Since El Salvador first decreed that Bitcoin will be made legal tender, the crypto-world has waited with anticipation for this financial revolution to unfold. Despite heavy criticism from both inside and out, the country hasn’t backed down from going through with the plan. In fact, the implementation is set to take place on 7 September.
Ahead of the big day, the Banco Central de Reserva (BCR) has now published draft reservations outlining how financial institutions should handle Bitcoin and services related to it. The bank had also released two documents earlier this week for consultation and recommendations.
Both documents contain guidelines on how banks, cooperative banks, and savings and credit societies should offer Bitcoin-related services to their customers. The first, titled “Guidelines for the Authorization of Operation of the Digital Wallet Platform for Bitcoin and Dollars,” defined Bitcoin as “legal tender according to the Bitcoin Law that uses Blockchain technology.”
Guidelines for use
It further stated that financial entities will have to apply with the bank to offer digital wallet services. Applicants will have to provide details such as product offerings, market targets, a risk assessment and plan, charges to customers, customer education about the financial product, and complaint procedures.
Know-Your-Customer (KYC) will also be mandatory for all, although the document did not specify whether the country’s National ID would be sufficient for opening a digital wallet. Further, complete anti-money laundering (AML) procedures have to be adhered to by the entities, including transaction monitoring and analysis.
Two-way Bitcoin-to-dollar convertibility shall also be provided to customers, albeit with a small fee charged by the bank. An analytical translation provided by author David Gerard defined a further guideline as,
“The electronic platform used by the 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.”
The second document, which outlined the “Technical Standards,” was a more detailed rendition of the first one. It expanded on AML compliance and the warnings about volatility and lost keys that the banks are supposed to provide.
In his analysis of the documents, however, Gerard pointed to a “worrying” section related to Bitcoin transactions. Apparently, for each one of them, the “banks must collect the name and address of the client, the time of the transaction, the number of Bitcoins, the value in dollars at the time, the name and physical address of each counterparty of the client’s transaction, IP address, and IMEI of any mobile devices involved.”
This private information will be stored for 15 years, with the document not expanding on the terms of its access. Gerard also highlighted that accounting standards to measure its “ridiculously volatile” dollar value were missing, along with a “standard government exchange rate.”
According to Gerard, the vague definition of Bitcoin needs to be expanded to something “that doesn’t include every possible blockchain token.”