EL SALVADOR Law and Practice Contributed by: Héctor Torres, Annette Herrera and Daniel Leiva, Torres Legal
2.6 Non-Compliance Enforcement Consequences and Supervisory Approach CNAD has authority to supervise regulated partici- pants and impose administrative consequences for non-compliance, including warnings, fines, suspen- sion or cancellation of registrations, depending on the nature and severity of the breach. Operating as an issuer, DASP, certifier or other regulated participant without CNAD authorisation is illegal and may result in penalties under the Digital Assets Issuance Law. At the time of writing, no major public enforcement actions resulting in the revocation or suspension of a LEAD-regulated entity have been reported. The regu- lator’s approach has generally been facilitative but rig- orous: it seeks to develop the market while requiring supervised entities to comply with registration, disclo- sure, AML/CFT, operational and investor protection standards. Cross-Border Breaches For cross-border activity, the key issue is whether the foreign operator is actively targeting El Salvador, mar- keting to Salvadoran investors or providing regulated services with a Salvadoran nexus. If so, CNAD may require registration or take action against unauthor- ised activity directed into the jurisdiction. Where cross-border breaches involve fraud, money laundering, terrorist financing or suspicious transac- tions, the matter may also involve the UIF and the FGR, together with international co-operation chan- nels such as FIU-to-FIU exchanges or mutual legal assistance mechanisms. Expected Regulatory Direction The regulatory attitude is expected to remain broadly pro-innovation over the next 12 months. However, supervision is likely to become more structured as the number of authorised issuers, DASPs and tokenised offerings grows. Accordingly, while the regulator is not expected to shift toward an aggressive enforcement posture, market participants should expect closer monitoring, stronger documentation standards and more practical
non-public information relating directly or indirectly to one or more digital asset issuers or digital assets which, if made public, could materially influence the price of such digital assets. Prohibited or sanctionable conduct may include: • misleading disclosures; • fraudulent promotion; • market manipulation; • unauthorised public offerings; • misuse of investor funds; • false statements in offering documents; and • conduct affecting the transparency or integrity of a regulated digital asset issuance or DASP activity. Where the conduct is connected to money laundering, terrorist financing, fraud or suspicious transactions, the matter may also fall within the scope of the UIF and the FGR, in addition to CNAD’s administrative powers. Difference From Traditional Securities Regulation The traditional securities market is subject to a more developed framework under the Securities Market Law and SSF supervision, including detailed rules on issuers, listed securities, disclosure duties and market conduct. By contrast, the digital asset framework is newer and more principles-based. Although CNAD regulations already recognise the concept of privileged informa- tion in the context of digital asset issuers and offer- ings, specific market abuse concepts such as front- running, wash trading, spoofing, insider dealing and market surveillance are not yet developed in the same level of detail as in mature securities regimes. In practice, issuers, PSADs and trading platforms should adopt internal market conduct policies, con- flicts of interest controls, restricted-list procedures, disclosure protocols and monitoring systems to miti- gate these risks.
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