Technical Standards for the Transfer or Merger of Investment Funds

CNBCR-12/2017
NDMC-16
TECHNICAL STANDARDS FOR THE TRANSFER OR MERGER OF INVESTMENT FUNDS Approval: 12/01/2017 Validity: 01/02/2018

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

CONSIDERING:

I. That Article 5 of the Investment Funds Law establishes that the Superintendence of the Financial System, within its scope of competence, is the administrative authority responsible for monitoring compliance and execution of the provisions of said Law; likewise, supervising Managers, their operations, and other participants regulated by it.

II. That Article 6 of the Investment Funds Law states that it corresponds to the Central Reserve Bank of El Salvador, within its scope of competence, to issue the necessary technical standards that allow the application of the referred Law.

III. That Articles 40 and 41 of the Investment Funds Law establish the effects on Open or Closed Investment Funds when the authorization to operate is revoked for the Manager administering them.

IV. That Article 94 of the Investment Funds Law establishes that the Central Reserve Bank of El Salvador will issue technical standards for the development of the requirements for the transfer of an Investment Fund.

V. That Article 95 of the Investment Funds Law stipulates that the Central Reserve Bank of El Salvador will issue technical standards to establish the procedure for requesting authorization for the merger of Funds.

VI. That Article 35, subsection c) of the Law on Supervision and Regulation of the Financial System, establishes as an obligation of the supervised entities the adoption and updating of policies on ethical standards of conduct, management of conflicts of interest, use of insider information, prevention of behaviors that could imply manipulation or abuse of the market, as well as compliance with principles, rules, or standards in the management of business established to achieve corporate objectives.

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:

CNBCR-12/2017
NDMC-16
TECHNICAL STANDARDS FOR THE TRANSFER OR MERGER OF INVESTMENT FUNDS Approval: 12/01/2017 Validity: 01/02/2018

TECHNICAL STANDARDS FOR THE TRANSFER OR MERGER OF INVESTMENT FUNDS

TITLE I
GENERAL ASPECTS

UNIQUE CHAPTER
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to establish the legal provisions applicable to the processes of transfer or merger of Investment Funds, which must be carried out by the obligated subjects of these Standards, in accordance with what is provided in the Investment Funds Law.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are:
a) Surveillance Committee; and b) Investment Fund Managers and the Funds they administer.

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) Surveillance Committee: Committee responsible for monitoring the operations carried out by the Investment Fund Management Company with its resources, acting exclusively in the best interest of the participants of a Closed Investment Fund, in accordance with what is established in Articles 77 and 78 of the Investment Funds Law; c) Shares: Participation shares; d) Depositary: Company specialized in the deposit and custody of securities, constituted in El Salvador and registered with the Superintendence of the Financial System; e) Fund: Investment Fund; f) Open Funds: Open Investment Funds; g) Closed Funds: Closed Investment Funds; h) Manager: Investment Fund Management Company; i) Funds Law: Investment Funds Law; j) Participant: Investor in an Investment Fund; k) Offering Prospectus: Offering prospectus of participation shares; l) Registry: Public Stock Registry of the Superintendence of the Financial System; m) Internal Regulations: Document containing all the characteristics and specific rules governing the operation of a specific Investment Fund; and

CNBCR-12/2017
NDMC-16
TECHNICAL STANDARDS FOR THE TRANSFER OR MERGER OF INVESTMENT FUNDS Approval: 12/01/2017 Validity: 01/02/2018

n) Superintendence: Superintendence of the Financial System.

TITLE II
TRANSFER OF FUNDS

CHAPTER I
TRANSFER OF OPEN FUNDS

Transfer of an Open Fund
Art. 4.- The transfer of an Open Fund, as a patrimonial unit, can only be effected in favor of another Manager authorized by the Superintendence and must comprise all assets, rights, and obligations that constitute the fund's assets and liabilities, as well as guarantees, sureties, or bonds thereof.

Grounds for Transfer of an Open Fund
Art. 5.- The transfer of an Open Fund will proceed for any of the following grounds:
a) By revocation of the authorization to operate of the Manager, after exhausting the due process established in Article 39 of the Funds Law; b) By dissolution of the Manager in accordance with what is established in the Code of Commerce; or c) By decision of the Manager.

