Latin America has always been a valuable market for industries such as the online trading of FX and CFDs and online gaming and sports betting.

Yet, when it comes to regulatory and licensing framework for online trading of FX and CFDs in Latin America, the typical choices are between highly complexed regulation which are equivalent to stock exchange membership, and no regulation at all.

The above situation has led to a rather odd situation where the leading brands operating in Latin America are not licensed or regulated anywhere in Latin America.

This situation is now about to change with the introduction of a new regulatory framework in Chile called the Fintech License. The Fintech License has the potential of becoming the gateway license to Latin America.

A Fintech Licensed Company is licensed and supervised by the Chilean Regulator, The Comision Para el Mercado Financiero (CMF).

The Chilean Fintech Act

In January 2023, Law 21.521, known as the Chilean Fintech Act, came into force (hereinafter “the Fintech Act”). The Fintech Act establishes a regulatory framework for services based on Fintech technologies, such as crowdfunding platforms, alternative trading systems, credit and investment advice, custody of financial instruments, order routers and financial instrument intermediaries, which were not regulated or supervised by the CMF.

The entities that carry out brokerage and custody operations, provision of trading platforms and advice on financial instruments (including crypto-assets and certain derivatives), will now be regulated by the FMC and must demonstrate compliance with the requirements established by the authority to operate.

The Fintech Act provides the following key definitions:

“Alternative Trading Systems” – platform that allow its participants to quote, offer or trade securities or financial instruments, including crypto-assets.

“Brokerage of Financial Instruments” – carrying out activities consisting of the purchase or sale of financial instruments on behalf of third parties.

“Custody of Financial Instruments” – holding of financial instruments, money or foreign currency. Such custody may be in the service provider’s own name on behalf of the client, or in the client’s name and on behalf of such client.

“Financial Instrument” – The Act defines “Financial Instrument” as any security, contract, document or incorporeal good, designed, used or structured for the purpose of generating monetary income, or representing an outstanding debt or a crypto-asset, including derivative contracts, contracts for difference (CFDs) and invoices, regardless of whether their support is physical or electronic.

Based on the above definitions, we conclude that acting as an intermediary and offering CFDs is an activity which is within the scope of the Fintech Act and therefore regulated by the CMF.

Authorization Process under the Fintech Act

The regulatory process of operating an alternative trading system consists of 2 phases:

• Registration in the Registry of Fintech providers.
• Application for the authorization to operate as an alternative trading system.

 One cannot apply for authorization without completing the registration phase.

• Application for Registration in the Registry of Financial Services Providers

The registration phase consists of two phases:

1. Incorporation of a local company in Chile (or a Chilean subsidiary of a foreign company).
2. Registering the company with the Registry of Financial Service Providers administered by the CMF (the “Registry”).

Once the registration phase is complete, the company may start its activities while its application for authorization is being reviewed by the CMF.

• Authorization to Operate

Once the registration phase is completed, the applicant company must apply for authorization from the CMF. The applicant company must prove to the CMF that it complies with the requirements established for each of the Fintech Services it intends to offer in Chile, which may include customer information obligations, suitability requirements, operational capacity, capital requirements, equity and guarantees, as well as requirements in the areas of corporate governance and risk management.

The Main Obligations of Fintech Providers include:

• Information duties: the CMF will establish the information that Fintech Service providers must provide to their clients or to the public.
• Suitability and knowledge: the individuals who perform functions for the providers of credit counseling or investment advisory services, as well as the systems they use, shall provide guarantees of objectivity, coherence and consistency among the elements used to make their recommendation or evaluation, which shall be accredited in the manner determined by the CMF.
• Guarantees: when a certain business volume or number of potentially directly affected persons (determined by the CMF) is reached, those who provide intermediation or custody services of financial instruments or routing of orders, shall constitute guarantees to respond for the correct compliance of the obligations arising from their activity and, especially, for the damages that may be caused to their clients.
• Minimum equity: when business volume established by the CMF is reached and it can be reasonably presumed that the risks faced by the entity may compromise public faith or financial stability, those providing brokerage or custody services of financial instruments must maintain a minimum capital as prescribed by the Act depending on criteria of numbers of customers and business volume metrics.
• Corporate Governance and Risk Management: service providers must comply with the corporate governance and risk management standards, including cybersecurity and information security aspects, established by the CMF.
• Local Physical Presence in Chile – It is not required to establish an office or hire local employees in Chile under the Fintech Act. The sole mandatory requirement is to appoint a local legal representative in Chile who will act as focal point of contact with the CMF.
• Reporting to the CMF – A Fintech licensed company must comply with periodic reporting duties in the areas of risk management, audit, AML, operational incidents and clients’ complaints.

Сроки подачи заявления и получения лицензии

Типичный график подготовки заявки и получения лицензии от FSC включает в себя:

• Подготовка: It generally takes 1-2 months to gather all necessary documents, draft the required submissions, and complete the application.
• Обзор нормативной базы: The CMF typically takes 1-2 months to review and process an application for registration in the Registry of Fintech Providers. Then, it takes the CMF 2-3 months to review an application for an authorization to operate, though this can vary depending on the complexity of the application and any additional information the FSC may require.
• Общий срок: The entire process, from preparation to registration and eventually authorization, can take anywhere from 4 to 7 months.

Сравнение с другими юрисдикциями

The fact the Chilean Fintech Act does not require a substantial physical presence in Chile is its main advantage over onshore and offshore jurisdictions alike, as it means highly affordable operational expenses. The capital requirement in Chile, which can vary from as low as $40,000 USD to $200,000 USD (depending on criteria of number of clients and business activity) is still attractive in comparison to offshore jurisdictions such as the Bahamas, Belize and the British Virgin Islands, and becomes even more attractive when you add competitive operational expenses to the mix.

In comparison to onshore jurisdictions, the capital requirement in Chile is lower than most Asian Pacific leading jurisdictions, and quite equivalent to those in the EU and UK. Here again, Chile wins on operational expenses, which are much lower than any major onshore jurisdiction.

Finally, unlike leading onshore jurisdictions, there are no trading limitations in Chile.

Заключение

Chile is currently the only jurisdiction in Latin America which has put in place a lenient and straightforward regulatory framework. As such, it stands alone as the only feasibly “GO-TO” jurisdiction in Latin America, with the potential of positioning itself as the gateway to Latin America.

The Chilean Fintech Act offers a robust regulatory framework for Fintech providers in the hands of a prominent regulator such as the CMF.

Chile is a politically and economically stable country in Latin America, a region known for political and economical instability.

Should you require further details or assistance with setting up your Fintech License in Chile, please do not hesitate to contact us.

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