María Victoria Funes

Bomchil, Buenos Aires

victoria.funes@bomchil.com*

Lucía Carro

Bomchil, Buenos Aires

lucia.carro@bomchil.com**

Emir Faita

Bomchil, Buenos Aires

emir.faita@bomchil.com***

A general outlook on Argentina’s Fintech industry and regulations

During the last few years, there has been a growing trend in Argentina towards the development and use of technology for financial services. Furthermore, the emergence of some Argentine Fintech unicorns during 2021, together with the pandemic-driven digitalisation of financial services, has accelerated the growth pattern of the Argentine Fintech industry during the past year, despite Argentina’s complex economic situation. In fact, according to the Cámara Argentina de Fintech (the Argentine Fintech Chamber), Fintech companies received investments for about USD 900m during the first three quarters of 2021,[1] boosting the development of Argentine Fintech companies abroad, especially in Latin American countries.[2]

At the time of this article, there is no centralised regulation that governs the entire Fintech ecosystem in Argentina; however, there are several dispersed regulations in place regarding certain Fintech activities and/or players. For those Fintech verticals that are not expressly regulated, existing regulations might be applicable as well, as is the case of crypto assets. Since the Fintech system is constantly mutating and advancing, it might take some time for Fintech regulations to adapt and reflect the inexhaustible technological changes and improvements.

Below is an overview of the Argentine Fintech regulations currently in place and the main challenges for 2022.

Electronic payment systems: payment service providers, digital wallets, and immediate transfers

The Covid-19 pandemic accelerated the implementation and universalisation of inclusive and interoperable electronic payment systems that seek to achieve the greatest possible efficiency and immediacy, which led to the need to regulate the activity of payment service providers and digital wallets. The Argentine Fintech Chamber has projected that by the end of 2022, the number of virtual payment accounts will reach 40m, from 20m at the end of 2021.[3]

Payment service providers that offer payment accounts (PSPOCPs) were for the first time regulated by the Banco Central de la República Argentina (Argentine Central Bank, or ‘Central Bank’) in 2020,[4] and digital wallets were regulated in February 2022.[5] PSPOCPs are defined by the Central Bank as legal entities that, without qualifying as ‘financial entities’, offer payment accounts and fulfil at least one function in a ‘retail payment scheme’, regardless of whether they provide the digital wallet service. In turn, digital wallets are defined as products offered by financial entities or payment service providers (which may or may not offer payment accounts) that allow payments via electronic transfers and/or other payment instruments (such as credit or debit cards), either through a mobile device or a website.

A PSPOCP’s obligations include the following:

• registration with the Central Bank;
• granting the availability of customers’ funds at all times, which have to be deposited in at-sight accounts in pesos opened in local financial entities under the name of the PSPOCP;[6] and
• using an ‘operational’ bank account segregated from the bank account in which the PSPOCP’s customers’ funds are deposited for transactions made by such PSPOCPs on their own account (eg, payment to suppliers or payment of salaries).

The obligations of digital wallets include, among others, registration with the Central Bank, compliance with certain informative regimes, verification of users’ identity and tracking of their activities, and implementation of certain fraud mitigation mechanisms.

In connection with the regulation of PSPOCPs and digital wallets, during the course of 2020 and 2021, the Central Bank implemented the initiative called ‘3.0 Transfers’,[7] which aimed to boost the use of digital payments and financial inclusion for those people who do not transact with traditional financial entities. The new functionalities incorporated to the payment system comprise:

• the interoperability between bank accounts and digital wallets, even those which operate under different payment schemes;
• the immediate transfer and clearance of funds, stating that each operation shall be completed in less than 15 seconds, including confirmation and denial notices to the clients;
• opening the market for new entities to offer services related to the payment scheme (which was previously dominated by a few major providers); and
• providing users with the flexibility to use different payment methods, such as with cards, mobile applications (scanning QRs, providing payment links or orders, using Near-Field Communication (NFC) technology, etc), identification codes and biometrical data, among others.

