Juan Carlos Reyes: Cryptocurrency Regulations in El Salvador

Below is an article based on an exclusive interview between Coincub’s Sergiu Hamza and Dr. Süleyman Kıran with Juan Carlos Reyes, President Of The National Digital Assets Commission (CNAD) of El Salvador.

Sergiu Hamza: It’s a pleasure to have you with us, Juan. El Salvador has made significant headlines with its bold moves in cryptocurrency regulation. Could you start by giving us a bit of background on your initial challenges and the strategies that have shaped your regulatory approach?

Juan Carlos Reyes: Thank you, Sergiu and Süleyman. It’s indeed been a transformative journey for us. Reflecting on the past, El Salvador’s prolonged period of conflict laid a peculiar foundation for radical regulatory reforms. The social upheaval we experienced in the ‘90s because of war and 2000s primarily due to gang violence, created a scenario where we were, in essence, starting from scratch when the current administration came into power. This “clean slate” was instrumental in rethinking our financial regulation and innovation approach.

The cornerstone of our regulatory philosophy was to avoid the pitfalls observed in other jurisdictions. Take Switzerland, for example, where the regulatory environment is relatively relaxed. While this fosters a certain level of innovation, it needs more rigorous safeguards than a budding economic landscape like ours requires. We decided early on that our regulations would be stringent but fair, promoting transparency and security.

Sergiu Hamza: That’s quite an innovative approach. How did you ensure these regulations would not stifle innovation?

Juan Carlos Reyes: Balancing regulation with innovation is more art than science. When I returned to El Salvador, I brought a wealth of experience from abroad, having interacted with various financial and technological frameworks. We formed a task force with experts having experience with the Swiss Stock Exchange, senior auditors from PwC in Luxembourg, and leading fintech advisors from Singapore. Together, we crafted a regulatory framework that borrows the rigor of Luxembourg’s financial laws, the adaptability of Singapore’s economic model, and the innovative spirit of Switzerland.

This framework was designed for compliance and to foster a fertile ground for innovation. We emphasized tokenizing real-world assets, which we believe is not just a financial revolution but a means to democratize wealth. By creating robust, clear regulations, we ensure that innovations uplift our population economically, particularly those for whom a $100 transaction is substantial.

Sergiu Hamza: How does international cooperation shape your regulatory approach?

Juan Carlos Reyes: International cooperation is crucial. El Salvador might be small, but the financial market is interconnected globally. We regularly engage with international regulatory bodies to share insights, learn from their experiences, and adapt our regulations to meet global standards while addressing local needs. This dialogue has been pivotal in ensuring that our regulations are not insular but are informed by international best practices.

“The Commission of Digital Assets (CNAD) has gained recognition for its diligent efforts. The formula for success is straightforward: begin with visionary leadership @nayibbukele, establish an independent regulatory body for digital assets, assemble brilliant minds to develop… pic.twitter.com/YokZWO5jKi

— Juan Carlos Reyes (@jcreyes_sv) July 2, 2024

Sergiu Hamza: Looking to the future, what are the main objectives for El Salvador’s approach to cryptocurrency regulation?

Juan Carlos Reyes: Moving forward, our focus is threefold. First, we aim to continue protecting consumers while empowering them through financial technology. This means more initiatives around financial literacy, especially regarding digital assets. We’re pioneering educational programs that ensure our citizens are not only using financial technologies but also informed about their rights and potential risks.

Secondly, we are intensifying our efforts to collaborate internationally. As cryptocurrencies inherently cross borders, our regulations must do as well. We’re working to establish agreements that facilitate smoother transactions across nations while maintaining stringent anti-money laundering measures and ensuring the security of digital assets.

Lastly, we’re dedicated to nurturing innovation by supporting startups and established companies in navigating our regulatory landscape. The establishment of a regulatory sandbox has been particularly successful. It allows firms to test new products and services within a controlled environment, providing valuable feedback for regulatory adjustments and innovations.

Sergiu Hamza: How does El Salvador handle the global perspective, especially criticisms from larger financial institutions or countries with more conservative approaches to crypto?

Juan Carlos Reyes: We respect global perspectives and understand that skepticism often comes from a place of caution, which is justifiable. Our engagement with international bodies is about more than just defending our stance. It is a genuine effort to educate and inform about our innovations and the checks and balances we have in place. For example, every crypto transaction in El Salvador is traceable, often a level of transparency not available in traditional banking systems.

Moreover, our legal framework is designed to adapt swiftly. As new challenges arise, such as those posed by decentralized finance (DeFi) and non-fungible tokens (NFTs), we are ready to evolve our regulations without compromising on the rigorous standards we’ve set.

Sergiu Hamza: Lastly, what message do you have for international investors and crypto companies considering entering the Salvadoran market?

Juan Carlos Reyes: El Salvador is open for business, but more importantly, it is open for responsible business. We invite investors and companies who share our vision of a transparent, secure, and innovative financial future to join us. Here, you will find a proactive government, a regulatory framework among the most advanced globally, and a community eager to participate in the crypto economy.

Sergiu Hamza: Juan, your insights today have been incredibly enlightening. Thank you for sharing your ambitious vision and the significant strides El Salvador is making under your leadership.

Juan Carlos Reyes: Thank you, Sergiu and Süleyman. It’s been a pleasure discussing our work and our vision for the future. We look forward to welcoming more global partners to this exciting journey.