Written by León Lanis V. , Paralegal
Last year, Chile’s Chamber of Deputies voted and approved the “Fintech Law”, proposed by the Financial Market Commission. Today the long waited Fintech Law has been enacted. Over 5 years of constant deliberation by different political sectors and advisors from the private sector has finally culminated into one of the most innovative laws worldwide regulating the market market.
The law will regulate the new financial instruments technology can bring, but its main objective is to put Chile at the forefront of this new globalised and digital financial market. In its bill form the law has been highly regarded by many international figures, especially transnational fintech companies and banks offering such products, for this law aims to create a very market friendly ecosystem. Many experts and commentators believe this law will generate enormous scalability for said businesses. In turn this will make Chile one of the best options to set-up a Fintech company or offer such products.
In this blog we discuss the 4 key aspects of the Fintech Law and how it may impact financial services operating in Chile.
1. Fintech products regulated by this project
In its first articles, the law establishes the kind of projects and products the law must regulate. This includes the following:
a. Crowdfunding projects
b. Alternative transaction platforms
c. Credit and investment advisory services
d. Safekeeping, order routing, brokerage and intermediation of financial instruments
This sets a wide scope for the legislator to regulate, meaning it will allow the creation of rules for businesses such as:
a. Crowdfunding and crowdsourcing platforms
b. Peer-to-Peer transactions
c. Open banking
d. And almost all type of fintech products
The law also considers the exchange and offering of cryptocurrencies. This means any company which trades, speculates or offers intermediation services for crypto-assets will also be considered for the purposes of this law.
2. What will the regulatory authority be?
The law delegates many responsibilities to the Financial Market Commission and the Financial Analysis Unit to act as the governing body for the fintech ecosystem in Chile. The law sets different regulatory techniques for these agencies to use, including certifications, registries, requisites for providing services, disclosure obligations, guarantees, a minimum level of capital, etc. The regulation will vary depending on the type of Fintech company, for example, if your company deals with crowdfunding, the law states that the company must be able to completely detail the projects that are being published and to disclose to the Commission any possible conflicts of interest that may arise.
One of the most important aspects of the regulation will be the minimum level of capital to operate. The Commission will set the minimum turnover a fintech business must reach for the Commission to consider it a “risky business”, once a company reaches the yet to be established level of business, it must have a minimum capital of USD $180,000 as a guarantee for investors and product consumers.
3. Open Finance System (SFA)
One very innovative aspect of this project is the Open Finance System or SFA for its abbreviation in Spanish. This is the creation of a set of rules, technological capabilities and incentives for businesses of the guild to be able to compete fairly, promote the constant innovation of their products and services, but also a system to protect the investments of clients and the personal data that is needed for national and international operations.
The system is designed to promote the use of Application Programming Interfaces (or known as APIs), which is basically the service of using a program in order for two companies or digital interfaces to exchange information swiftly and securely. This is a pivotal aspect, as with the use of APIs companies will be able achieve an expeditious financial portability system all while protecting their customers from theft.
4. Anti Money Laundering and Counter-terrorism aspects
One of the most criticised aspects of fintech companies is their inability to avoid criminals from using their products and services for money laundering and to finance crime, including terrorism. The law aims to address this by promoting a high level of standards for registered fintech companies in order to mitigate these risks, giving the enough powers for the Financial Analysis Unit (UAF) to monitor, mitigate and investigate possible bad practices that may lead to said crimes. This point is really important, as Chile wants this market to grow while giving enough security that its products won’t be used for crimes.
Chile is seeking to expand its markets and become one of the biggest hubs for financial technologies in the world. The law in question sets out very market-friendly regulations while making sure it is designed for good practices and mitigate any possible misuse of its innovative services. If you are interested in applying to the financial provider license this law enacts, contact us at email@example.com to discuss how our team can help with the legal status of your fintech company.