Technical Standards on Prudential and Accounting Obligations of Subsidiaries of Banks, Investment Banks, or Exclusive-Purpose Holding Companies

NRP-65
ACCOUNTING OBLIGATIONS OF SUBSIDIARIES OF BANKS, INVESTMENT BANKS OR EXCLUSIVE-PURPOSE HOLDING COMPANIES Approval: 05/06/2024 Effective Date: 20/06/2024

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

I. That Article 23, first paragraph, of the Banks Law, establishes that banks may carry out financial operations in other countries through offices and banking subsidiaries, provided that in those countries there is prudential regulation and supervision in accordance with international practices on this matter, and in conformity with what is provided by the laws of the country where they are installed and with prior authorization from the Superintendence.

II. That Article 23, second paragraph, literal d), of the Banks Law, establishes that subsidiaries must comply with what is established in Articles 41, 42, 197, and 203 and other provisions of the aforementioned law that are applicable to them insofar as pertinent.

III. That Article 24, first paragraph, of the Banks Law, establishes that banks may invest in shares of Salvadoran capital companies, subject to the authorization of the Superintendence, and that these are foreign currency exchange houses, stockbroker houses, credit card issuers, general warehouses, companies providing payment, custody, and transport of securities services, and other companies offering complementary services to the financial services of banks. Such companies may offer their services directly to users, even if there is no relationship whatsoever between them and the banks, and they may not have capital investments in other companies, except those authorized by law or the respective supervisory body.

IV. That Article 24, third paragraph, of the Banks Law, establishes that subsidiaries and other companies in which a bank is a shareholder, in accordance with what is established in this article, will be under the surveillance and inspection of the Superintendence.

V. That Article 113, first paragraph, of the Banks Law, establishes that the financial conglomerate or conglomerate referred to in this Law is a set of companies characterized by the fact that more than fifty percent of their respective share capital is owned by a holding company, which is also a member of the conglomerate.

VI. That Article 113, third paragraph, of the Banks Law, establishes that the holding company of the conglomerate may be a company whose exclusive purpose is that indicated in literal a) of Article 121 of the same Law, or a bank constituted in the country.

NRP-65
ACCOUNTING OBLIGATIONS OF SUBSIDIARIES OF BANKS, INVESTMENT BANKS OR EXCLUSIVE-PURPOSE HOLDING COMPANIES Approval: 05/06/2024 Effective Date: 20/06/2024

VII. That Article 71 of the Investment Banks Law establishes that the provisions contained in Articles 23 and 24 of the Banks Law shall apply to Investment Banks, insofar as they do not contravene the Investment Banks Law, nor the nature or purpose of Investment Banks. (1)

VIII. That Article 7, literals b), c), i), and u), of the Law on Supervision and Regulation of the Financial System, establishes that it corresponds to the Superintendence of the Financial System to supervise banks and their subsidiaries, companies that, in accordance with the law, integrate financial conglomerates, or that the Superintendence declares as such, which includes both their holding companies and their member companies, and companies that offer complementary services to the financial services of the members of the financial system, particularly those in which they participate as investors and other entities, institutions, and operations indicated by the Laws, including Investment Banks. (1)

IX. That Article 99 of the Law on Supervision and Regulation of the Financial System establishes that the Central Bank of Reserve of El Salvador, by virtue of said Law, is the institution responsible for approving the technical regulatory framework that must be issued in accordance with this Law and other laws regulating supervised entities. In fulfilling this responsibility, the Central Bank of Reserve must ensure that the regulatory framework applicable to the financial system is periodically reviewed, seeking its timely update. (1)

THEREFORE, by virtue of the regulatory powers conferred upon it by Article 99 of the Law on Supervision and Regulation of the Financial System, AGREES to issue the following:

TECHNICAL STANDARDS ON PRUDENTIAL AND ACCOUNTING OBLIGATIONS OF SUBSIDIARIES OF BANKS, INVESTMENT BANKS, OR EXCLUSIVE-PURPOSE HOLDING COMPANIES (1)

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to establish the regulations that must be applied by the subsidiaries and joint investment companies of banks, investment banks, or exclusive-purpose holding companies. (1)

NRP-65
ACCOUNTING OBLIGATIONS OF SUBSIDIARIES OF BANKS, INVESTMENT BANKS OR EXCLUSIVE-PURPOSE HOLDING COMPANIES Approval: 05/06/2024 Effective Date: 20/06/2024