Crowdfunding and crowdlending platforms​​​​​​​

In 2017 equity-based crowdfunding platforms were regulated by the Comisión Nacional de Valores (Argentine Securities Commission or ‘CNV’)[8] and the Unidad de Información Financiera (Financial Information Unit, or ‘UIF’).[9] Equity-based crowdfunding is a specific type of crowdfunding in which investors, as consideration for their monetary contribution, receive an equity participation in the entrepreneur’s vehicle entity. However, the 2017 regulation has limited this investment alternative to the promotion of projects that qualify as ‘Argentine entrepreneurships’ and to the issuance of securities for small amounts (subject to a threshold of ARS 20m – at the time of writing, around USD 175,000 − per year)[10]. As a result, equity-based crowdfunding is not an attractive alternative to raise money for a project and therefore it did not have much of a reception in Argentina. In this regard, in February 2022, the CNV submitted for the consideration of the general public a project to reform the current crowdfunding regulation which proposes, among other modifications: (1) a greater flexibility of the requirements the investment projects must comply with; and (2) an eight-fold increase of the minimum issuance amount.[11]

In November 2021, the Central Bank established a regulatory regime for peer-to-peer crowdlending platforms, which entered into force in January 2022.[12] According to this regulation, crowdlending platforms are defined as entities that offer the service of contacting one or more investors with borrowers in order to enter into loan agreements in Argentine pesos. Crowdlending platforms must enlist in the registry created by the Central Bank for that purpose, which does not imply authorisation to carry out financial intermediation operations, attract public resources and carry out advertising or use denominations reserved for financial entities.

Among other requirements, crowdlending platforms are prohibited to assume the credit risk for transactions between investors and borrowers, and to guarantee (directly or indirectly) the obligations agreed between the parties through the platform. In addition, they must not commit to repay the credit to investors, nor acquire or buy the credit negotiated in their platform.

Crypto assets and decentralised finance

The depreciation of the Argentine peso in a constant inflationary environment and the current foreign exchange (‘FX’) restrictions for the acquisition of foreign currency have led many Argentine people to invest in crypto assets, especially stablecoins, as an alternative method to obtain foreign currency with the purpose of preserving the value of their savings while providing the possibility of investing in decentralised finance (DeFi) products. As a reference, a fixed-term investment in an Argentine traditional bank in foreign currency accrues annual interest at an average rate of 0.20 per cent, while DeFi providers offer similar products which accrue annual interest at an average rate above seven per cent.

Although crypto assets and DeFi are not comprehensively regulated in a single legal framework, they are contemplated in regulations from different public agencies, such as the UIF[13] or the Administración Federal de Ingresos Públicos (Federal Tax Authority, or ‘AFIP’).[14] Other public entities, such as the CNV and the Central Bank, have issued non-binding official press releases highlighting certain risks associated with transactions using crypto assets.[15] Also, the general provisions contained in the Civil and Commercial Code, the Consumer Protection Law, the Personal Data Protection Law and the Digital Signature Law are applicable to these activities.

From a FX perspective, in 2019 the Central Bank restricted the acquisition of crypto assets in foreign currency through credit, debit or prepaid cards issued by Argentine entities.[16] Likewise, in 2020, it considered crypto assets as ‘liquid external assets’ and, therefore, their holding above a certain amount (currently set at USD 100,000) constitutes a limitation for access to the FX market.[17]

With regard to anti-money laundering matters, reporting parties registered with the UIF have been required since 2014 to implement an enhanced monitoring regime with respect to clients that carry out transactions with digital currencies, in order to assess whether their activity corresponds to the assigned risk profile. Furthermore, the reporting parties must report on a monthly basis to the UIF all operations carried out with digital currencies.[18]

While the exchanges operating in Argentina are not currently deemed reporting parties with the UIF and, therefore, are not obliged to implement anti-money laundering programmes, practically all of them voluntarily perform know your client (KYC) procedures. However, it would be reasonable to expect that exchanges will be considered reporting parties with the UIF in the near future. In this vein, the agreement recently approved by the Argentine Congress to restructure Argentina’s debt with the International Monetary Fund[19] establishes that the Argentine government ‘will discourage the use of cryptocurrencies to prevent money laundering and informality’ in order to safeguard the country’s financial stability.[20] The practical implications of such vague provision are not entirely clear, but it has been generally interpreted so as to mean that exchanges must be included as reporting parties with the UIF and comply with anti-money laundering obligations[21] (such as KYC procedures, the detection of unusual operations or the reporting of suspicious transactions of money laundering and terrorist financing).

