Unofficial translation

Original language: Spanish

Treaty on payment and securities settlement systems in Central America and the
Dominican Republic

Preamble

The States Party,

Recognising that payment and securities settlement systems are essential to the
functioning and development of financial systems, that their legal soundness and security are
fundamental requirements for maintaining and promoting financial stability in the Region, and
that these systems facilitate the development of complementary mechanisms essential to regional
financial integration;

Considering the Protocol to the General Treaty on Central American Economic

Integration (the Guatemala Protocol), signed on 29 October 1993, in which it was agreed to
improve Central American monetary and financial integration by maintaining unrestricted
freedom of payments within the region, permitting the use of different means of payment,
facilitating the free transfer of capital and promoting the financial and capital market integration
of the States Party;

Aware that payment systems can be exposed to various risks, including legal risk, and
that a legal framework that is insufficient or generates uncertainty can cause or increase credit or
liquidity risk, and along with them systemic risk;

Observing that regional standards must be clearly defined in accordance with

international standards for systemically important payment and securities settlement systems
which provide adequate legal protection for growing local and international operations channelled
through those systems, and which also strengthen supervision of those systems in order to ensure
their correct functioning, security and efficiency;

Noting that the Central American Monetary Council, as part of its “Project for the
harmonisation and strengthening of the payment and securities settlement systems of Central
America and the Dominican Republic”, has approved the principles contained in the “Model Law
on Payment and Securities Settlement Systems of Central America and the Dominican Republic”,
which it considers an appropriate instrument for establishing regional standards on this subject;

Recognising the need to strengthen and complement the national regulations which,
based on the Model Law, each of the States in the Region may approve, through regional
regulations containing principles and rules to harmonise and strengthen the Region’s payment and
securities settlement systems in accordance with the highest international standards;

have agreed the following

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Treaty on payment and securities settlement systems in Central America and the
Dominican Republic

CHAPTER I
General provisions

Article 1. Object and scope

1. The object of this treaty is to foster the legal security, development and strengthening of
the Region’s systemically important payment and securities settlement systems, and to strengthen
central banks’ jurisdiction over the payment systems of the States Party.

2. The provisions of this treaty shall be applied to the Region’s payment and securities
settlement systems, its administrative and participating entities and, as pertinent, the central banks
and other government institutions of the States Party.

Article 2. Definitions

For the purposes of this treaty:

a) “Payment system” is defined as the body of regulations, agreements and procedures whose
principal object is the execution of orders to transfer funds between participants.
b) “Securities settlement system” is defined as the body of regulations, agreements and
procedures whose principal object is the execution of orders to transfer securities and, as the case
may be, of the associated funds transfers.
c) “Systemically important system” is defined as a payment or securities settlement system whose
correct functioning is essential for the effectiveness of financial markets and which may transmit
its disruptions to participants or other systems, including internationally.
d) “Participant” is defined as any financial institution subject to supervision, or any public or
publicly guaranteed entity, accepted as a member of a payment or securities settlement system
according to its rules of operation, and responsible vis-à-vis that system for assuming the
settlement obligations derived from transfer orders issued within the system. Participants may
include the central bank of a State Party or the administrator, settlement agent or clearing house
of another system.
e) “System administrator” is defined as the entity that operates a payment or securities settlement
system.
f) “Order to transfer funds” is defined as an instruction issued by a participant through a system to
make available to the designated beneficiary a specified sum of money, or to assume or settle a
payment obligation, as defined in the system’s rules of operation.
g) “Order to transfer securities” is defined as an instruction issued by a participant through a
system to transfer to the designated beneficiary the ownership or other right to certain securities.
h) “Clearing” or “netting” is defined as the conversion, in accordance with the system’s rules of
operation, of rights and obligations derived from orders to transfer funds or securities accepted by
the system into a single credit or obligation, so that only the net credit or obligation is payable.
i) “Collateral” is defined as any liquid asset, including money, used to ensure the rights and
obligations derived from orders to transfer funds or securities within the system.
j) “Reorganisation or liquidation of a participant” is defined as any administrative or legal process
of a general nature provided for in the laws of a State Party which bans, suspends or in any way
limits the payments of a participant.

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k) “Institution of proceedings” is defined as the point in time that, in accordance with the laws of
a State Party, an administrative or legal resolution to reorganise or liquidate a participant is
issued.
l) “Settlement agent” is defined as the entity in whose accounts transfer orders are settled within a
system.
m) “Region” or “States Party” is defined as the group of States comprising Costa Rica, El
Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.

