Technical Standards to Authorize Banks, Investment Banks, and Exclusive Purpose Holding Companies to Make Equity Investments in Subsidiaries and Offices in Foreign Countries

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-11/2024 NRP-86
TECHNICAL STANDARDS TO AUTHORIZE BANKS, INVESTMENT BANKS, AND EXCLUSIVE PURPOSE HOLDING COMPANIES TO MAKE EQUITY INVESTMENTS IN SUBSIDIARIES AND OFFICES IN FOREIGN COUNTRIES Approval: 12/19/2024 Validity: 01/03/2025

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

CONSIDERING:
I. That Article 23, first paragraph, of the Banks Law establishes that banks with prior authorization from the Financial System Superintendence may carry out financial operations in other countries through offices and subsidiary banking entities, provided that regulation and prudential supervision exist 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.
II. That Article 144 of the Banks Law establishes provisions related to investments abroad that controlling companies may make, which will require the approval of the Financial System Superintendence.
III. That Article 145 of the Banks Law establishes the requirements that the Financial System Superintendence will verify to authorize controlling companies for the investments abroad contemplated in Article 144 of said Law.
IV. That Article 71 of the Investment Banks Law establishes that the provisions of Article 23 of the Banks Law will apply to Investment Banks insofar as they do not contravene the Investment Banks Law, nor the nature or purpose of Investment Banks. (1)

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 TO AUTHORIZE BANKS, INVESTMENT BANKS, AND EXCLUSIVE PURPOSE HOLDING COMPANIES TO MAKE EQUITY INVESTMENTS IN SUBSIDIARIES AND OFFICES IN FOREIGN COUNTRIES (1)

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to establish the minimum requirements and procedures that banks, investment banks, and exclusive purpose holding companies constituted in the country must comply with so that the Financial System Superintendence authorizes them to invest in subsidiaries in foreign countries. Likewise, it establishes the requirements to authorize banks to establish offices abroad. (1)

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are:
a) Banks constituted in the country; (1) b) Exclusive purpose holding companies, constituted in the country; and (1) c) Investment banks. (1)

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) Holding Company: Companies owning at least fifty percent of the shares of other companies in the financial system; the holding company may be a bank or a company whose exclusive purpose is investment in other companies in the financial system; c) Exclusive Purpose Holding Company: Companies that own at least fifty percent of the shares of other companies and whose purpose is solely investment in shares of other companies in the financial system; d) Entities: Subjects obligated to comply with these Standards; e) Board of Directors: Collegiate body in charge of the administration of the entity, with supervisory, directional, and control functions, or an equivalent body; f) General Shareholders' Meeting or its equivalent: It is the highest authority of the entity. The Social Pact or Bylaws must recognize this attribution as well as its fundamental functions and competencies to adopt all kinds of agreements regarding its governance and, in general, all measures that require compliance with the Social Pact and the common interest of the shareholders; g) AML/CFT/CPF: Anti-Money Laundering, Countering the Financing of Terrorism, and Countering the Financing of Proliferation of Weapons of Mass Destruction; h) Repealed; (1) i) Office: Those dependencies physically separate from the head office or central office that form an integral part of the same legal entity, which may carry out the operations authorized by the Financial System Superintendence and the tax authority of the host country; j) Subsidiary: Companies in which a controlling bank or exclusive purpose holding company holds more than fifty percent of the social participation; and k) Superintendence: Financial System Superintendence.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-11/2024 NRP-86
TECHNICAL STANDARDS TO AUTHORIZE BANKS, INVESTMENT BANKS, AND EXCLUSIVE PURPOSE HOLDING COMPANIES TO MAKE EQUITY INVESTMENTS IN SUBSIDIARIES AND OFFICES IN FOREIGN COUNTRIES Approval: 12/19/2024 Validity: 01/03/2025

CHAPTER II
CONDITIONS AND INFORMATION REQUIREMENTS FOR AUTHORIZATION

Equity Investments in Companies
Art. 4.- Entities will request authorization from the Superintendence when they carry out financial operations in other countries through offices and subsidiary banking entities, provided that regulation and prudential supervision exist in accordance with international practices on this matter, through equity participation in entities such as brokerage firms of a nature similar to those that carry out this business in El Salvador, holding companies of regulated financial groups, companies specialized in the deposit and custody of securities, credit card issuers, financial leasing companies, and general warehouses. Exclusive purpose holding companies may additionally invest in subsidiaries that have the business of insurance companies and Pension Fund Administrators.

