El Salvador publishes a draft of its Bitcoin banking regulations

Banco Central de Reserva (BCR), El Salvador’s central bank, has published a draft that offers guidelines on how banks in the country should handle Bitcoin (BTC/USD). Today, a report unveiled this news noting that the authority released two documents for consultation on August 17. Reportedly, the documents offered banks and financial institutions instructions on how to offer their clients Bitcoin-related services.

According to the report, the first document is titled Guidelines for the Authorization of Operation of the Digital Wallet Platform for Bitcoin and Dollars, and it defines BTC as legal tender. The paper draws this definition from the drafted Bitcoin law, which El Salvador’s legislature passed on June 9. According to this law, El Salvador will start using BTC as legal tender on September 7.

The second document is dubbed Technical Standards to Facilitate the Application of the Bitcoin Law, and it delves into the fundamentals of the first paper.

Per the guidelines, financial organizations apply with BCR before offering other digital currencies. These applications should indicate the type of product a bank wants to offer and provide details on the target market. On top of this, the applications should provide detailed information on risk assessments, charges to customers, education provisions for customers, and complaint procedures.

Banks must inform clients of the risks associated with BTC

The further noted that all customers must submit KYC information. However, it remains unclear whether the national ID, which is the only requirement while opening a bank account in the country, will suffice when it comes to crypto wallets. Apart from KYC, the banks must also apply anti-money laundering procedures like tracing and analyzing transactions.

Under the proposed guidelines, banks must offer two-way BTC-to-dollar convertibility, and charging a fee for these services is allowed. Additionally, banks must fully back all the BTC they hold. To ensure banks maintain this delicate balance, BCR will hold the dollar reserves. On the other hand, banks will have to entrust their BTC to a custodian.

Moreover, financial institutions will have to inform their clients about the risks involved when using BTC, according to Article 29 of the second document. Such risks involve the cryptocurrency’s intrinsic volatility, the fact that transactions are irreversible, and that losing private keys to a BTC wallet means losing the BTC in the wallet.

The draft, however, failed to mention whether there will be accounting standards or a standard government exchange rate for converting BTC to dollars or dollars to BTC.