CHAPTER II
Recognition and legal protection of systems

Article 3. Recognition of payment and securities settlement systems

1. Each of the States Party, through its central bank or competent bodies or institutions
according to its laws, and in accordance with international standards, shall determine the
requirements which a payment or settlement system must fulfil in order to be recognised and thus
enjoy the legal protection provided for in this treaty, as well as the procedure for obtaining
recognition.

2. The central banks or competent bodies or institutions according to each State’s laws shall
be responsible for granting recognition to payment and settlement systems. To this end, they shall
evaluate existing systems, and if, for reasons of systemic risk, the systems should be recognised,
they may require that the system administrator comply with the applicable requirements within
such time limit as they may fix.

3. The central banks or competent bodies or institutions according to each State’s laws shall
regularly make public, in the manner established in each State’s laws, the list of participants in
the recognised systems and any change to the list, and shall inform the competent authorities of
the other States Party thereof.

Article 4. Irrevocability of orders to transfer funds or securities

Orders to transfer funds or securities issued by participants of a payment or securities settlement

system recognised by any State Party may not be revoked by their issuer or third parties as from
the time established in the system’s rules of operation.

Article 5. Finality of orders duly accepted in a recognised system

1. Orders to transfer funds or securities, issued and duly accepted in a payment or securities
settlement system of any State Party, and the clearing or netting of funds or securities and the
resulting obligations, shall be final, payable and binding. They may not be rejected or cancelled
for any reason, including the institution of proceedings to reorganise or liquidate a participant,
provided that the orders have been duly accepted by the system before the proceedings begin.
This applies without prejudice to the right of any interested party to demand the applicable
compensation or liability according to the laws in force in each State Party for an illegal action
within the system or any other cause from those who have carried out the action or benefited from
it.

The time of acceptance shall be determined in accordance with the system’s rules of operation.

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2. Obligations of participants derived from transfer orders duly accepted by a payment or

securities settlement system recognised by any State Party, and those that result from the clearing
or netting of obligations, shall be settled according to the system’s rules of operation. This shall
not imply any obligation on the part of the system administrator or settlement agent to guarantee
or cover a participant’s lack of cash or securities.

3. If, on an exceptional basis, transfer orders are duly accepted after the institution of
proceedings to reorganise or liquidate a participant, and they are cleared and settled the same day
the proceedings begin, the orders shall only be final, payable and binding if the system
administrator can prove that it was not aware that a reorganisation or liquidation process had been
initiated.

Article 6. Immunity from seizure of central bank accounts

Participants’ funds kept in central bank accounts which are used to settle funds transfer orders
executed through a system recognised in a State Party shall be immune from seizure.

Article 7. Regime applicable to collateral in favour of a system or its participants

1. If proceedings to reorganise or liquidate a participant have been instituted based on the

laws of a State Party, the collateral posted by the participant within the operational framework of
a recognised system, in favour of the system or its participants, as well as funds in accounts or
books that support the collateral, shall not be affected by the proceedings or any retroactive
measures agreed by the competent authority conducting the proceedings against the participant.

2. The realisation of the collateral shall not be affected by the proceedings, and shall be
conducted separately from them.

Article 8. Obligations to notify in cases of reorganisation or liquidation of participants

1. If the competent administrative or judicial authorities of a State Party receive a request to

institute proceedings to reorganise or liquidate an entity subject to supervision, they shall
immediately notify the central bank or securities market supervisory authority, which shall
provide the authorities with a list of the recognised systems in the States Party in which the
affected institution participates, and the name and address of its administrator.

2. If a competent administrative or judicial authority of a State Party issues a resolution to

institute a proceeding to reorganise or liquidate a participant in a recognised system in any State
Party, the authority shall immediately notify the administrators of the systems in which the entity
participates, the competent supervisory authority, the central bank and, in the case of participants
in securities settlement systems, the securities market supervisory authority. The administrator
shall immediately inform the other participants in the system of the situation.

3. The central banks and securities market supervisory authorities of the States Party shall
communicate as soon as possibly the content of these resolutions to the central banks and
securities market supervisory authorities of the other States Party, which shall immediately pass
their content on to the administrators of recognised systems in their State.

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CHAPTER III
Rules of private international law

Article 9. Laws applicable to the institution of proceedings to reorganise or liquidate a

participant in a recognised system of a State Party

If proceedings to reorganise or liquidate a participant in a recognised system of a State Party are

instituted, the rights and obligations derived from its participation in the system shall be subject to
the laws applicable to said system.

Article 10. Laws applicable to collateral posted within the operational framework of a
recognised system of a State Party

Collateral posted by means of securities or rights to securities and recorded in the register of a
State Party, in favour of a recognised system in another State Party or its participants, shall be
subject to the laws of the State in which the register is located.

