- The securities in which the Fund's resources are invested, when corresponding according to their nature, must be delivered in custody to an authorized or recognized entity to provide this service, which meets the conditions established for the custody and deposit of securities of the instruments in which Pension Funds invest, in accordance with what is established in Article 137 of the SP Law and in the current regulation on Deposit and Custody of Securities for the Pension System. Likewise, the custody of the securities must be maintained in separate accounts by Fund and must be duly identified with the corresponding Fund, in accordance with what is established in the fourth paragraph of Article 137 of the SP Law.

Art. 11.- The Administrator Institution must constitute separate bank accounts for each Fund, in which the total contributions to it, the proceeds from its investments, and all other income received in the name of the Fund must be deposited directly. From these accounts, withdrawals can only be made destined for the acquisition of instruments or financial operations made in the name of the Fund, for the withdrawal from individual accounts, for the payment of commissions of the Administrator Institution, and for the other expenses established in the Fund's Prospectus. The identification of the bank accounts of each Fund must consider what is established in the fourth paragraph of Article 137 of the SP Law. Each Administrator Institution with respect to the Funds it administers is obliged to comply with the following requirements:
a) Comply with the responsibilities derived from the processes of compensation and settlement of transactions carried out; b) The approval of the delegation by the Administration in favor of employees authorized to make bank transactions, including limits and the use of joint signatures; and c) Design an information and monitoring system with daily and detailed updates of resources, transactions, documentation of failures and errors with the application of necessary corrections for each Fund.

Investment Control
Art. 12.- The Administrator Institution, for the control of investments made on behalf of each Fund, must maintain the documentation, record, or receipt of the transaction containing the detailed information of the operations it carries out, for which it must maintain an updated investment register, in which the entries or income and exits or expenses of the investment operations must be specified in chronological order, indicating the amount of the purchase or sale, taxes when applicable, and expenses incurred in the investment operation, as well as the necessary information to identify that the investments made adjust to what is stated in the investment policy, (NSP-61), approved by the Bank through its Committee of Standards.

In addition, it must design a control system on investment and liquidity limits, property rights of investments (coupons, dividends), risk classification of instruments and companies where the securities are deposited, among others.
The information referred to the investments that the Administrator Institution makes on behalf of each Fund must be available to the Superintendence when requested. Likewise, the Administrator Institution must document the aspects taken into consideration in the investment process. The Administrator Institution, for the control of investments made on behalf of each Fund, must ensure that the orders issued have been executed by the Intermediary as requested. At the time of closing the operation, the Intermediary must send a written confirmation to the Administrator Institution of the transaction carried out.

CHAPTER III
INVESTMENTS ABROAD

Requirements for Investments Abroad
Art. 13.- To make investments in securities of issuers from abroad, the financial instrument must be registered in an organized market of a country that has similar or superior supervision requirements compared to those of El Salvador and that said country also has a minimum risk classification of BBB- or its equivalent, whenever they have been granted by foreign risk classifiers, recognized by the Securities and Exchange Commission (SEC) of the United States of America, or that they have been granted by foreign risk classifiers that are registered in the market oversight body of their respective country of origin.

Art. 14.- The Administrator Institution, for the purpose of making Fund investments abroad, must consider at least the following aspects:
a) Have a service with an international stock or financial information system recognized by the Superintendence, which allows it to access price and relevant event information of the foreign securities it trades; b) Have policies and procedures and

Alameda Juan Pablo II, between 15 and 17 Norte Ave, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-11/2022
NSP-60
TECHNICAL STANDARDS FOR THE INVESTMENTS OF VOLUNTARY PREVISIONAL SAVINGS FUNDS Approval: 12/30/2022 Effective Date: 12/30/2022