El Salvador’s Banco Central de Reserva has released two documents that reveal how banks should deal with Bitcoin. The Central bank of El Salvador has published a draft regulating bank on how they should handle Bitcoin.
Two documents were released for consultation on August 17 guiding banks and other financial institutions in the country on how to offer Bitcoin-related services to their customers. The first paper titled “Guidelines for Authorization of Operation of the Digital Wallet Platform for Bitcoin and Dollars” the document was offered in Spanish.
According to the Bitcoin Law, it defines Bitcoin as a legal tender that was passed by El Salvador’s Legislature on June 9. The document was released to further prepare the country for the proper adoption of Bitcoin that would start by September 7.
The Second document titled “Technical Standard to Facilitate the Application of Bitcoin Law” is a longer and more detailed version of the first document. Financial institutions must apply to the central bank to offer digital wallets, the guideline stated.
Applications must detail the type of product being offered, and include target market details, risk assessment, charges to customers, and complaints procedures. Know-your-customers (KYC) verification will be required for all customers though it was unclear if they will adopt the national ID card, since it was used for basic bank accounts, would the National ID card suffice as for a crypto wallet. Full anti-money laundering procedures will also be applied. Transaction monitoring and analysis would be applied.
Two-way Bitcoin to Dollar convertibility would be in place and banks would be allowed to charge a fee for the transaction. According to a translation by Attack of the 50 Foot Blockchain author David Gerard:
“The electronic platform used by 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 Bitcoin held by banks and companies must be fully backed as opposed to fractional reserve. Dollars will be held at the Central bank while BTCs are held with a custodian, a service that can be contracted out. Article 29 of the second document requires banks or financial institutions to warn customers that Bitcoin is Volatile, transactions cannot be reversed, and if they lose their private keys, they lose the BTC.
There was no provision for accounting standards or standard government exchange rates for converting Bitcoin into fiat currency and vice versa.