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How Is Cryptocurrency Regulation Going in Latin America?

  • Several countries in the region have come a long way in terms of establishing regulatory standards.
  • Others, such as Bolivia, have preferred to steer clear of crypto operations, opting to prohibit them.
  • Up to now, Latin America has lacked a common, comprehensive regulatory framework for cryptocurrencies.

The growth of the crypto industry in Latin America over the last three years has been extraordinary, as revealed by Chainalysis in its ‘Global Cryptocurrency Adoption Index’. This has led governments to adopt different regulatory frameworks in an attempt to keep the industry under supervision, and prevent it from getting out of hand.

For this reason, legislators of those countries in which the adoption and use of digital assets has proliferated the most have been increasingly presenting bill in different stages of discussion and approval. Until now, there has been no common, comprehensive regulatory framework for cryptocurrencies in the region.

Last year the cryptocurrency industry reached a market volume of over 3 billion dollars. The market continues to grow as fiduciary currencies devalue with inflation and fail to meet the needs of users under the financial system.

As of March, the situation regarding the regulatory processes in Latin American countries is as follows.

Argentina

Argentina is expected to increase its regulation on BTC and other cryptocurrencies very soon. A bill has already been presented to this end, promoted by deputies Liliana Schwindt and Marcos Cleri of the ‘Frente de Todos’ party.

Another notable bill on digital assets was presented by deputy Ignacio Torres from ‘Todos por el Cambio’, which has been endorsed by several local exchange companies. More recently, the IMF asked the Argentine government to take measures to “discourage” the use of cryptocurrencies, as part of the debt agreement signed with the credit organization.

Argentina has a peculiarity that, despite not having a regulatory framework for cryptocurrencies, it is already exercising fiscal control over virtual assets, as exchanges and payment service providers are required to report their transactions to the tax body (AFIP).

Operations made with cryptos must also pay income tax, but not VAT, since it does not fall into any of the approved tax categories. On the other hand, exchanges must pay VAT, based on the fees charged to users.

Bolivia

Bolivia was the first in the region to ban cryptocurrencies. In 2014, the Central Bank of Bolivia (BCB) approved Board resolution 044/14, prohibiting the use of private crypto assets that are not issued and regulated by the government.

The regulator argued that the country lacked an adequate regulatory framework to oversee cryptocurrency operations. The BCB warned about the risks of crypto operations, given the scams and Ponzi schemes that were reported in the country relating to companies such as Bitcoin Cash and Pay Diamond.

Since then, Bolivia has remained distant from cryptocurrency trading. Various BCB statements and resolutions have since confirmed that the ban on digital money will continue.

Brazil

To date, four bills have been introduced aiming to regulate cryptocurrencies. The common target has been to prevent money laundering and other criminal activities associated with digital assets. The legal proposals also seek to ensure to the protection of traders through the application of the Consumer Protection Code.

Bill No. 3825, presented by Senator Irajá Abreu of the ‘Social Democratic Party’ unifies all of the previous proposals. Its objective is to create a transparent market in which tax evasion and money laundering are prevented.

If the bill, which also promotes mining through clean energy sources by not charging taxes to ecological miners, is approved, Brazil would become the largest Bitcoin regulator in Latin America.

Colombia

Last year the Financial Superintendence of Colombia approved a regulatory sandbox for crypto businesses. The government agrees with the study, promotion and regulation of the industry in view of its vertiginous growth. To this end, a document was published with guidelines that the public sector must follow for its adoption.

Regulatory sandboxes consist of controlled spaces in which pilot tests of new unregulated business models can take place. The Financial Superintendence of Colombia considers learning spaces to be viable for the crypto industry and the government, with the aim of improving the activity.

With the approval of Resolution 314 by the ‘Financial Information and Analysis Unit (UIAF)’ last December, exchanges are required to report the daily operations of their clients. Recently, Binance began pilot tests with several local banks.

Any transactions made with BTC with a value over $150 USD must be made known to the agency as of April 1st. Failure to comply with the rule will lead to financial penalties at an amount equivalent to between 100 and 400x the minimum wage. The minimum wage in Colombia is 1,000,000 COP ($260 USD).

Chile

In November, Senator Karim Bianchi presented the Bitcoin bill, which seeks to create a secure and reliable crypto ecosystem for all actors. In other words, it protects users and companies in the sector that participate in the digital currency market.

According to this bill, responsibility for regulating crypto assets will fall to the Central Bank of Chile. The regulations aim to strengthen the ‘Financial Analysis Unit’ in its fight against criminal activity, including money laundering.

Companies offering cryptocurrency services are required to be properly trained in order to offer a quality product to users.

Ecuador

The Central Bank of Ecuador intends to regulate operations with cryptocurrencies over the coming months. Its general manager, Guillermo Avellán, underlines that the regulatory framework seeks to combat the risk of crimes related to cryptocurrencies, such as scams and money laundering.

The issuing body will be in charge of developing this regulatory framework. Once it is ready, it will be presented to the Monetary Board for review. The Ecuadorian authorities have also clarified that they do not plan to install BTC as legal tender as El Salvador did, but admit that the State must regulate the activity.

El Salvador

El Salvador became the first country in the world to legalize regular operations with Bitcoin (BTC) as a legal tender. The ‘Bitcoin Law, which was approved in September 2021, allows consumers and merchants to buy and sell goods and services using bitcoin.

The legal instrument establishes that the BTC – U.S. dollar exchange rate will be set by the market itself. Salvadorans can pay their taxes with bitcoin, and withholding agents are required to accept the digital currency.