In the case of revocation of the authorization to operate of the Manager, once final, on the next business day, the transferring Manager must inform the participants directly about said revocation either by printed, electronic, or magnetic means as requested by them in the share subscription contract, which allow verifiable confirmation of the notification management. It will also inform participants of the operations that the Superintendence has authorized it to perform, while the transfer plan established in Article 8 of these Standards is approved.

Transfer of Open Funds by revocation of authorization to operate of the Manager Art. 6.- Within three business days following receipt of the notification of revocation to operate, the Manager will send a note to the Superintendence, signed by the Legal Representative or Attorney-in-fact, attaching the following:
a) Suggestion of the Manager to which the Open Fund administered will be transferred; b) Certification of the minutes point where the agreement to transfer the Fund by the Board of Directors of the transferring Manager is recorded; c) Certification of the Board of Directors agreement of the acquiring Manager stating acceptance of the administration of the Fund to be transferred; d) Sworn Statement issued by the acquiring Manager stating that it complies with the requirements established in Article 7 of these Standards; and

CNBCR-12/2017
NDMC-16
TECHNICAL STANDARDS FOR THE TRANSFER OR MERGER OF INVESTMENT FUNDS Approval: 12/01/2017 Validity: 01/02/2018

e) Transfer Plan of the Fund, in accordance with what is established in Article 8 of these Standards.

Art. 7.- The acquiring Manager must comply with at least the following requirements:
a) Have an authorized investment administrator for the type of assets that make up the Fund to be received; b) Possess at least one authorized commercial agent for Open Funds by the Superintendence or the signing of a mandate contract with a commercial entity or agent for the marketing of participation shares of Open Funds; and c) Have the necessary human and technological resources to administer the transferred Fund.

Minimum content of the transfer plan for Open Funds Art. 8.- The Fund transfer plan must contain at least the following:
a) Transfer schedule and those responsible for its execution; b) Report on the Fund to be transferred detailing: its composition, number of participants and their shares, as well as the inventory of assets and liabilities constituting it on the date the revocation of authorization becomes final; c) Process of notification to participants regarding the transfer, in accordance with what is established in Article 13 of these Standards; d) Procedure or mechanism for redemption due to modifications in accordance with the Internal Regulations, as well as the detail of actions to be taken in case instructions from the participant have not been received or contact with them has not been possible; e) Account statement of the Fund's securities by the Depositary; and f) Other aspects that the transferring Manager deems convenient.

Art. 9.- Within the peremptory period of three business days following the presentation of the request, the Superintendence will authorize the transfer plan and the acquiring Manager, or authorize the transfer to another Manager of its choice and recommend the corresponding modifications to the presented plan. The Superintendence will take into account the requirements established in Article 7 of these Standards.

The Superintendence will notify the authorization of transfer to the transferring Manager, acquiring Manager, and Depositary on the next business day after authorizing the Fund's transfer plan.

The transferring Manager must comply with the transfer plan authorized by the Superintendence.

CNBCR-12/2017
NDMC-16
TECHNICAL STANDARDS FOR THE TRANSFER OR MERGER OF INVESTMENT FUNDS Approval: 12/01/2017 Validity: 01/02/2018

In the event that the actions of the transferring Manager do not correspond to the presented and authorized plan, the Superintendence will proceed in accordance with what is established in Article 40 of the Funds Law. (1)

Deadline for Transfer of Open Funds by revocation of authorization Art. 10.- Within fifteen days following notification of the revocation, the Manager will proceed with the transfer of the Open Fund.

Transfer of Open Funds by agreement of dissolution or by decision of the transferring Manager Art. 11.- Whether or not it involves the dissolution of the Manager, it will request in writing from the Superintendence the authorization for the transfer of the administration of a Fund.

Such request will be signed by the Legal Representative or Attorney-in-fact of the Manager, attaching the following:
a) Certification of the minutes point where the agreement to transfer the Fund by the Board of Directors of the transferring Manager is recorded; b) Justification of the transfer decision if it obeys an agreement of dissolution or by decision of the transferring Manager; c) Certification of the Board of Directors agreement of the acquiring Manager stating acceptance of the administration of the Fund to be transferred; d) Sworn Statement issued by the acquiring Manager stating that it complies with the requirements established in Article 7 of these Standards; and e) Transfer Plan of the Fund established in Article 8 of these Standards, taking into account the reference date of the agreement to transfer the Fund.