CHAPTER IV
Oversight of payment systems

Article 11. Central bank jurisdiction

1. The central banks of the States Party shall ensure the correct functioning, security and
efficiency or payment systems, supervising them, their administrators and participants, defining
principles, rules and standards, and verifying compliance with them, irrespective of whether the
systems are operated by the central bank itself or by private administrators.

2. Each central bank shall monitor the development of payment systems in its country in
order to ensure the transparency of the rules governing payment instruments and services, and
shall identify and evaluate the nature and magnitude of their risks, their systems of control and
the procedures adopted for cases of non-compliance.

3. Each central bank may issue regulations for mandatory compliance, require information
from system administrators and participants, approve adjustment programmes which shall be
strictly enforced, suspend or nullify, when necessary, decisions by administrators, and formulate
mandatory requirements for system administrators and participants.

4. The States Party shall establish within their respective legal frameworks the
administrative infractions and corresponding sanctions for non-compliance with the duties of
administrators and participants of recognised systems.

5. In order to promote the correct functioning of payment systems, the central banks of the
States Party may establish and administrate payment systems and determine their rules of
operation. If they do so, they shall take the necessary measures to ensure the separation of their
administrative and supervisory functions.

Article 12. Cooperation between central banks and supervisory authorities

The central banks and supervisory authorities of the States Party shall cooperate in order to
efficiently supervise the Region’s payment systems. To this end, they shall be able to sign
memoranda of understanding and other instruments of cooperation.

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Article 13. Regional payment systems

1. The Central American Monetary Council may create regional payment systems, which
shall enjoy the legal protection established in this treaty. Oversight of these regional systems shall
be the responsibility of the Monetary Council, which may also establish the requirements for the
system administrator and mandatory rules.

2. The Council shall evaluate any existing or future regional payment systems, and if they
should be recognised for reasons of systemic risk, it shall require the system and its administrator
to comply with the applicable international standards and regional rules and their corresponding
requirements, within such time limit as they may fix, in order to proceed with their recognition
and ensure that they receive the legal protection established in this treaty.

3. The Central American Monetary Council shall develop the regulations contained in this
treaty through resolutions, regulations, agreements and recommendations, as defined in Article 55
of the Protocol to the General Treaty on Central American Economic Integration (the Guatemala
Protocol).

CHAPTER V
Final provisions

Article 14. Ratification and deposit

1. This Treaty is subject to ratification in each of the signatory States, according to their
respective constitutional procedures.

2. The instruments of ratification shall be deposited with the General Secretariat of the
System of Central American Integration, which shall assume the functions of Depositary.

Article 15. Accession

Any State which was not an original signatory may accede to this treaty, at the discretion of the
Central American Monetary Council.

Article 16. Entry into force

This Treaty shall enter into force for the first three depositary States eight days after the third
instrument of ratification is deposited, and for the remaining States, on the date of deposit of their
respective instruments.

Article 17. Amendments

1. The States Party may make any modification or addition to this treaty, which, once
approved according to the respective legal procedures of each State Party, shall become integral
parts thereof.

2. The amendments shall enter into force for the first three depositary States eight days after
the third instrument of ratification is deposited, and for the remaining States, on the date of
deposit of their respective instruments.

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Article 18. Depositary’s obligations

1. Once the treaty enters into force, the Depositary shall send a certified copy to the General
Secretariat of the United Nations for the purposes indicated in Article 102 of its Charter.

2. The Depositary shall inform the States Party of the deposit of the instruments of
ratification or accession, the date upon which the treaty or any amendment enters into force with
respect to each State Party, and any notice of termination and the date upon which it takes effect.

Article 19. Reservations

No reservations may be made to this Treaty.

Article 20. Notices of termination

At any time after two years have passed since the entry into force of the treaty, any State Party
may submit a notice of termination in writing to the Depositary. The notice of termination shall
take effect six months after the date upon which the Depositary receives the written notification.
The treaty shall remain in force for the other States Party.

IN WITNESS WHEREOF, the signatories below, duly authorised by their respective

Governments, have signed this treaty.

DONE in a single copy in Spanish.

SIGNED by each representative on the date and in the place indicated.

REPRESENTATIVE OF THE REPRESENTATIVE OF THE

REPUBLIC OF COSTA RICA REPUBLIC OF EL SALVADOR

REPRESENTATIVE OF THE REPRESENTATIVE OF THE

REPUBLIC OF GUATEMALA REPUBLIC OF HONDURAS

REPRESENTATIVE OF THE REPRESENTATIVE OF THE

REPUBLIC OF NICARAGUA DOMINICAN REPUBLIC

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