Technical Standards to Determine First-Line Foreign Financial Entities

NRP-80
FIRST-LINE FOREIGN ENTITIES
Approval: 15/08/2024
Validity: 30/08/2024

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

CONSIDERING:

I. Repealed (2)
II. Repealed (2)
III. That Article 41, first paragraph, letter e) of the Banks Law establishes that, with respect to the Equity Fund and risk-weighted assets, deposits of money in first-line foreign banks and loans, guarantees, sureties, and collateral guaranteed by first-line foreign banks shall be weighted between twenty and fifty percent, depending on their risk rating. (2)
IV. That Article 42, fourth paragraph, letter c) of the Banks Law establishes as a condition that, for the subordinated debt to be contracted by the bank, its creditor must be a first-line foreign financial institution. (2)
V. That Article 25, first paragraph, letter e) of the Law of Cooperative Banks and Savings and Credit Societies establishes that, with respect to the Equity Fund and risk-weighted assets, deposits of money in banks with investment grade and loans, guarantees, sureties, and collateral guaranteed by banks with investment grade shall be weighted between twenty and fifty percent, depending on their risk rating, in both cases according to international classifications issued by internationally recognized international risk rating agencies. (2)
VI. That Article 26, fifth paragraph, letter c) of the Law of Cooperative Banks and Savings and Credit Societies establishes as a condition that, for the subordinated debt to be contracted by the cooperative, its creditor must be a local or foreign institution with investment grade, according to international classifications issued by internationally recognized risk rating agencies. (2)
VII. That Article 157, first paragraph, letter e) of the Law of Cooperative Banks and Savings and Credit Societies establishes that the relationship between the equity fund and assets weighted, and the weighting of risk assets of savings and credit societies, shall be made in accordance with Article 25 of that Law. (2)
VIII. That Article 6, letter c) of the Insurance Companies Law establishes that the ownership of the shares of insurance companies constituted in El Salvador must be maintained, at minimum at seventy-five percent, individually or jointly, in Central American insurance or reinsurance companies or other foreign companies, the latter being classified as first-line companies, based on classifications made by internationally recognized rating institutions. In both cases, it must be considered that they operate in accordance with the prudential regulation and supervision of their country of origin and that they are complying with the provisions applicable to them. (2)
IX. That Article 25, fourth paragraph, letter c) of the Investment Banks Law establishes as a condition that, for the subordinated debt to be contracted by the investment bank, its creditor must be a first-line foreign financial institution. (1) (2)
X. That Article 2, first paragraph of the Law of Supervision and Regulation of the Financial System establishes that the Financial Supervision and Regulation System has as its objective to preserve the stability of the financial system and ensure its efficiency and transparency, as well as to ensure the security and solidity of the members of the financial system in accordance with what this Law, other applicable laws, regulations, and technical standards issued for this purpose establish, all in concordance with the best international practices on the matter. (1) (2)
XI. That Article 3, letter c) of the Law of Supervision and Regulation of the Financial System establishes that it is the responsibility of the Superintendency of the Financial System to proactively monitor the risks of the members of the financial system and the manner in which they manage them, ensuring the prudent maintenance of their solvency and liquidity. (1) (2)
XII. That Article 3, letter h) of the Law of Supervision and Regulation of the Financial System establishes that it is the responsibility of the Superintendency of the Financial System to authorize the registrations, registry entries, modifications, and cancellations thereof, of the persons, institutions, and operations subject to such requirement, in accordance with the laws on the matter. (1) (2)
XIII. That Article 99, third paragraph, letter a) of the Law of Supervision and Regulation of the Financial System establishes that it is the responsibility of the Committee of Standards of the Central Reserve Bank of El Salvador to approve technical standards, instructions, and provisions that the laws regulating the supervised entities establish must be issued to facilitate their application, especially those relating to solvency requirements, liquidity, provisions, reserves, classification of risk assets, criteria for establishing the need for consolidation, good corporate governance practices, transparency of information, and on any other aspect inherent to risk management by the supervised entities. (1) (2)

XIV. That in accordance with Article 101, fourth paragraph of the Law of Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical standards that must be complied with by the members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador. (1) (2)

THEREFORE,

by virtue of the regulatory powers conferred by Article 99 of the Law of Supervision and Regulation of the Financial System,

AGREES to issue the following:

TECHNICAL STANDARDS TO DETERMINE FIRST-LINE FOREIGN FINANCIAL ENTITIES

CHAPTER I
OBJECTIVE, SUBJECTS, AND TERMS

Objective
Art. 1.- These Standards aim to establish the criteria that must be considered to classify a foreign financial entity as First-Line or with investment grade or first-rank entity, as well as the procedures that obligated subjects must fulfill to register them in the List of First-Line Foreign Banks and Financial Institutions maintained by the Superintendency of the Financial System.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are:
a) Banks constituted in the country; b) Branches of foreign banks established in the country; c) Savings and credit societies; d) Cooperative banks; e) The Mortgage Bank of El Salvador, S.A.; f) The Agricultural Development Bank, insofar as it does not contradict its Creation Law; g) Insurance companies constituted in the country; h) Exclusive-purpose holding companies. (1) i) Foreign financial institutions that request authorization to establish a branch or information office in the country; and (1) j) Investment banks constituted in the country. (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) Rating Agencies: Risk Rating Companies; c) Foreign Entities: Foreign banks or other financial institutions subject to first-line classification; d) List: List of First-Line Foreign Banks and Financial Institutions; e) First-line: Refers to "with investment grade" and "first-rank entities"; f) Entity/entities: Subjects obligated to comply with these Standards; and g) Superintendency: Superintendency of the Financial System.

