El Salvador’s Central Bank Issues Guidelines For Banks, Raises Questions

El Salvador’s Central Bank Issues Guidelines For Banks, Raises Questions

El Salvador’s Central Bank opened the door for banks to develop their own wallets. The organization published the “Guidelines for the Authorization and Operation of Digital Wallet Platforms for Bitcoin and Dollars.” As expected, they require full KYC and AML procedures. However, it also contains other requirements and measures that raise concerns and paint a bleak picture.

First things first, in the intro they summarize the document as to contain:

“The applicable provisions for the authorization of the operation of the Wallet technology platform Digital of Bitcoin and Dollars, and their Administrators, in the national territory, as to the Bitcoin Law.”

In the first few sections, they ask for a description of everything the banks are planning to do. From technology to marketing, to how they’ll keep the information safe. In the last few sections, they promise “to respond to the request of authorization to operate a digital wallet platform for bitcoin and dollars.

The concerning part is right in the middle.

What Does The Central Bank Require From The Providers?

The Central Bank starts by asking for trivial but very specific information:

“Description of the information that’ll be displayed on the platform used to provide the service, such as: dollar amount and its equivalent in bitcoins and vice versa, market value of bitcoin in real-time, contacts, among others.”

And quickly turns on the heat:

“Mechanism to ensure that a digital record is linked to a single person, natural or legal.”

All of this is to be expected, though. Even Twitter makes sure that all accounts are linked to a single person. This document doesn’t raise any alarms… yet.

Risk Management And Money Laundering

As expected, the Central Bank has a few requirements to fight money laundering. Those are:

i. Management measures and risk-based approach;ii. Traceability and referral of customer information;iii. Due diligence on the customer;iv. Due diligence on politically exposed persons;v. Mitigation of new technologies;vi. Monitoring, controls, and reporting of electronic transfers;vii. Internal controls; andviii. Report of suspicious activity and others.

Wait a minute, what do they mean by “Monitoring, controls, and reporting of electronic transfers?” Are they asking for the ability to monitor ALL electronic transfers? And, what does the Central Bank mean by “Traceability and referral of customer information?” What information, exactly?

Does The Central Bank Make Any Over-The-Top Demands?

Ok, that last part was concerning, but what they’re asking for is ambiguous. Not to worry, the Central Bank makes everything cristal clear with this jewel:

“The electronic platform used by Digital Wallet Administrators must allow the Central Bank access in real-time to all information related to the operations carried out, as well as the information requested by clients.”

Did they really throw that “as well as the information requested by clients” to distract us? The Central Bank will have access to ALL the operations from the people using those bank-issued wallets. In real-time.

And that’s not all, they want the power to block digital wallets:

“If the record for a digital wallet for bitcoin and dollars is opened with false documents, or a wallet is used for illicit purposes, or other than those presumed and planned for, or other serious faults are committed in the use of the services by the customers, the digital wallet administrator will need to block the wallet service of the user, and inform the Attorney General of the Republic and the Central Bank immediately, for its function of surveillance of payment systems within a maximum period of twenty-four hours from the wallet lock.”

Is this controversial? Maybe not. But it does seem like too much power. And it’s vague enough so that they could end up blocking any wallet they want.

“In case of revocation of a payment platform’s authorization, or if the administrator of the digital wallet ceases to operate, they shall, at the request of the Superintendency, give their database of wallet records. This procedure’s purpose is to liquidate the balances of the users in the wallet.”

Wow. So, the Central Bank will have ALL the records one way or the other, huh? Not creepy at all.

How Much Is Too Much?

To a person with a traditional banking background, this might all seem normal. These are just the requirements banks have to deal with in order to operate. To a Bitcoin person, however, these measures are concerning, to say the least. The blockchain already provides an immutable ledger of transaction information. Another set of data of the size the Central Bank describes in this document will give them an invasive clear view of everything the Salvadoreans do with their money.

El Salvador might not even require a CBDC to spy on its citizens. They’ll receive all the data they need, neatly packaged, right from the banks. In any case, all of this is on the bank’s side. The Bitcoin side of the operation remains unchallenged, with clear and nearly immutable rules. Working like a clock.

The Central Bank promises to evaluate and answer all complete requests to operate a digital wallet in a period of 15 days or less.

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