Investment in Companies in the Process of Constitution or in Offices Art. 5.- Entities interested in investing in a company to be constituted abroad must submit a request signed by the legal representative and addressed to the Superintendence, accompanied by the following information:
a) Certification of the agreement of the General Shareholders' Meeting or Board of Directors, as required by the entity's social pact, for the opening of the office or subsidiary banking entity abroad; b) Draft deed of constitution and bylaws of the company; c) Economic and financial feasibility study that includes the following: background, objectives, advantages, and benefits of making the investment, two-year business projections, and perspectives with the company or office to be constituted; d) List of future shareholders of the company with their share participation and their link to the entity. In the case where there are shareholders with a participation equal to or greater than ten percent of the capital of the subsidiary, they must comply with the provisions on relevant shareholders or direct relevant shareholders, as established by the Banks Law and the Investment Banks Law, respectively. To determine this percentage, the shares of the holder, those of the spouse, those of relatives within the first degree of consanguinity, and the proportional part corresponding to them in companies where they are shareholders of said entity, shall be added. For the purpose of establishing the aforementioned percentage, a sworn declaration of future relevant shareholders or direct relevant shareholders, as applicable, must be included, containing the list of the full names of their spouses, their relatives in the first degree of consanguinity, and those of the entities where they have a patrimonial participation. (1)

Also, a relevant shareholder or direct relevant shareholder, as applicable, is anyone who directly or through a joint action agreement with one or more other shareholders has the power to elect one or more directors; (1)

e) Request to acquire shares in excess of ten percent, in the case of relevant shareholders, in accordance with the models established in Annexes Nos. 1 and 2 of these Standards; f) Resume of the future top executives of the office or subsidiary, understood as such, the general manager and the managers or deputy managers of areas or, in any case, those who hold positions equivalent to the aforementioned; g) Effect on the entity's equity fund of the investment to be made, both individually and consolidated, in accordance with the Banks Law and the Investment Banks Law, respectively; (1) h) Declaration of will of the promoters of the office or subsidiary to submit to the regulatory provisions of El Salvador; i) Report issued by the Risk Unit, on the analysis of the risks that will be assumed in making the investment and of the operations of the new company; and j) Description of the systems or monitoring mechanisms related to the Prevention, Detection, and Control of Anti-Money Laundering, Countering the Financing of Terrorism, and Countering the Financing of Proliferation of Weapons of Mass Destruction. When it comes to the investment to establish an office, instead of what is provided in letter c) of the first paragraph of this article, commercial plans, the market segment intended to be served, the services to be provided, the amount of the investment, and the name of the office representative(s) and their executives must be presented.

Investments in Operating Companies
Art. 6.- Entities interested in investing in companies operating abroad must submit a request signed by the legal representative and addressed to the Superintendence, accompanied by the following information:
a) Certification of the agreement of the General Shareholders' Meeting or Board of Directors, as required by the entity's social pact, for the investment in the foreign company; b) Deed of constitution and bylaws of the company in which the investment will be made, with their modifications, if any; c) Economic and financial feasibility study that includes the following: background, objectives, advantages, and benefits of making the investment, two-year business projections, and perspectives of the company in which the investment will be made; d) List of current shareholders of the company with their share participation and their link to the entity; e) Request to acquire shares in a percentage equal to or greater than ten percent, in the case of relevant shareholders; in accordance with the models established in Annexes Nos. 1 and 2 of these Standards. In case there are shareholders with a participation equal to or greater than ten percent of the capital of the subsidiary, they must comply with the provisions on relevant shareholders or if there are direct relevant shareholders as established by the Banks Law and the Investment Banks Law, respectively. To determine this percentage, the shares of the holder, those of the spouse, those of relatives within the first degree of consanguinity, and the proportional part corresponding to them in companies where they are shareholders of said entity, shall be added. For the purpose of establishing the aforementioned percentage, a sworn declaration of shareholders or direct relevant shareholders, as applicable, who have a participation of ten percent or more, must be included, containing the list of the full names of their spouses, their relatives in the first degree of consanguinity, and those of the entities where they have a patrimonial participation. (1)

Also, a relevant shareholder or direct relevant shareholder, as applicable, is anyone who directly or through a joint action agreement with one or more other shareholders has the power to elect one or more directors; (1)

f) Indicate how the entity intends to direct and control the management of the company, such as the establishment of policies and risk management, degree of autonomy, internal control systems, planned information flows, etc.; g) Resume of the top executives of the subsidiary, understood as such, the general manager and the managers or deputy managers of areas or, in any case, those who hold positions equivalent to the aforementioned; h) Effect on the entity's equity fund of the investment to be made, both individually and consolidated, in accordance with the Banks Law and the Investment Banks Law, as applicable; (1) i) Audited financial statements of the last two years with the external auditor's reports; j) Offered price of the shares and the possible sellers; k) Amount of the equity investment and the list of new shareholders, if any; l) Declaration of will of the subsidiary company to submit to the regulatory provisions of El Salvador applicable to it; m) Report issued by the Risk Unit, on the analysis of the risks that will be assumed in making the investment and of the operations carried out by the company; and n) Description of the systems or monitoring mechanisms related to the Prevention, Detection, and Control of Anti-Money Laundering, Countering the Financing of Terrorism, and Countering the Financing of Proliferation of Weapons of Mass Destruction. All those written documents in a language other than Spanish that are required from the entity proposing to open an office or subsidiary entity in foreign countries or invest in an operation, to have effect in El Salvador, must be translated into Spanish by an interpreter appointed by a competent judge or before a notary of El Salvador, in accordance with the Law on the Notarial Exercise of Voluntary Jurisdiction and Other Diligences. The requests and documentation referred to in Articles 5 and 6 of these Standards may be submitted through the means made available by the Superintendence, which may be electronic. In any case, the period 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.

