General Resolution CNV No. 1025: Draft Regulation for Virtual Asset Service Providers (“VASP”)
Banking & Financial Institutions department report | General Resolution CNV No. 1025: Draft Regulation for Virtual Asset Service Providers (“VASP”)
I- Introduction
The draft general resolution (the “Project”), published through General Resolution No. 1025 of the National Securities Exchange Commission (“CNV”) on October 15, 2024, proposes the regulation of Virtual Asset Service Providers (“VASP”) operating in Argentina. Its objective is to regulate activities related to cryptocurrencies and other virtual assets, establishing requirements and obligations for individuals and entities participating in this sector.
The project is in the “Participatory Norm Development” phase, open to public opinions until December 2, 2024, through the CNV website.
The Project takes as a precedent General Resolution No. 994 of the CNV, which created the VASP registry (the “Registry”). This resolution established the mandatory registration of individuals and legal entities conducting activities in Argentina by June 3, 2024, to control their quality as obligated subjects before the local Financial Information Unit (“UIF”), in accordance with law 27,739 and UIF Resolution No. 49/2024 (see our newsletter on this matter). Unlike General Resolution No. 994, the approval of the Project would subject VASPs to the control and supervision of the CNV.
Below is a summary of the key aspects of the Project and its potential impact on the operations of PSAVs in Argentina.
II- VASP Registry
According to Article 4 bis of Law No. 25,246, modified by Law 27,739, a “Virtual Asset Service Provider” is any individual or legal entity that, as a business, performs one or more of the following activities (the “VASP Definition”):
1-Exchange between virtual assets and legal tender.
2-Exchange between one or more forms of virtual assets.
3-Transfer of virtual assets.
4-Custody and/or administration of virtual assets or instruments that allow control over them.
5-Participation and provision of financial services related to the offer and/or sale of a virtual asset.
General Resolution No. 994 established that the following must register as VASP:
-Resident individuals and legal entities constituted in the country that perform the activities described in the VASP Definition.
-Non-resident individuals and legal entities constituted outside the country that perform the activities described in the VASP Definition in Argentina.
A non-resident person or foreign entity will be considered to operate in Argentina if:
-Domains with the “.ar” termination are used to carry out the activities or operations.
-There are commercial agreements with third parties, subsidiaries, or affiliates that allow receiving funds or assets from Argentine residents locally to perform the activities or operations, including so-called ramp services.
-There is a clear targeting of activities or operations to residents in the Argentine Republic.
-Advertising is clearly directed at residents in Argentina.
-The volume of business in Argentina exceeds 20% of the entity’s total business volume, considering only the business volume of the activities for which it must register in the Registry.
However, General Resolution No. 994 stipulated that, even in the above circumstances, there is no registration obligation if the threshold of 35,000 UVAs per calendar month is not exceeded.
The Project introduces two key modifications to the regime established by General Resolution No. 994:
-It does not allow non-resident individuals to register as PSAVs.
-It adds two new exceptions to the registration obligation, excluding the following individuals or legal entities:
-Those who perform for themselves the exchange between virtual assets and legal tender, and/or between virtual assets, regardless of the amount; and
-Those who receive virtual assets as consideration for the sale or provision of products or services, regardless of the amount.
III- Registration Requirements
All VASPs performing activities included in the definition must register in the VASP Registry enabled by the CNV before starting their operations.
To complete the registration, VASPs must submit general information, comply with identity requirements of their legal representatives, accreditation of tax, asset compliance, and provisions for the prevention of money laundering and terrorist financing.
IV- VASP Categories and Obligations
VASPs must register in one or more of the following categories, depending on the type of activities they perform:
-CATEGORY 1: Exchange between virtual assets and legal tender.
-CATEGORY 2: Exchange between one or more forms of virtual assets.
-CATEGORY 3: Transfer of virtual assets.
-CATEGORY 4: Custody and/or administration of virtual assets.
-CATEGORY 5: Participation and provision of financial services related to the offer and/or sale of a virtual asset.
Individuals can only perform activities in Categories 1 and 2, while legal entities can register in any of the five categories.
