Proposed Banking Law Reform in El Salvador Opens Doors for Bitcoin Operations

Deputy William Soriano (New Ideas) reads the draft reform to the Banking Law. Source

In a bid to enhance economic growth and strengthen the financial system, the Technology, Tourism and Investment commission of the Legislative Assembly has reviewed a draft reform to the Banking Law in El Salvador. This initiative, driven by President Nayib Bukele and presented by Minister of Economy María Luisa Hayem, aims to boost competitiveness by facilitating the establishment and operation of private investment banks in the country.

Overview of the Draft Reform

Deputy William Soriano from the New Ideas party read the proposed reforms to the Banking Law. The primary objective, as stated by the government, is to channel financial resources efficiently towards business and government projects, thereby enhancing national wealth.

According to Deputy Dania González, the president of the Commission, the draft was ‘perceived’ but not yet commented on by the deputies. The proposal highlights private investment banking as a critical instrument for economic development.

Key Provisions in the Reform:

Minimal Capital & Shareholders
Private investment banks must be established with a minimum share capital of $50 million .

These banks must have at least two shareholders, who can be foreigners.

Target Investors

Funds will be captured from ‘sophisticated investors’ - those with investment experience, who understand risks, and have freely available assets equivalent to $250,000 or $500,000.

These investors can also receive loans if they present adequate guarantees.

Currency & Digital Assets

Operations can be conducted in any legal tender, including the dollar and Bitcoin.

Banks may seek authorisation to be digital asset service providers and Bitcoin service providers.

Foreign Contracts & Regulatory Exemptions

Private investment banks will be exempt from the prohibition on entering into contracts with foreign banks or finance companies linked to their shareholders or business group, as outlined in Article 209 of the current Banking Law.

They will also be exempt from the restriction in Article 19, which limits granting credits or taking risks beyond 25% of the banks patrimonial fund relative to the same person.

Additionally, the restriction on granting credits to persons abroad over 10% of the banks patrimonial fund will not apply.

Article 10, which mandates that at least 51% of investors must be Salvadoran or Central American, will not apply to these banks.

Legislative Process & Next Steps

The draft reform, though read, has not yet been approved. Legislators have yet to agree on calling officials to discuss the objectives of the project or to put the proposal to a vote within the Commission. The need for an updated regulatory framework is underscored by Deputy González, who pointed out that the current regulations date back to 1999 and require modernisation to foster the growth of private investment banking in El Salvador.