El Salvador’s central bank, Banco Central de Reserva (BCR), has published draft regulations governing how banks should handle Bitcoin.
On August 17, two documents were made available for public comment, instructing banks and financial institutions on how to provide Bitcoin-related services to their customers.
The first, titled “Guidelines for the Authorization of the Operation of the Digital Wallet Platform for Bitcoin and Dollars” (in Spanish), defines BTC as legal tender under El Salvador’s recently passed Bitcoin Law, which was passed by the country’s legislature on June 9 and will see the country formally adopt the digital asset on September 7.
The second document, titled “Technical Standards to Facilitate the Application of the Bitcoin Law,” is a more detailed version of the first.
According to the guidelines, financial institutions must apply to the central bank to offer digital wallets. Applications must specify the type of product being offered and target market information, risk assessments, charges to customers, customer education provisions, and complaint procedures.
KYC verification will be required for all customers, though it was unclear whether the national ID card used for basic bank accounts would suffice for a crypto wallet. Full anti-money laundering (AML) procedures, such as transaction monitoring and analysis, would be implemented as well.
Two-way Bitcoin-to-dollar conversion must be provided, and the bank may charge a fee. According to a translation hosted by author David Gerard of Attack of the 50 Foot Blockchain:
“The electronic platform used by digital wallet administrators must provide the Central Bank with real-time access to all information related to operations as well as information requested by clients.”
In contrast to a fractional reserve, all Bitcoin held by banks and corporations must be fully backed. Dollars will be held at the central bank, while Bitcoin will be held with a custodian, whose services can be contracted out.
Article 29 of the second document requires the bank or financial institution to inform customers that Bitcoin is volatile, that transactions cannot be reversed, and that they will lose their BTC if they lose their private keys.
There were no accounting standards or standard government exchange rates for converting Bitcoin to fiat or vice versa.
Due to volatility and risk concerns, American credit rating agency Fitch Ratings stated on August 16 that the BTC adoption plan will likely be a credit negative for local insurance companies.