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A Blog Post

Fintech in Chile

Written by Osvaldo Cabezas

Over the last few years, Fintech companies have been growing their worldwide presence, but it is far from being a mature sector. Naturally, the the development of new technologies has made it easier to create solutions that would benefit consumers but there are still challenges. Fintech companies need to navigate regulatory challenges in each country they operate in.

According to the World Bank’s Doing Business Report 2020, Chile is the leading economy in Latin America and the Caribbean to do business with. The ranking supports Chile’s future potential to lead the development of the Fintech sector in LATAM. In 2019, the Chilean Fintech market grew 27%, despite the complicated political situation the country faced in 2019.

It is estimated that there is currently around 140 companies in the Chilean Fintech sector, positioned within the following markets: Banking payments and transfers; Cryptocurrency, Blockchain/DLT; Crowdfunding and Lending; Market/Trading; Risk Management; Insure Tech; Financial Management; Investing/savings.

65% of Chile’s Fintech enterprises were incorporated between 2014 and 2018.

The most remarkable aspect of the Chilean Fintech market is that most of these companies have seen most of their growth in the last 2 years. They are using a well regarded Chilean market as their home base into other Latin American countries taking full advantage of the double taxation and free trade agreements that Chile has built over the years.

Nowadays, the Chilean Fintech market faces several challenges, such as the absence of venture capital investments, lack of collaboration with the traditional financial industry, and the lack of laws or regulations for the sector. In this blog, we shall approach this last item. 

Are there any current supervision/regulations on Fintech Companies?

The answer depends on the solution being offered. If the Fintech Company develops a business which has sectorial regulations (such as banking), it will have to comply with the proper rules or guidelines for those activities.

Now, interesting enough, recent surveys to Chilean Fintech companies has shown that most of them do not need to comply with specific regulations on a day-to-day basis. With that being said, having proper guidance is an important step for Fintech companies to understand their responsbilities. A legal advisor will review the solution being provided and then make recommendations based on the sectorial regulations that may be relevant.

The good news for Fintech companies is that the Chilean financial authority, Commission for the Financial Market (hereinafter “CMF”), has been closely following the rise of the Fintech Sector in the world. Therefore, they are aware of the special flexibility that Fintech companies needs in order to properly develop this niche market. 

Reviewing CMF’s presentations and papers, it is clear that the financial authority no has intentions of constraining the market. For example, CMF stated that they are not entitled to supervise the activities of cryptocurrency companies.  In our opinion, these insights are very positive for the future growth of the Fintech Market as they clearly understand the importance of the industry and the flexibility that will be needed.

Taxation of Fintech companies?

With respect to Corporate Tax, Fintech Companies will be taxed as any other company on profits, with a current tax rate of 27% (25% for SMEs).

Where Chile stands out though is the ease of doing business and being able to service other countries through its network of double taxation and free trade agreements. This is important as the wide spread adoption of Fintech technology will depend on a companies ability to reach scale which will be much easier when it can service multiple regions from Chile.

Regulations on Fintech: What to expect.

It is projected that within 2020 Chilean government will submit to congress a “Fintech bill” whose purpose is overseeing and standardizing the market. The main goal of the government, in words of the former Ministry of Finance, Felipe Larraín, is to “transform Chile in a regional financial center”. 

The bill has some key aspects, although the the full content of the bill is not yet available, which includes:

  • Flexibility: The regulation will allow the incorporation of new business models and innovations, removing the risk of continuous amendments of laws. 
  • Proportionality: Certain regulation will be adaptable, allowing certain companies/business to operate with fewer requirements (such as keeping minimum capital amounts, setting debt limits, etc.). This is particularly important given the rigidity of banking regulation in Chile and that some fintech solutions do not fit within the context of outdated banking regulations.
  • Technological Neutrality: A regulation that will allow traditional technology/financial companies to compete in equal conditions with Fintech companies.

Knowing the guidelines that CMF has provided, it is foreseeable that the bill shall encourage a healthy development of the Fintech market, recognizing its importance and complexity.   

What to conclude

The COVID outbreak will accelerate the development of the Fintech Market. It is clear from the pandemic that there are large portions of the population who are underserved and/or are being supported by outdated business models. This was true before but it has become even more evident over the last few months. With the support of the regulators and government, the Fintech industry will continue to grow in Chile. There is still a long way to go since changes to date have been slow but we confident that Chile is a viable home base for many Fintech companies.

Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. We also have legal teams in Mexico, Peru, Ecuador, Brazil, and Argentina. Over the last 19 years, our team of English speaking Lawyers and Attorneys have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets. 

To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at cmm@hgomezgroup.com