Fintech Bill
On 3 September 2021, the President of Chile, through Message No. 172-369, announced a bill to promote competition and financial inclusion through innovation and technology in the provision of financial services, better known as the Fintech Bill (“Bill").
General provisions
The Bill is based on the principles of (i) inclusion, (ii) financial innovation, (iii) promotion of competition, (iv) financial consumer protection, (v) preservation of financial integrity and stability, and (vi) crime and money laundering prevention. The services provided by financial service providers will be under the supervision of the Financial Market Commission (“CMF”, acronym for its Spanish, Comisión para el Mercado Financiero). The regulations that the CMF must dictate in this regard must observe the principles of (i) proportionality based on risks, (ii) modularity in the services provided, and (iii) technological neutrality.
The services considered in the Bill are the following:
1. Crowdfunding platforms.
2. Alternative trading systems.
3. Credit and investment advisory services.
4. Custody of financial instruments.
5. Order routing and financial intermediation.
Only those providers that are registered in the Financial Service Providers Register that the CMF will create for this purpose may engage in the indicated services.
It also takes into consideration the regulation of crowdfunding, defining it as the physical or virtual place through which those which have investment projects or financing needs: (i) disseminate, communicate, offer or promote those projects or needs, or their characteristics; and (ii) contact, or obtain contact information from, those which have available resources or the intention to participate in, satisfy or meet, those projects or needs; in order to facilitate financing operations.
It should be noted that all financial service providers must register in the CMF Register for this purpose. However, by means of a general regulation ("NCG", acronym for its Spanish, Norma de Carácter General), the CMF may exempt certain fintech service providers from complying with certain requirements or establish less burdensome forms of compliance, which gives it a certain degree of flexibility in response to advances in different technological services and new players in the market.
Likewise, prior to starting the provision of services, those in the Register must request authorization from the CMF, which was not considered in the bill proposed and submitted by the CMF. For this, among other requirements, and depending on the type of service provided, entities engaged in the provision of financial services through technological means must:
1. Have the systems and procedures necessary to comply with the information and disclosure obligations.
2. Comply with the requirements of corporate governance and risk management.
3. Have the operational capacity to support the processing of transactions carried out through its systems or infrastructures.
In the event that fintech service providers reach a certain volume of business, minimum capital requirements are established, which must be an amount equal to or greater than: (a) UF 5,000 (Unidad de Fomento, a unit of account used in Chile constantly adjusted for inflation) (approximately EUR 161,718.56 today); or (b) 3% of the assets weighted by the financial and operational risks of the entity, calculated in accordance with the method established for that purpose by the CMF. In the case of entities that present deficiencies in their risk management, said percentage may be increased to 6% by the CMF in response to the evaluation of the quality of risk management that it carries out.
The Bill provides for new sanctions for those which, being under the supervision of the CMF and which, on the occasion of the provision of the services regulated by the Bill, commit any of the crimes included in articles 467 and 473 of the Criminal Code. In addition to being sanctioned with the penalties included therein, the Bill establishes aggravating factors, that is, the increased severity or culpability of the criminal act.
Lastly, any entity which commits any offense included in Law No. 19.233 on Computer-Related Crimes against a service provider, will be subject to the penalties indicated therein.
Open Banking
Open Banking is also regulated, in order to avoid barriers to market entry from already regulated incumbents, in order to promote competition, innovation and inclusion in the financial system, and thus allow the exchange of customer information between different financial service providers, always with the customer's consent. The foregoing will be done through a remote access interface and automated access control that allow direct interconnection and communication between the participating institutions, under adequate security standards and subject to compliance with the requirements and conditions established in the Bill and dictated by the CMF.
For this, the Bill bases the Open Banking System on four principles: (i) transparency and provision of information to customers, (ii) data security and privacy, (iii) non-discrimination, and (iv) interoperability between participating institutions.
Entities that will be able to participate in the Open Banking System will be regulated by the Bill, which will also require banks and credit card and prepaid card issuers and any other similar system to participate in the Open Banking System as information provider institutions, which must adopt the necessary measures to comply with the minimum security standards to safeguard the confidentiality, integrity and availability of the information, and prevent the unauthorized disclosure and/or modification of the information, and avoid the interruption of services as a result of the failure of technological systems. The CMF may establish different requirements based on the risk associated with the type of financial product or service.
The regulation introduced by the Bill regarding payment initiation service providers is significant. These entities, on behalf of their customers, issue payment instructions or initiate online payments to third parties, directly from the payer's bank account. The Bill establishes the creation of a Payment Initiation Service Provider Register for the purpose of providing said service.
Cryptoassets and Stablecoins
The Bill also recognizes cryptoassets, identifying as such any digital representation of units of value, goods or services, with the exception of money, whether in national currency or foreign currency, which can be transferred, stored or traded electronically. The transaction of these assets will be supervised by the CMF.
Additionally, modifications are introduced to extend the regulatory powers of the Central Bank of Chile in terms of retail means of payment, with respect to means of payments that correspond to stablecoins (cryptoassets equivalent to electronic money) that meet the standards defined by the issuing institution for the purposes of considering them as means of payment.
Modifications to other laws
The Bill provides for the modification of various laws, such as: (i) Law No. 20.950 (authorizes non-bank entities to issue payments); (ii) Law No. 18.840 (Constitutional Organic Law of the Central Bank of Chile); (iii) Law No. 18.045 (Securities Market); (iv) Law No. 18.046 (Corporations Law); (v) the Chilean Commercial Code; and (vi) Law No. 20.712 (regulates the administration of third-party funds and individual portfolios), among others.
Of the aforementioned modifications, those introduced to Law No. 18.046, the Corporations Law, are significant. They establish that closely held corporations that have more than 2,000 shareholders for 12 consecutive months, will be required to register their shares in the Securities Register.
Along the same lines, the Commercial Code is modified with respect to the rules of joint-stock companies and limited partnerships, regarding the number of shareholders or partners that must be considered to register in the Securities Register and to become a public limited company, as appropriate.
Transitory provisions
Lastly, it is provided that once the Bill is approved, it will enter into force within 30 days after its publication in the Official Gazette, except for titles II (fintech services) and III (open banking system) and articles 32 (modifications to Law No. 18.045), 35 (modifications to Law No. 20.712) and 37 letter b) (General Banking Law), which will govern from the entry into force of the NCG that the CMF dictates for this purpose, which must be dictated within a maximum period of 18 months from the publication of the law.
Fintech service providers that must be registered in Financial Service Provider Register must request their registration and authorization from the CMF within a maximum period of 12 months from the entry into force of the respective NCG. They may continue to carry out their activities until the CMF decides on their request.
The CMF must issue the regulations for the implementation of the Open Banking System within a maximum period of 18 months from the publication of the law.
The entities that provide payment initiation services or services based on access to customer financial information, must request their registration with the CMF in the terms established in the NCGs that are issued for this purpose, within a period that does not exceed 12 months from the entry into force of these provisions.
Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. We do this to optimise the mix of channels to provide you with our content. Details concerning the tools in use are in our privacy policy.