CHAPTER III
PROCEDURE FOR THE REQUEST

Authorization Request for the Opening Abroad of an Office or Subsidiary Entity Art. 7.- Upon receipt of the authorization request for the opening abroad of an office or subsidiary entity, in accordance with what is established in Articles 5 and 6 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined by the Banks Law, Investment Banks Law, and these Standards, having a maximum period of two months for the authorization or denial of the authorization request for the opening abroad of an office or subsidiary entity. (1) If the request is not accompanied by the complete and duly formatted information detailed in Articles 5 and 6 of these Standards, the Superintendence, due to the lack of necessary requirements, may require the entity 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 entity when there are reasons justifying it. The Superintendence in the same warning will indicate to the entity that if they do not complete the information within the aforementioned period, it will proceed without further procedure to archive the request, reserving its right to submit a new request. If after the analysis of the documentation presented in accordance with Articles 5 and 6 of these Standards, the Superintendence has observations or when the documentation or information presented is not sufficient to establish the facts or information intended to be accredited, the Superintendence will warn the entity to remedy the deficiencies communicated or present additional documentation or information requested. The entity 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 Superintendence. The Superintendence may, through a reasoned resolution, extend by another ten business days, the period indicated in the previous paragraph, when the nature of the observations or deficiencies warned requires it.

Extension Period
Art. 8.- The entity interested in the authorization for the opening abroad of an office or subsidiary entity may submit to the Superintendence a request for extension of the period indicated in the fifth paragraph of Article 7 of these Standards, before the expiration of said period, stating the grounds on which it is based and proposing, if applicable, the pertinent proof. The extension period may not exceed ten business days and will begin from the next business day after the expiration date of the original period.

Suspension of the Period
Art. 9.- The two-month 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 Superintendence are remedied.

Regarding Agreements with the Supervisory Authority Art. 10.- Prior to the authorization of the opening abroad of an office or subsidiary entity, the Superintendence must conclude agreements with the supervisory authority of the country where the investment will be made, in order to coordinate the exchange of information and the mechanisms that enable consolidated supervision, ensuring the confidentiality of such information, in accordance with Articles 23 and 145 of the Banks Law, and Article 71 of the Investment Banks Law, as applicable. (1)

Resolution
Art. 11.- Once the documents have been presented in due form and the corresponding analyses have been carried out and the feasibility of the investment and the solvency requirements of the entity and the company in which the investment will be made have been evaluated, the Superintendence will proceed to issue a resolution authorizing or denying the authorization request for the opening abroad of an office or subsidiary entity, which it will notify within a maximum period of three business days from the day the resolution is issued.

Art. 12.- If the resolution mentioned in Article 11 of these Standards is favorable, the entity will have a period of one month to make the investment; when it comes to future companies, these must be constituted within the following four months. At the request of the entity, the period may be extended once and for no more than one month. In the event that the established periods are not met, the Superintendence may revoke the authorization.

Art. 13.- If the resolution is denying, the notification will contain the reasoned causes for the denial.

Start of Operations
Art. 14.- The office or subsidiary entity must present to the Superintendence the certificate of authorization from the host country and inform it, one month in advance of the start of operations, the following:
a) The day on which it will start its operations with the public; b) Public service hours; and c) The list of executive personnel and the registry of authorized signatures.

CHAPTER IV
OTHER PROVISIONS AND VALIDITY

Modifications in the Social Pact
Art. 15.- Modifications subsequently introduced to the social pact of the company in which the investments were made must be reported to the Superintendence.

Supervision
Art. 16.- Offices and subsidiary banking entities are subject to the supervision of the Superintendence, with all the powers conferred by the Law on Supervision and Regulation of the Financial System, without prejudice to the powers of other foreign supervisory bodies regarding the audit of such companies.

Applicable Regulation for AML/CFT/CPF
Art. 17.- When investing in subsidiaries or offices abroad, it must be required that such subsidiaries or offices of a bank, investment bank, or holding company constituted in El Salvador observe, monitor, and comply with all measures in prevention of AML/CFT/CPF, in concordance with the requirements of the country and the Recommendations of the Financial Action Task Force (FATF). (1) Entities must pay particular attention to the fact that this principle is...