In addition to the Bitcoin Law, there has been a package of complementary regulations covering the entire crypto ecosystem. Among them were the ‘Regulations of the Bitcoin Law‘, the ‘Bitcoin Trust Creation Law’, and the ‘Technical Standards to Facilitate the Participation of Financial Entities in the Bitcoin Ecosystem’.

Likewise, legislators in the nation approved Guidelines for the ‘Authorization of the Operation of the Technological Platform of Services with Bitcoin and Dollars’, ‘Temporary Technical Norms on Cybersecurity’ measures. and ‘Identification of Clients in Digital Channels’.

The entire economic and financial policy of President Nayib Bukele’s administration revolves around Bitcoin. The decision has earned him a number of criticisms from financial powers such as the International Monetary Fund and the United States government.

Mexico

In 2018, the Mexican government approved the ‘Law to Regulate Financial Technology Institutions‘, or the ‘Fintech Law‘. The law obliges the Bank of Mexico to create a regulatory framework for the crypto industry and its link with the financial system.

The legislation prevents banks and other financial institutions from transferring the operations or risks associated with crypto assets to the end user. So blockchain technology can only be used for activities internal to the financial system.

The law does not specifically restrict the activities of service providers with cryptocurrencies either. They simply need to be registered in the ‘Tax Administration System’ and report their operations to the ‘Financial Intelligence Unit’ to avoid suspicion of criminal activities.

So far, the nation does not have an exclusive regulatory framework that regulates cryptocurrency trading directly. Meanwhile, Banxico plans to launch its own CBDC, which could be ready by 2024.

Panama

In the isthmus, three bills have been presented so far regarding the regulation of digital assets. One proposal, presented by legislator Gabriel Silva, aims to regulate Bitcoin and Ether, and establishes that crypto represents an alternative global payment method accepted in any commercial operation.

Deputy Cenobia Vargas also presented Panamanian Congress bill 696 for consideration, which recommends regulating BTC and Tether, as well as other digital assets such as NFTs and 7UT tokens.

Previously, the opposition deputy Rolando Rodríguez had presented a bill seeking to regulate digital currencies. The ‘Trade and Economic Affairs Commission’ of the Panamanian parliament must discuss whether to merge these bills, or choose one to present for discussion and approval in the plenary session of the ‘National Assembly’.

Paraguay

The Paraguayan Senate approved a bill in December 2021 to regulate operations with cryptocurrencies. The proposal was presented by Senator Fernando Silva Facetti of the ‘Authentic Radical Liberal Party,’ and two other legislators from the ‘Hagamos’ party.

The bill seeks to guarantee the legal, financial and fiscal security of commercial activities related to digital assets. If approved, cryptocurrency companies will need to register with the ‘Registry of Virtual Asset Providers’.

Although the bill does not recognize cryptocurrencies as legal tender, it does consider mining to be an innovative digital industry that can receive state incentives. To be passed into law, the proposal must also be approved by the ‘Chamber of Deputies’ and sanctioned by the government.

Peru

Peruvian lawmakers are currently debating the draft ‘Framework Law for the Commercialization of Crypto Assets‘. The proposal, presented by deputy José Elías Avalos of the ‘Podemos Peru’ party, proposes two fundamental points.

i) The creation of a public registry of cryptocurrency service providers;

ii) Obligation for companies to report all “suspicious operations” to the ‘Financial Intelligence Unit’.

According to this bill, Peru would not consider Bitcoin a legal tender.

Uruguay

The use of cryptocurrencies has also become very widespread in this country. In order to develop a specific regulatory framework for the crypto industry and open a wide space for debate on its benefits, the Uruguayan Chamber of FinTech created the Cryptocurrency Commission in 2018.

The Central Bank of Uruguay (BCU) announced that a task force had been assigned to examine the issue of crypto. At the end of last year, a document entitled “Conceptual framework for the regulatory treatment of Virtual Assets in Uruguay” was published, in which a conception for the future regulation of the sector was outlined.

The document defines digital assets as a “digital representation of value or contractual rights that can be stored, transferred and traded electronically using registry technologies”.

However, everything indicates that the regulation would not fall upon virtual assets themselves, but rather on services related to the industry. In this way, efforts would be focused on the commercial activities of the exchanges and other crypto active trading companies.

Venezuela

With the approval of the ‘Constituent Decree of Crypto Assets’ in 2018, Venezuela began its path towards regulation. The Venezuelan regime not only wanted to control cryptocurrencies, but also to start generating them.

Bitcoin mining was pursued as a way of evading the sanctions imposed by the U.S. for the violation of the human rights of Venezuelans. The government of Nicolás Maduro has since tried to keep the country’s dilapidated economy afloat.

Likewise, with the advice of Russia, Maduro created the ‘Petro’, the first cryptocurrency issued by a state. The token was intended to be linked to the price of oil, but in reality became a digital currency whose price was arbitrarily set by the government through the central bank.

The regulatory body for cryptocurrencies in Venezuela is the ‘National Superintendency of Crypto Assets and Related Activities (Sunacrip)’. Its mission is to regulate all activities and operations related to crypto assets. It is also responsible for managing control systems, related policies, and user registration.

Users and companies in the sector are required to register with the ‘Comprehensive Registry of Crypto Active Services (Risec)’, attached to the regulatory body, while mining companies and cryptocurrency trading services must do so through the ‘Integral Registry of Miners (RIM)’.

Last February, the ‘National Assembly’ and the government approved the ‘Large Financial Transactions Tax Law,’ which covers cryptocurrencies. Crypto operations are henceforth taxed at rates between 2% and 20%.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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