The certifications of the minutes points referred to in subsections a) and c) of this article will be submitted for processing only once.

The Superintendence will authorize the transfer plan and the acquiring Manager, in accordance with what is established in Article 9 of these Standards.

Deadline to carry out the transfer of Open Funds by dissolution or by decision of the Manager Art. 12.- The transfer of the administration of Open Funds by dissolution or by decision of the Manager must be carried out within thirty days following communication to the Superintendence in accordance with Article 11 of these Standards.

At the request of the Manager, the Superintendence may extend, before its expiration, the deadline referred to in the first paragraph of this article, for which it must present in writing the reasons justifying the request. The extension period cannot exceed thirty days and will begin to count from the expiration date of the original deadline.

In cases of dissolution of the Manager, it may dissolve itself only after having transferred the Funds to the acquiring Manager; likewise, the transferring Manager will maintain the guarantee corresponding to the transferred Fund, in accordance with what is established in Article 22 of the Funds Law.

If within the established deadline the Funds could not be transferred to the acquiring Manager, their liquidation will proceed in accordance with what is established in Articles 103 and following of the Funds Law.

Notification to the participant in the process of transfer of Open Funds Art. 13.- On the next business day following receipt of the authorization of transfer of the Fund, for the different grounds, the transferring Manager must notify the participant in a clear, truthful, complete, and timely manner, so that it is understandable, avoiding hiding or minimizing important warnings, with the following minimum content:
a) Date of authorization of transfer by the Superintendence; b) Justification of the transfer process; c) Name of the acquiring Manager; d) Deadline to request redemption of participation shares; and e) Place and person designated to attend inquiries related to the communication.

Such communication to the participant will be made in accordance with what is established in Article 59 of these Standards.

Communication to the public of the transfer process Art. 14.- Within three business days counted from receipt of the notification of transfer authorization, the transferring Manager must communicate to the public the transfer of the Open Fund by means of a prominent notice, published in the newspaper established in the Fund's Internal Regulations.

Likewise, the transfer process must be disseminated as Essential Information or Relevant Event, in accordance with what is stipulated in the [Reference to previous norms, likely NDMC-13], issued by the Central Bank through its Committee of Standards.

Request for modification of the registry entry Art. 15.- In all cases and once the authorization of transfer of the Open Fund has been received, the Legal Representative or Attorney-in-fact of the acquiring Manager, within a period not greater than five business days, must present to the Superintendence the request for modification of the registry entry of the Fund to be transferred, accompanied by the following documentation and information:

CNBCR-12/2017
NDMC-16
TECHNICAL STANDARDS FOR THE TRANSFER OR MERGER OF INVESTMENT FUNDS Approval: 12/01/2017 Validity: 01/02/2018

a) Drafts of Internal Regulations, Offering Prospectus, and model of participation share contract; b) Documents related to the constitution of the Fund's guarantee according to its nature; c) Certification of the Board of Directors agreement of the Manager in which the entity that will be the representative of the beneficiaries of the guarantee is designated; d) Acceptance of the entity as representative of the beneficiaries of the guarantee; e) Method of valuation of investments in securities, in accordance with what is established in Article 102 of the Funds Law; f) Name(s) of the person(s) designated as investment administrator(s), duly authorized by the Superintendence; g) Accounting system of the Fund that will be used by the Manager and the description of the computer platform on which it has been developed, description of its information systems, description of information backups, security and controls in the systems; and h) Other documentation that the acquiring Manager considers necessary.

