EL SALVADOR Law and Practice Contributed by: Héctor Torres, Annette Herrera and Daniel Leiva, Torres Legal
2.2 Crypto-Asset Regulatory Frameworks Issuer-Based Classification El Salvador classifies crypto-assets mainly through the Digital Assets Issuance Law. The LEAD focuses on digital assets issued, offered, transferred or serviced within a regulated framework. These assets may rep- resent debt rights, ownership rights, revenue rights or hybrid structures, depending on the rights granted to holders. Bitcoin is treated separately as legal tender under the Bitcoin Law. Other native crypto-assets without an identifiable issuer are not automatically captured by the LEAD, unless a regulated activity, offering, plat- form or service provider creates a Salvadoran regula- tory nexus. The LEAD also expressly excludes certain assets from its scope, including utility tokens that can only be exchanged for goods or services of the issuer or a limited group of providers, non-transferable or non- tradable assets, assets used only within closed or limited systems, and assets already regulated under another Salvadoran law. These exclusions are relevant when determining whether a product falls inside or outside the LEAD framework. Specific Regulatory Framework El Salvador has a dedicated framework for digital assets. The LEAD regulates digital asset issuances, public and private offerings, DASPs, certifiers and other participants in the regulated ecosystem. CNAD is the specialised authority responsible for authorisa- tion, supervision and enforcement. Regulated Activities The main regulated activities include public offerings, private offerings, operation as a DASP, digital asset certification, custody, exchange, transfer, placement, structuring, administration and advisory services relat- ed to digital assets. Restricted Activities and Market Segmentation The LEAD does not contain a broad catalogue of pro- hibited crypto products; instead, it regulates through authorisation, registration, disclosure and supervision. Unauthorised public offerings, fraud, market manipu- lation, money laundering, terrorist financing, mislead-
ing disclosures or providing regulated services without registration may be sanctioned. There is no complete retail/professional investor regime equivalent to MiFID II. However, public offer- ings are subject to higher disclosure standards, while private offerings are generally directed to qualified or institutional investors. Expected Developments Over the next 12 months, regulatory development is expected mainly through CNAD secondary rules and supervisory practice, particularly on stablecoins, cus- tody, cross-border DASP activity, reporting, business continuity, AML/CFT, Travel Rule implementation and DeFi-related activities. 2.3 Regulated Firms and Legal Wrappers Substance Over Legal Form Using a legal wrapper, such as an investment fund, PAIF or SICAF, does not automatically change the regulatory analysis under the LEAD. The key question is the substance of the activity: whether the vehicle issues digital assets, tokenises interests, offers digital asset exposure, provides digital asset services or cre- ates a Salvadoran regulatory nexus. A fund structure cannot be used to avoid CNAD reg- istration where the underlying activity is, in substance, a regulated digital asset issuance or DASP activity. Investment Funds, PAIFs and SICAFs El Salvador regulates collective investment vehicles under the Investment Funds Law and, more recent- ly, under the Law on Private Alternative Investment Funds. The local funds market has historically been more limited than in larger fund jurisdictions, but the PAIF regime introduced a more flexible framework for sophisticated investors. PAIFs may be structured as subordinated funds man- aged by an authorised administrator, or as autono- mous funds through a Sociedad de Inversión de Capital Fijo (SICAF). The PAIF Law allows investment in a broad range of assets, including non-traditional or alternative assets, which may encompass digital assets, provided they are consistent with the author-
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