EL SALVADOR Law and Practice Contributed by: Héctor Torres, Annette Herrera and Daniel Leiva, Torres Legal
Technology-Neutral Regulation When used without the issuance, transfer or commer- cialisation of crypto-assets, blockchain technology is not subject to a standalone technology-specific regu- latory regime in El Salvador. In principle, the use of DLT for operational, data integrity, traceability, registry, audit or internal record-keeping purposes is permit- ted, and is governed by the general laws applicable to the relevant activity or sector. For regulated firms such as banks, insurers, pension fund administrators or other entities supervised by the SSF, the use of blockchain-based solutions would be analysed under the existing prudential, operational risk, technology risk, outsourcing, cybersecurity and data protection frameworks. The technology itself is not regulated in isolation; rather, the legal analysis depends on who is using it, for what purpose, and whether the activity triggers financial, consumer pro- tection, data privacy or digital asset regulation. Where blockchain technology is connected to a digital asset issuance, custody, transfer, exchange or other regulated service, the LEAD and CNAD regulations may apply. Data Protection and Blockchain Immutability El Salvador’s data protection framework applies to blockchain-based products and services when per- sonal data is collected, processed, stored or trans- ferred. The main challenge is the tension between blockchain immutability and data subject rights, par- ticularly deletion, cancellation or the “right to be for- gotten”. If personal data is recorded directly on-chain, it may be technically impossible to delete or modify it without affecting the integrity of the ledger. For that reason, market practice is to avoid placing personal data directly on public blockchains. Instead, block- chain-based systems should rely on off-chain data storage, hashes, pseudonymised identifiers, encryp- tion, access controls and contractual data-processing arrangements. Under this model, the blockchain operates as an evidentiary or verification layer, while personal data remains stored in systems where data subject rights
can be exercised more effectively. Accordingly, block- chain products in El Salvador should be designed under a privacy-by-design approach, particularly where issuers, DASPs, custodians, payment platforms or other regulated entities handle KYC, user identity or transactional information. 1.1.4 Smart Contracts El Salvador does not yet have a specific statute expressly regulating smart contracts or recognising them as a separate legal category. However, smart contracts may be enforceable under general Salva- doran contract law, provided that the essential ele- ments of a valid contract are met: legal capacity of the parties, valid consent, lawful object and lawful cause or purpose. Consent may be expressed through electronic means, and the Electronic Signature Law supports the validity of electronic signatures and electronic records, pro- vided that the parties can be identified and the inten- tion to be bound can be evidenced. In practice, the key issue is not the technological self-execution of the smart contract, but whether the underlying rights and obligations can be understood, evidenced and enforced before a court or arbitral tribu- nal. For this reason, market practice usually combines smart contracts with traditional legal documentation, such as terms and conditions, issuance documents, custody agreements or tokenholder terms. Certain transactions may still require additional legal formalities, such as public deeds, registry filings or notarised documents. In those cases, the smart con- tract may support automation, settlement or record- keeping, but it does not replace mandatory legal requirements. For regulated digital asset issuances under the LEAD framework, the issuance documents should describe the role of the smart contract, the rights represented by the token, technical mechanics, risks, audit reports, governance controls and fallback procedures. 1.1.5 Industry and Trade Bodies The blockchain and digital asset industry in El Salva- dor does not yet have a well-developed self-regulatory
198 CHAMBERS.COM
Powered by FlippingBook