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are:
a) Subsidiaries of banks, investment banks, or exclusive-purpose holding companies constituted in El Salvador or abroad; and (1) b) Joint investment companies of banks, investment banks, or exclusive-purpose holding companies constituted in El Salvador. (1) The subjects referred to in this article are those that do not have specific regulation in the matter.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Central Bank: Central Bank of Reserve of El Salvador; b) Financial Conglomerate: It is the set of companies characterized by the fact that more than fifty percent of their respective share capital is owned by a holding company, which is also a member of the conglomerate. The holding company of the conglomerate may be an exclusive-purpose company or a bank constituted in the country; c) Holding Company: Controlling bank or exclusive-purpose holding company; d) Subsidiary: Subsidiary, affiliate, or joint investment company; and e) Superintendence: Superintendence of the Financial System.

CHAPTER II
PRUDENTIAL AND ACCOUNTING OBLIGATIONS

External Audits
Art. 4.- The subsidiaries of a financial conglomerate must hire an external auditor registered in the Registry kept by the Superintendence, in accordance with the "Technical Standards for the Registration of External Auditors of Members of the Financial System" (NRP-16), issued by the Central Bank through its Committee of Standards. When dealing with entities located abroad, they must hire firms associated with or correspondent to the auditors of the holding company, and if this is not possible, internationally recognized auditing firms. In addition, joint investment companies, in compliance with what is established in the Banks Law and the Investment Banks Law, must hire an external auditing firm registered in the Registry kept by the Superintendence. (1)

NRP-65
ACCOUNTING OBLIGATIONS OF SUBSIDIARIES OF BANKS, INVESTMENT BANKS OR EXCLUSIVE-PURPOSE HOLDING COMPANIES Approval: 05/06/2024 Effective Date: 20/06/2024

Internal Audits
Art. 5.- The subsidiaries supervised by the Superintendence must comply with the "Technical Standards for Internal Auditing for Members of the Financial System" (NRP-15), issued by the Central Bank through its Committee of Standards, insofar as applicable. The internal auditor of the subsidiaries may be the same as that of the holding company or other subsidiaries of the financial conglomerate.

Solvency
Art. 6.- The subsidiaries of a financial conglomerate must calculate the capital fund requirement and submit it to the Superintendence, in accordance with the deadlines and based on what is established in the "Technical Standards for the Application of the Capital Fund Requirement for Financial Entities" (NRP-44) and, in the case of subsidiaries of investment banks, they must consider the "Technical Standards for the Application of the Capital Fund Requirement for Investment Banks" (NRP-90), issued by the Central Bank through its Committee of Standards. (1)

Credit Limits and Related Credits
Art. 7.- Subsidiaries whose business is the granting of credits must comply with the following standards:
a) Technical Standards for the Application of Limits in the Assumption of Risks by Financial Entities (NRP-73); and (1) b) Technical Standards on the Granting of Credits to Persons Related to Banks, Investment Banks, and Savings and Credit Companies (NRP-74). (1) The Standards established in literal a) of this article are not applicable to subsidiaries of investment banks. (1)

Submission of Financial Statements
Art. 8.- Subsidiaries located in the territory of El Salvador must submit the trial balance and the monthly comprehensive income statement to the Superintendence within the first five business days of each month, except for those corresponding to the months of June and December, for which they will have a deadline of ten business days. Subsidiaries located abroad must submit the trial balance and monthly income statement to the Superintendence within the first ten business days, except for those corresponding to the months of June and December, for which they will have a deadline of twenty business days.

NRP-65
ACCOUNTING OBLIGATIONS OF SUBSIDIARIES OF BANKS, INVESTMENT BANKS OR EXCLUSIVE-PURPOSE HOLDING COMPANIES Approval: 05/06/2024 Effective Date: 20/06/2024