CHAPTER II
ON THE LIST OF FOREIGN FINANCIAL ENTITIES

Submission of Application
Art. 4.- Entities interested in having foreign entities classified as First-Line and registered in the List maintained by the Superintendency must submit a written application attaching the report issued by the Rating Agency showing the assigned international rating.

Additional Requirements in Case of Share Ownership Art. 5.- In the case of foreign entities that propose to invest in shares of insurance companies constituted in the country in more than one percent of the capital of these entities, in addition to what is established in the previous article, they must attach a note issued by their supervisory body, stating that in their country of origin there is prudential regulation and supervision in accordance with international practices. (1) (2) The authorization for the ownership of shares of insurance companies is regulated in the following regulation: (1) (2) a) Repealed; and (1) (2) b) "Technical Standards on the Transfer of Shares of Insurance Companies" (NRP-54), issued by the Central Reserve Bank of El Salvador through its Committee of Standards.

Update of the List
Art. 6.- In the first ten business days of the months of June and December of each year, entities will update the rating of the foreign entities they have registered in the List; this being understood as the notification to the Superintendency of the rating report of each foreign entity. In case the update is not carried out or when the rating presented is of higher risk than those accepted by these Standards, such entities will lose their status as registered. The date of issuance of the report containing the international classification must not be more than one year old.

Art. 7.- In order to keep the List updated, entities must monitor the ratings of the foreign entities they certify as First-Line and inform the Superintendency when any of them is rated with a category of higher risk than those admitted by these Standards, causing it to lose its status as registered in the List.

CHAPTER III
GENERAL PROVISIONS

Classification Criteria
Art. 8.- The ratings issued by the Rating Agencies will serve as a reference to classify foreign banks or financial entities as First-Line and will allow them to be registered in the List; the registration will enable them for the effects indicated in the Banks Law, Insurance Companies Law, Law of Cooperative Banks and Savings and Credit Societies, and the Investment Banks Law. (1)

Internationally Recognized Rating Agencies
Art. 9.- The Rating Agencies accepted by the Superintendency as internationally recognized, for the purposes of these Standards, are the following:
a) Fitch Ratings; b) Moody's Investors Service; c) Standard & Poor's Corporation; and d) A.M. Best Company, Inc.
Rating Agencies in which one of those mentioned in the preceding letters has an equity participation of at least ten percent are also accepted, as well as Rating Agencies registered with the Securities and Exchange Commission of the United States of America, a quality that must be demonstrably proven to the Superintendency.

International Risk Categories that Classify as First-Line Art. 10.- For the purposes of these Standards, first-line financial entities are those entities that have any of the international ratings described below:

Risk Rating Agency	Classification Categories	Short-term Obligations	Long-term Obligations	Issuer Rating
Fitch Ratings	F1+, F1, F2, F3	AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-	AAA, AA, A, BBB, BB, B (2)
Moody's Investors Service	P-1, P-2, P-3	Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3	Aaa, Aa1, Aa2, Aa3, A1, A2, A3
Standard & Poor's Corporation	A1+, A1, A2, A3, A, A-, BBB+, BBB, BBB-	Short-term: A1+, A1, A2, A3; Long-term: AAA, AA+, AA, AA-, A+, A, AA-
A.M. Best Company, Inc.	AMB-1+, AMB-1, AMB-2, AMB-3	aaa, aa, aa+, aa-, a+, a, a-, bbb+, bbb, bbb- (2)	A++, A+, A, A-, B++, B+

Risk categories of other Rating Agencies that have different nomenclature but have an equivalence to the above and are considered of "investment grade" quality will be accepted.

CHAPTER IV
OTHER PROVISIONS AND VALIDITY

Art. 11.- The First-Line classification is one of the requirements that foreign financial entities must fulfill to desire to acquire ownership of more than one percent of the shares of insurance companies constituted in the country. (2) The criteria expressed in these Standards that classify foreign financial entities as First-Line do not constitute a suggestion or recommendation to invest, nor a guarantee or warranty of the issuance or of the solvency of the foreign entity.

Sanctions
Art. 12.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law of Supervision and Regulation of the Financial System.

Repeal
Art. 13.- These Standards repeal the "Standards to Determine First-Line Foreign Financial Entities" (NPB4-43), approved in Board of Directors Session No. CD-45/2009 on October 28, 2009 by the Board of Directors of the Superintendency of the Financial System, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law of Supervision and Regulation of the Financial System, published in Official Diary No. 23, Volume No. 390, dated February 2, 2011.

Transitory
Art. 14.- Applications presented in accordance with what is established in the "Standards to Determine First-Line Foreign Financial Entities" (NPB4-43), and which were pending at the time of entry into force of these Standards, will continue in accordance with the regulation under which they began.

Unforeseen Aspects
Art. 15.- Unforeseen aspects in regulatory matters in these Standards will be resolved by the Central Bank through its Committee of Standards.

Validity
Art. 16.- These Standards will enter into force as of August 30, two thousand twenty-four.

MODIFICATIONS:
(1) Modifications in Considerations V, VI, VII, VIII and IX and incorporation of Consideration X and modifications of Articles 2, 5 and 8, approved by the Central Bank through its Committee of Standards, in Session No. CN-09/2025, of November 10, two thousand twenty-five, with validity from November 25, two thousand twenty-five. (2) Repeal of Considerations I and II, modifications in Considerations III, IV, V, VI, VII, VIII, IX and X and incorporation of Considerations XI, XII, XIII and XIV, and modifications in Articles 5, 10 and 11, approved by the Central Bank through its Committee of Standards, in Session No. CN-05/2026, of June 30, two thousand twenty-six, with validity from July 15, two thousand twenty-six.