Written by León Lanis V., Paralegal
In modern markets, information is the most reliable and important commodity a company can have. This is reflected in Chile, where lawmakers have been putting a lot of effort in the creation of swift and efficient ways for the finance sector to be able to share valuable information, all while maintaining updated data, consumer and security protection standards.
At the forefront of the discussion is the “consolidated debt registry”, which basically creates a unique resource of information where all debts of the financial market (i.e: banks, investment firms, brokers, etc) are unified and managed by the Financial Markets Commission. The objectives of this registry include to amplify the knowledge of the level of debt in the country, offer a better solution for credit scoring companies wanting to access a such information, let companies better understand the actual difference between a defaulting and good standing debtor (in order no to affect the credit score of said person) and to create a system of benefits for all debtors which are up-to-date with their payments.
CONTEXT: WHY THIS REGISTRY MATTERS
Mario Marcel, Chile’s Finance Minister, has been very keen on the creation of this law since his tenure as President of Chile’s Central Bank. In 2021, Marcel created a Task Force in the Central Bank for the proposition of this Law, which later resulted in a very interesting briefing detailing that Chile has a very open finance market with outstanding access to credit and financial instruments compared to other countries in the region; in this report, the Task Force recognized the acceleration in people’s level of debt due to the nature of such an open market, setting Chile with one of the biggest levels of indebtedness worldwide (being just below Japan in Credit-card debt).
In this same report, the Central Bank discovered the perils of the financial market, specifying that there is a huge lack of communication between competitors and other finance actors such as insurance companies. This lack of communication created a phenomenon in the country called “credit card jumping”, the practice whereby people in default of one credit card will simply access another one from a different institution to keep spending. This created big alerts in the Central Bank and the Financial Markets Commission of possible systematic crisis due to indebtedness.
If this bill becomes law, the Financial Markets Commission will be able to register all types of debts into one single and organised registry.
This registry has the following characteristics:
- Administrator: the Financial Market Commission
- Data subjects: people and companies
- Commercial data: both good standing and defaulting debt
- Data contributors: banks, insurance companies, fintechs, compensation funds, factoring, leasing, etc
- Access: only the following will have access to the information with the consent of the data subjects
- Debtors and interested third parties (must be authorised by the Commission)
- Debtors data rights: all which are in privacy laws, mainly
FINTECHS: HOW WILL FINANCE TECHNOLOGY COMPANIES BENEFIT
In previous blogs we have discussed the fintech law and its benefits. One of the key aspects of said law is the creation of the Open Finance System, which will allow the free flow of information of all financial institutions, not only fintechs. From the Open Finance System, one of the most important contributors are data aggregators, which are basically third party companies that offer financial institutions the technology to amass information, make sense of it and employ it in decision making. Data aggregators will be massively benefited with this law, because now they will not only be able to access common financial data, but also to real-time debt information which can be serviced into actional decision-making data for financial and insurance companies. Adding to this, it is important to also highlight that the National Treasury and Central Bank won’t be able to either access or contribute to the data.
In conclusion, the Consolidated Debt Registry bill seeks to correct market failures and reduce barriers for sharing information, all while protecting the privacy and consent of the data’s subject. This registry will be able to quickly slow down future systematic credit defaulting and assure better conditions and incentives for good standing debtors.