El Salvador’s central bank, the Banco Central de Reserva, recently released two guidelines outlining how banks should handle Bitcoin.
El Salvador’s national bank, the Banco Central de Reserva (BCR), recently announced proposed laws governing how banks should handle Bitcoin. On Aug. 17, two documents advising banks and financial institutions on how to offer Bitcoin-related services to their customers were made available for consultation.
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 in accordance with El Salvador’s recently enacted Bitcoin Law, which was approved by the country’s legislature on June 9 and will see the digital asset formally adopted on September 7.
The second document, titled “Technical Standards to Facilitate the Application of the Bitcoin Law,” is a more comprehensive and lengthy version of the first. According to the criteria, financial institutions must apply to the central bank to offer digital wallets. Applications must describe the sort of product being offered and include information about the target market, risk assessments, customer charges, customer education provisions, and complaint procedures.
All consumers will be forced to undergo know-your-customer (KYC) verification, though it was unclear if the national ID card used for basic bank accounts would enough for a crypto wallet. Complete anti-money laundering (AML) processes would also be implemented, including transaction monitoring and analysis. Two-way Bitcoin-to-dollar conversion is required, and the bank may impose a fee. According to a translation hosted by author David Gerard of Attack of the 50 Foot Blockchain:
“The electronic platform used by the digital wallet administrators must allow the Central Bank access in real time to all information related to the operations carried out, as well as information requested by clients.”
All Bitcoins owned by banks and businesses must be fully backed, not on a fractional reserve basis. Dollars will be held at the central bank, while BTC will be held by a custodian, whose services can be outsourced. Article 29 of the second document compels banks and financial institutions to inform consumers that Bitcoin is a volatile currency, that transactions cannot be reversed, and that if they lose their private keys, they would forfeit their BTC.
There were no accounting rules or established government exchange rates for converting Bitcoin to fiat currency or vice versa. Fitch Ratings, a credit rating firm based in the United States, indicated on August 16 that the BTC adoption plan will almost certainly be a credit negative for local insurance businesses due to volatility and risk concerns.
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