EL SALVADOR Trends and Developments Contributed by: Héctor Torres, Annette Herrera and Daniel Leiva, Torres Legal
What tokenisation changes in practice The differences between traditional LP/GP structures and tokenised funds are not merely technical. They are institutional. Consider the following dimensions. • Transparency: in a traditional fund, transparency is a function of governance discipline and internal practice. The investor receives periodic reports and audited financial statements, but traceabil- ity of flows and decisions is built retrospectively and depends on the quality of management. In a tokenised fund, transparency and traceability are embedded in the design of the vehicle from incep- tion. Capital contributions, assignments and distri- butions are recorded continuously and verifiably. • Economic substance: traditional LP/GP offshore structures frequently rely on nominee directors, resident agents, artificial domiciles and fictional substance to satisfy AML or tax requirements. In a tokenised fund, administration is exercised by accredited persons with real presence in the vehi- cle and formal responsibility. There are no unnec- essary layers. Substance is real, not performed. • Administrative costs: the operational complexity of LP/GP structures translates into recurring costs that directly impact the expense ratio and net internal rate of return. Maintaining nominal direc- tors, resident agents, compliance across multiple entities, and annual accounting for entities without real activity creates a fee drag with no correspond- ing value. Tokenised funds automate registration, distributions and reporting, creating a leaner, more predictable cost structure. • Legal enforceability: in a tokenised fund, investor rights are enforceable and auditable, not merely conventional. The proof of participation is docu- mentary, digital and regulatory simultaneously. Governance rules are pre-authorised and super- vised. This reduces the gap between the right recognised on paper and its practical execution. El Salvador’s regulatory architecture for tokenised funds El Salvador is, technically, the first Latin American jurisdiction where a tokenised fund is a real financial vehicle – not a private contract, not an experimental structure, but a formally authorised instrument operat-
ing within a coherent legal framework. The following pieces of legislation, read together, create this result. The Digital Assets Issuance Law The Digital Assets Issuance Law ( Ley de Emisión de Activos Digitales – LEAD) regulates the entire life cycle of a token offering, from legal structuring and registra- tion with the Comisión Nacional de Activos Digitales (CNAD), through secondary trading and post-issuance governance. The law imposes high standards of trans- parency, tax compliance, investor protection and tech- nological validation, providing legal and operational certainty to both issuers and international investors. The LEAD establishes clear categories of digital assets – debt tokens, equity tokens and revenue tokens – and subjects their public and private offering to a formal registration and disclosure regime. Issuers must file a Digital Issuance Registry ( Registro de Emisión Digital – DIR), which functions as the regulatory equivalent of a prospectus, reviewed and approved by CNAD before any marketing or distribution commences. The law also creates and regulates the role of the independent certifier, adding a layer of professional verification and credibility that distinguishes Salvadoran-regulated offerings from informal token launches. Critically, the LEAD integrates tokenisation into the regulated financial system rather than permitting it at the margins. A tokenised fund interest, a revenue- sharing instrument or a real estate-backed token issued under the LEAD is not an unregulated digital asset. It is a formally supervised financial instrument with enforceable investor rights, auditable transaction records and a competent regulatory authority. The Law on Private Alternative Investment Funds The Law on Private Alternative Investment Funds cre- ates two types of vehicles designed for sophisticated investors: • subordinate PAIFs (administered by a licensed Fund Management Company, or Sociedad Gestora de Fondos ); and • autonomous PAIFs (self-governed, with their own internal administration, governing body and inde- pendent legal personality).
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