El Salvador’s central bank, Banco Central de Reserva, has released proposed regulations on how banks should deal with Bitcoin. On Aug. 17, two papers were made available for consultation, directing banks and financial institutions on how to provide Bitcoin-related services to their clients.
The first, titled “Guidelines for the Authorization of Operation of the Digital Wallet Platform for Bitcoin and Dollars,” defines BTC as legal tender under El Salvador’s newly approved Bitcoin Law, which will see the government legally embrace the digital asset on September 7. The second paper, titled “Technical Standards to Facilitate the Application of the Bitcoin Law,” is a more comprehensive version of the first.
According to the criteria, financial institutions must apply to the central bank to provide digital wallets. Applications must include information about the sort of product being supplied, as well as information about the target market, risk assessments, costs to consumers, customer education provisions, and complaint processes.
All clients would be required to undergo KYC verification, however, it is unclear if a national ID card, which is used for basic bank accounts, will suffice for a crypto wallet. Anti-money laundering measures would be implemented in full, including transaction monitoring and analysis. Instead of a fractional reserve, all Bitcoin owned by banks and corporations must be completely backed. Dollars will be stored at the central bank, while BTC will be held by a custodian, whose services can be outsourced.
For turning Bitcoin into fiat currency and vice versa, there were no accounting rules or established government exchange rates. Due to volatility and risk concerns, American credit rating firm Fitch Ratings warned on August 16 that the BTC adoption plan will likely be a credit negative for local insurance businesses.
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