The request and documentation may be presented through the means made available by the Superintendence, which may be electronic. In any case, the deadline referred to in the first paragraph of Article 15-A of these Standards will begin to count from the next business day after the request has been presented. (1)

Procedure for the authorization of the modification of the registry entry of the Fund to be transferred (1) Art. 15-A.- Upon receipt of the request for modification of the registry entry of the Fund, in accordance with what is established in Article 15 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined by the Funds Law and these Standards, having a period of up to thirty business days to authorize and carry out the modification of the corresponding registry entry. (1)

If the request is not accompanied by the complete and proper information detailed in Article 15 of these Standards, the Superintendence, due to the lack of necessary requirements, may require the Manager 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 acquiring Manager when there are reasons justifying it. (1)

The Superintendence in the same warning will indicate to the acquiring Manager that if it does not complete the information within the aforementioned period, it will proceed without further procedure to archive the request, reserving its right to present a new request. (1)

If after the analysis of the documentation presented in accordance with Article 15 of these Standards, the Superintendence has observations or when the documentation or information presented does not prove sufficient to establish the facts or information intended to be accredited; the Superintendence will warn the respective acquiring Manager only once to remedy the deficiencies communicated or present additional documentation or information requested. (1)

The acquiring Manager will have a maximum period of ten business days counted from the day following the notification, to resolve the observations or present the information required by the Superintendence. (1)

The Superintendence by reasoned resolution will extend by up to another ten business days the deadline indicated in the previous paragraph, when the nature of the observations or warned deficiencies so require. (1)

Extension Deadline (1)
Art. 15-B.- The acquiring Manager may present to the Superintendence a request for extension of the deadlines indicated in the fifth paragraph of Article 15-A of these Standards, before the expiration of said period, expressing the grounds on which it is based and proposing, if applicable, the pertinent proof. (1)

The extension period cannot exceed ten business days and will begin from the next business day after the expiration date of the original period. (1)

Suspension of the Deadline (1)
Art. 15-C.- The thirty-day period indicated in Article 15-A of these Standards will be suspended for the days that elapse between the notification of the requirement to complete information or documentation referred to in the second and fifth paragraphs of said article, until the interested parties remedy the observations required by the Superintendence. (1)

Resolution (1)
Art. 16.- Upon receipt of complete and proper documentation, in accordance with the procedure established in Article 15-A of these Standards, the Superintendence will agree on the modification of the Fund's registry entry. The Superintendence will notify the agreement of modification of the registry entry to the acquiring Manager, transferring Manager, and Depositary within three business days following, counted from the date of its approval. (1)

Notified of the agreement, the transferring Manager will send to the Depositary of the Fund's securities, the instruction to transfer them to the destination account that the acquiring Manager holds for the administration of the securities of the portfolio of the transferred Fund. The transferring Manager, the Investment Committee or whoever acts in its place, as well as the Depositary of the securities of the Fund to be transferred, will cease in their functions once the modification of the respective registry entry of the Fund is inscribed and the acquiring Manager has registered in its accounts the securities that make up the Fund. Once the securities are transferred to the destination account of the acquiring Manager, the transferred Fund may begin operations under its administration.

Communication to the Tax Administration
Art. 17.- The Superintendence will communicate to the Tax Administration the transfer of Open Funds, within a period of three business days counted from the next business day of taking the transfer agreement.

Responsibility
Art. 18.- The acquiring Manager will succeed the transferring Manager by full right in its rights and obligations, including tax ones, once the transfer of the Fund is completed and the respective registry entry is modified, without prejudice to the responsibility of the transferring Manager during its administration of the Fund. Once the Registry is modified, the acquiring Manager will have one hundred eighty days to carry out the necessary adaptations to comply with the provisions of the Funds Law.

Art. 19.- Upon completion of the transfer process, the External Auditor of the Fund will certify the transfer of the Fund in accordance with what is established in the Funds Law.
Such certification must be sent by the transferring Manager to the Superintendence on the next business day of receipt.

CHAPTER II
TRANSFER OF CLOSED FUNDS

Transfer of a Closed Fund
Art. 20.- The transfer of a Closed Fund, as a patrimonial unit, can only be effected in favor of another Manager authorized by the Superintendence and must comprise all assets, rights, and obligations that constitute the fund's assets and liabilities, as well as guarantees, sureties, or bonds thereof.

Grounds for Transfer of a Closed Fund
Art. 21.- The transfer of a Closed Fund will proceed for the following grounds:
a) By revocation of the authorization to operate of the Manager after exhausting the procedure established