Finally, it should be considered that if the services performed by certain crypto assets or DeFi service providers are aimed at collecting resources from the public, these activities may conflict with certain provisions of the Financial Entities Law No 21,526, which prohibits ‘any advertising or action aimed at collecting resources from the public by unauthorised persons or entities’.[22]

Irregular public offerings: security tokens, mutual funds, and other digital assets

The Argentine Capital Markets Law No 26,831 (as amended) provides a broad definition of ‘public offering’, which consists of a ‘solicitation for the performance of any legal acts involving securities that is addressed to the general public or to specific sectors or groups by issuers or sole proprietorships or companies engaging solely or partially in securities trading’.[23] The CNV has regulatory and surveillance authority with respect to the public offering of securities.[24] In this sense, issuers, placement agents, brokers and any other person involved in the public offering of securities must be registered with the CNV.[25] Likewise, any public offering of securities requires the CNV’s prior clearance.[26]

The offering of security tokens is increasingly being considered as an alternative to raise money to accomplish multiple projects. However, since these tokens may be issued by private companies as analogous to equities, bonds or derivatives and operate as an investment contract (ie, the investors expect to obtain a certain profit) they may be deemed ‘securities’ under Argentine regulations and, as such, may be subject to the CNV’s prior clearance. In the near future it might be necessary to establish a regulatory framework in accordance with the needs and advantages offered by this funding source.

The CNV is currently conducting a series of investigations against certain organisations that offer to the general public, through mass media, mutual funds with monthly returns and digital investment assets (whose promised returns are significantly higher than the market average).[27] Many of these entities do not have the authorisation to make public offerings of marketable securities granted by the CNV, so the public investment invitation could be deemed an irregular public offering.

Open banking

The Central Bank’s regulations regarding digital onboarding include provisions that would allow banks to share their clients' personal information with their express prior consent, in accordance with the requirements provided in Law No 25,326 on Personal Data. However, as of the date of this article there are no specific regulations governing an open banking scheme in Argentina, nor were any specific projects proposed in the last 18 months to that effect.

However, it should be noted that the 3.0 Transfers initiative has incorporated certain messaging technology and other information exchange procedures that could eventually be used to implement an open banking system. Thus, the implementation of an open banking scheme is on the public agenda for 2022, which will require balancing the free flow of information, the protection of personal data, the risks of cybersecurity and liability among the players involved.

Digital banks

The Central Bank has granted a licence to operate to four digital banks;[28] that is, banks that offer their services 100 per cent through digital platforms that provide a fully digital onboarding experience. The requirements to be met in order to be granted a banking licence and the applicable regulations are the same for traditional and digital banks.

Regulatory challenges for 2022

Regulatory challenges for 2022 are still significant. The development of open banking together with regulations aimed at protecting personal data and avoiding cybersecurity risks are on the agenda. Likewise, it is expected that crypto exchanges will be considered reporting parties under the anti-money laundering regime in the near future.

Just as asset securitisation was a boom in the past, asset tokenisation is undoubtedly a trend that is here to stay. The lack of regulation in Argentina, especially with respect to security tokens, is creating legal uncertainty that, in turn, could hinder the development of these activities. It is crucial to establish a regulatory framework in accordance with the proven benefits this alternative is offering to society.

We can certainly expect 2022 to be a year of new Fintech regulations that will hopefully help to strengthen the Argentine regulatory landscape and boost the Fintech industry’s growth.