Written by León Lanis V., Paralegal
Since the 2008 global financial crisis, Chile has steadily strengthened and renovated its financial market through groundbreaking regulations which have the goal of allowing the entrance of new players to the market. This has been reflected in numerous laws and bills such as the fintech law, the consolidated debt registry bill, the financial portability law and the law that authorizes the issuance of non-bank prepaid debit cards. The plan that Chile envisions is putting Chile at the forefront of digital finance, where Chilean and foreign actors can see the potential of the country as a hub for financial technologies and entrepreneurship.
One of the key aspects of these reforms is a very recent law, just enacted in the last day of 2023, known as “Resilience of the Financial System Law” (N°21.641), which mainly amends various existing legal bodies in order to strengthen the capabilities of financial institutions, specially in regards to their liquidity and avoiding systemic risks.
This law allows non-banking financial institutions and companies related to the infrastructure of the financial market access to liquidity provided by Chile’s Central Bank (BCCh). Also, this law gives access to current accounts, provided by the BCCh, to High-and-Low-Value Payment Clearing Houses and other financial entities (traditional or modern), which will further enhance liquidity capabilities and backing from the Central Bank. Further, Savings and Credit Cooperatives (CACs) and financial infrastructure companies will now be able to access a wide portfolio of services the BCCh offers.
This law not only contemplates these newer measures for the financial market, but it also modifies many other legal bodies (such as laws, legal codes and constitutional regulation) that broaden the effects of the goals of said law. Here is a summary of those modifications:
- Requisites for funding of CACs: as previously said, Savings and Credit Cooperatives will now be able to access a vastful portfolio of services from the Central Bank. One of the most important services is funding, but the law establishes that in order for CACs to access funding they must have a minimum capital of UF 800.000 (roughly USD 30 million). Those with a minimum of UF 400.000 will not be able to access funding, but to every other service the BCCh may offer.
- Sales and repurchase agreement transactions: this law modifies the Insolvency and Reinstatement Law by creating greater protections for REPO and derivative contracts (swaps, options, futures, forwards, etc) in case there is bankruptcy.
- New activities for regulated entities: any company that is regulated as Custody and/or Deposit of securities or financial instruments will now be able to carry out settlement functions.
- Participation of the Central Bank as a buyer in the financial market: one very groundbreaking matter is that this law allows the BCCh to acquire or liquidate positions it buys from the financial market. There will come secondary regulation stating the procedures and requisites for the Central Bank to invest in companies.
- Simplification of obtaining Tax ID for foreign investors: with the new law, the Tax Code is modified and the obtaining of Tax ID for foreign investors will be simplified, allowing a swift access for foreign capital to the local capital markets.
- New criminal offenses and powers of the Central Bank: with this new law, the Central Bank will have more independent powers to retrieve and de-circulate currency, but as well there are new criminal figures and penalties to those who falsify currency and monetary instruments.
This law is the pinnacle of the financial regulation Chile has been pushing in the last decade, where there is a clear incentive to project Chile’s capital and securities market for the decades to come, where the target is inclusion of more people as financial consumers, but as well to strengthen the capabilities of the financial and monetary authorities in order to effectively regulate the new demands and volumes of the market.