VASPs performing activities in CATEGORY 4 (Custody and/or administration of virtual assets) must comply with certain special conduct rules:
– They must provide a description and general diagram of the architecture where the structure of their own and clients’ wallets is identified, along with a general scheme and sub-schemes of custody wallets, identifying the characteristics of each wallet or set of wallets and their function within the business operation. In this regard, they must present to the AIF a detail with certain minimum information that must be kept updated through the AIF under the responsibility of the VASP.
– They must ensure a clear separation and individualization between the VASPs own Virtual Assets on one hand, and their clients’ Virtual Assets on the other.
– Ensure that the Virtual Assets in custody on behalf of their clients are under private key custody schemes that use technological security mechanisms to mitigate risks of theft or loss of private keys.
V- Minimum Net Worth
VASPs must comply with a minimum net worth according to the category in which they are registered:
-Categories 1° and 2°: 70,000 UVA.
-Categories 3° and 4°: 140,000 UVA.
-Category 5°: 35,000 UVA.
If the transaction volume in categories 1°, 2°, 3° or the volume in custody in category 4° is less than 2,500,000 UVA in the last 12 months, the required net worth is reduced to 50% of the mentioned values.
The registered VASP or the legal entity requesting registration in the Registry under two or more categories must comply with the minimum net worth requirement corresponding to the most demanding category.
If the semi-annual accounting certification shows a net worth amount lower than the value established for the Minimum Net Worth, the VASP must inform the CNV of this circumstance as a ‘relevant fact’, providing within 10 business days the details of the measures to be taken for its recomposition.
VI- Designation of Responsible Parties
VASPs must designate two key figures to ensure regulatory compliance and customer service:
1-Responsible for Regulatory Compliance and Internal Control: This person will oversee compliance with all applicable regulations, evaluate the effectiveness of internal controls, and report to the management body. They will be responsible for ensuring that the established measures and procedures are adequate and that the VASPs operations are carried out in accordance with current regulations.
2-Responsible for Public Relations: This role will manage customer inquiries, concerns, and complaints. Additionally, they will inform both the management body and the supervisory body about the issues received and the attention provided to customers. The VASP must offer accessible communication channels for the public, such as email and telephone, and clearly publish this information on their website.
VII- Informative Regimes and Periodic Reports
VASPs will be required to comply with a periodic informative regime, presenting information to the CNV through the Financial Information Highway (AIF):
-Quarterly (31/03, 30/06, 30/09, and 31/12): Within 20 calendar days after the end of each quarter, PSAVs must present:
-Detail of their own and third-party virtual asset wallets.
-Monthly report with the number of clients (individuals and legal entities), total volume operated, number of transactions, and the 10 most traded or custodied virtual assets.
– Semi-annually (30/06 and 31/12): Within 20 calendar days after the end of the semester, PSAVs must present:
-Certification by a public accountant on compliance with the minimum net worth.
-Annually: Within 70 calendar days after the end of the year, they must present:
-An external audit report on the information systems used.
-A report from the Responsible for Regulatory Compliance and Internal Control, evaluating the effectiveness of internal controls.
VII- Cybersecurity and Internal Procedures
The Project imposes strict requirements on cybersecurity to protect clients’ virtual assets and ensure the integrity of the systems. VASPs must establish security procedures, internal and external audits, as well as risk management mechanisms.
IX- Deadlines to Comply with the Provisions
If the Project is approved, registered VASPs must comply with the following deadlines from the effective date of the regulation to present the required information and documentation:
-Individuals residing in Argentina: 120 calendar days
-Legal entities constituted in Argentina: 180 calendar days
-Foreign legal entities: 270 calendar days
X- Conclusion
The implementation of this regulatory framework for VASPs in Argentina will establish clear requirements in terms of registration, net worth, cybersecurity, and transparency. With this, CNV seeks to ensure the protection of virtual asset users and increase confidence in the market. VASPs must adapt their structures and operations to comply with this regulation and be prepared to carry out periodic reports and mandatory audits.
For more details or inquiries on how to comply with these provisions, do not hesitate to contact us.