The central bank of El Salvador has published Draft of Bitcoin banking regulations

Two documents were released for consultation on Aug. 17 instructing banks and financial institutions how to offer Bitcoin-related services to their customers.

The first document, titled “Guidelines for the Authorization of Operation of the Digital Wallet Platform for Bitcoin and Dollars” in Spanish language, defines Bitcoin as legal tender according to the recently drafted Bitcoin Law which was passed by El Salvador’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 longer and more detailed version of the first document.

The guidelines stated that financial entities must register to the central bank to offer digital wallets. The registration document must detail the type of product being offered, and include target market details, risk assessments, charges to customers, education provisions for customers, and complaint procedures.

Know-your-customer (KYC) verification will be required for all customers, though it was unclear whether the national ID card, which is used for basic bank accounts, would suffice for a crypto wallet. Full anti-money laundering (AML) procedures such as transaction monitoring and analysis would also be applied. Two-way Bitcoin-to-dollar convertibility must be provided and the bank is allowed to charge a fee. 

All Bitcoin held by banks and companies must be fully backed as opposed to a fractional reserve. Dollars will be held at the central bank while BTC is held with a custodian, services for which can be contracted out.

Article 29 of the second document requires the bank or financial institution to warn customers that Bitcoin is volatile, transactions cannot be reversed, and that if they lose their private keys, then they lose the BTC. 

There were no provisions for accounting standards or standard government exchange rates for converting Bitcoin into fiat and vice versa.

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