Accounting Obligations
Art. 9.- The subsidiaries supervised by the Superintendence must apply, insofar as applicable and making the necessary adjustments regarding accounting codifications and account naming, in the following accounting standards:
a) Accounting Manual for Deposit-Collecting Institutions and Holding Company (NCF-01), regarding Chapter II Accounting Framework, in its Sections:
i. SECTION I. Recognition of interest on active credit risk operations.
ii. SECTION II. Accounting reclassification of loans, contingencies, and suspension of interest recognition.
iii. SECTION III. Derecognition of impaired credit risk assets and subsequent recoveries.
iv. SECTION IV. Recognition, measurement, and presentation of extraordinary assets.
v. SECTION V. Recognition of commissions on loans and contingent operations.
vi. SECTION IX. Financial investments.
b) Technical Standards for the Registration of Revaluations of Real Estate of Financial Entities (NCF-03); and c) Standards for Classifying Credit Risk Assets and Establishing Sanitation Reserves (NCB-022).
In the case of subsidiaries of Investment Banks supervised by the Superintendence, they must apply, insofar as applicable and making the necessary adjustments regarding accounting codifications and account naming, in the following accounting standards: (1) a) Accounting Manual for Investment Banks (NCF-12), regarding Chapter II Accounting Framework, in its Sections: (1)
i. SECTION I. Recognition of interest on active credit risk operations. (1)
ii. SECTION II. Accounting reclassification of loans, contingencies, and suspension of interest recognition. (1)
iii. SECTION III. Derecognition of impaired credit risk assets and subsequent recoveries. (1)
iv. SECTION IV. Recognition, measurement, and presentation of extraordinary assets. (1)
v. SECTION V. Recognition of commissions on loans and contingent operations. (1)
vi. SECTION IX. Financial investments. (1)
vii. SECTION X. Cryptocurrencies. (1)

NRP-65
ACCOUNTING OBLIGATIONS OF SUBSIDIARIES OF BANKS, INVESTMENT BANKS OR EXCLUSIVE-PURPOSE HOLDING COMPANIES Approval: 05/06/2024 Effective Date: 20/06/2024

b) Technical Standards for the Registration of Revaluations of Real Estate of Financial Entities (NCF-03); and (1) c) Standards for Classifying Credit Risk Assets and Establishing Sanitation Reserves for Investment Banks (NCF-13). (1) Subsidiaries constituted abroad must restate the financial statements they submit to the Superintendence when a specific event or accounting transaction has a different treatment in the country where they are located.

Transfer of Shares
Art. 10.- The transfer of shares of a subsidiary may only be carried out with prior authorization from the Superintendence. The transfer may be authorized when this event does not cause a breach of the capital fund of the holding company.

Prohibition of Cross-Capital
Art. 11.- Subsidiaries may not have investments in other companies of the financial conglomerate; except when there is express authorization in the Banks Law.
Exempt from the prohibition established in the first paragraph of this article are portfolio investments held in their capacity as institutional investors in the funds they manage, provided they fully comply with the procedures applicable to them according to the laws regulating them.

Relationship with Pension Fund Administrators
Art. 12.- Pension fund administrators, in whose capital the exclusive-purpose holding company has invested predominantly, may not provide or receive services of any kind from any member company of the respective financial conglomerate, except as provided in the Integral Law of the Pension System; they may not share activities, infrastructure, public service locations, managers, or staff; they may only share the name and commercial trademarks.

Joint Action
Art. 13.- Except for minority or joint investments, member companies of the bank, investment bank, or authorized financial conglomerate may act jointly before the public, carry out joint marketing of services, offer complementary services, and declare themselves as part of the financial conglomerate. The foregoing is subject to the joint action standards expressed in Article 133 of the Banks Law and its regulated application in Article 71 of the Investment Banks Law, and to those complementarily issued by the Central Bank through its Committee of Standards, to regulate joint action. (1)

NRP-65
ACCOUNTING OBLIGATIONS OF SUBSIDIARIES OF BANKS, INVESTMENT BANKS OR EXCLUSIVE-PURPOSE HOLDING COMPANIES Approval: 05/06/2024 Effective Date: 20/06/2024

CHAPTER III
OTHER PROVISIONS AND EFFECTIVE DATE

Sanctions
Art. 14.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal
Art. 15.- These Standards repeal the "General Norms on Prudential and Accounting Obligations of Subsidiaries of Banks or Exclusive-Purpose Holding Companies" (NSB-001), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-55/2000 of October 19, 2000, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen Aspects
Art. 16.- Aspects not provided for in the matter of regulation in these Standards will be resolved by the Central Bank through its Committee of Standards.

Effective Date
Art. 17.- These Standards will enter into force on June 20, two thousand twenty-four.

MODIFICATIONS:

(1) Modifications in the denomination of the Standards, in considerations VII and VIII, and incorporation of consideration IX and modifications in Articles 1, 2, 4, 6, 7, 9, and 13 approved by the Central Bank through its Committee of Standards, in Session No. CN-09/2025, of November 10, two thousand twenty-five, with effect from November 25, two thousand twenty-five.