Impact on fintech activities of recent FX restrictions
They affect crypto and funds maintained in PSPs, but not transactions with cards
On May 28, 2020, the Central Bank of Argentina (BCRA) published the Communication “A” 7030, by means of which it increased the restrictions to access the local FX market.
Among other things, the BCRA established that, in order to access the local FX market (that is, in order to acquire and transfer foreign currency at the “official” exchange rate), Argentinian residents must submit an affidavit declaring that (i) they do not possess available external liquid assets (among them, “crypto-assets” and “funds in accounts of payment service providers”) or that they have fully used them to make allowed payments abroad, and (ii) that they undertake to settle in Argentina all amounts collected abroad from the sale of any “asset” acquired as from May 28, 2020, within five business days of their collection.
In practice, this implies that companies that want to hold crypto assets or to perform “blue-chip swap” transactions with crypto assets in order to obtain foreign currency outside the official FX market, will face restrictions to acquire US Dollars at the “official” (lower) exchange rate. The same will happen for companies that intend to hold any foreign currency in PSPs.
This restriction does not apply for access to the official FX market by individuals for purposes of treasuring foreign currency, up to the existing monthly limit of US$200. It does not affect either the access by cardholders for payment of purchases in foreign currency with a credit or purchase cards or payments abroad made by issuers of local credit, purchase, debit, or prepaid cards.
The UIF alerts on operations with virtual assets
It demands enhanced monitoring and anticipates new regulations
By means of a Communication dated May 20, 2020, the Financial Information Unit (“UIF”) alerted the “Reporting Entities” subject to its regulations (e.g. banks, credit card operators, etc.) to pay special attention to money laundering and terrorism financing risks (“PLA/FT”) involved in operations with virtual assets, as well as to establish an enhanced monitoring on these operations in order to asses if they match the client’s profile, all in accordance with the provisions established in Resolution UIF No. 300/2014.
On the other hand, the UIF informed that it is gathering and updating information from the agents involved in these types of operations in order to adapt Argentina’s PLA/FT system to the latest provisions of the FATF. For this reason, it should not be surprising if, in the short term, “Virtual Asset Service Providers” (e.g. the so-called “exchanges”) are incorporated as new “Reporting Entities” for such purposes.
Criminal complaint against fintechs for fraud and usury
Filed by the Government against certain lending fintechs
Throughout a press release dated May 5, 2020, the Ministry of Productive Development reported that seven non-banking companies that provide digital credit were officially accused for fraud, usury and violation of personal data protection laws in public or private databases.
Among other accusations, the press release states that the accused companies have performed undue debits in bank accounts, deducted fees that do not correspond, and applied abusive rates that “in many cases exceed 1500% + VAT as Total Financial Cost “.
According to the statement, these companies were criminally accused of the mentioned crimes before the National Court of Appeals for Criminal and Correctional Matters. Likewise, it is assumed that they were summoned by the Undersecretariat of Actions for Consumer Protection, for breaches of the Consumer Protection Law No. 24,240, in collaboration with the BCRA and the General Inspection of Justice of the City of Buenos Aires.
New caselaw regarding loans with electronic signature
Appeal Court confirms denial for collecting through “executive” procedures
As mentioned in our Bulletin No. 8, caselaw in our country keeps denying the ability of the electronic signature (that is, the signature created by electronic means that lacks the required certifications for the “digital signature”) to access “executive procedures” (summary proceedings) for the collection of loan agreements that were entered into by a “click””. This ruling was confirmed on May 20, 2020 by the National Court of Commercial Appeals, chamber “C”, in re “Banco de la Provincia de Buenos Aires c/Dubois Christian s/Ejecutivo“.
This ruling brings two remarkable developments. In the first place, the fact that this ruling was issued by a Court of Appeal is unusual in these cases, given that the sums granted by electronic loans are often not enough to reach an appeal. In the second place, this ruling was issued against a financial institution, whereas until now such decisions have been directed against unregulated fintechs.
It should be noted that although the executive procedure for the collection of the credit has been denied, banks should still enable to use the ordinary (although slower and more expensive) procedures for the collection of these credits.
Reporting schedules for PSPs and Non-Financial Credit Providers
Further details on deadlines and on the ranking of defaulted debtors
By means of Communication “A” 7004 dated May 8, 2020, the BCRA clarified that the first period for the submission of the reports of Payment Service Providers (both monthly and quarterly) will be the one in which the Superintendence of Financial and Foreign Exchange Entities issues to the PSP the certificate of its registration in the Registry of PSPs. Likewise, by Communication “A” 7005 of the same date, the BCRA published the operational guidelines for the preparation of said reports.
On the other hand, the BCRA extended the deadline for the submission of the information reports for the Non-Financial Credit Providers that correspond to April 2020 (Communication “A” 7010) until the end of May. For the purpose of ranking the debtors, the BCRA also provided that the default of levels 1, 2 and 3 must be increased by 60 days for the periods corresponding from March to September 2020 (Communication “A” 7013).
The BCRA published a new Financial Inclusion Report
It evidences an accelerated increase in the use of electronic means
On April 30, 2020, the BCRA published the latest Financial Inclusion Report corresponding to the second semester of 2019 (the “FIR”). Unlike the FIR Report issued with respect to the first semester of 2019, the latest FIR assesses in a more precise way the impact of lending by non-banking fintech companies and its link with the financial inclusion of the population.
Among the findings of the latest FIR, it is highlighted that electronic payment methods continued to grow throughout 2019, despite the fall of the economic activity (particularly noting an acceleration in the use of prepaid cards).
Moreover, the FIR makes a detailed analysis of the increase in the activity of lending by fintechs (that are registered with the BCRA), showing that, as of August 2019, a total amount of 141,725 people owed payments to some fintech credit company for a total amount of AR$ 2,809 million. From all the users, it is noted that 23% did not record the collection of salaries through the banking system in the previous year, while the majority had some existing link with the traditional financial system. A higher default rate is also remarked (37% of the balance) compared to that of the traditional financial system (5.4%). Regarding geographic distribution, growth was most noticeable in large cities and, regarding age distribution, a trend was observed in favor of younger people.
Even so, the BCRA makes a skeptical assessment of credit fintechs, arguing that they present a “limited expansion of access financing to traditionally excluded sectors and, with this, a low impact on the financial inclusion of the population“.
The BCRA anticipated that the next edition of the FIR will be published in October 2020, so we will have to wait until then to appreciate the impact of the COVID-19 pandemic on the uses of financial technology by the population.
The BCRA issued certain Cybersecurity Guidelines
For the entire financial ecosystem (regulated and non-regulated)
On April 29, 2020, the BCRA published a series of cybersecurity guidelines for the financial ecosystem and a Cybersecurity Glossary, in order to unify criteria and definitions among cybersecurity experts in the use of digital media.
It should be noted that these guidelines are not only addressed to the financial entities regulated by the BCRA, but to the “financial ecosystem” as a whole, within which the BCRA includes both regulated and non-regulated entities (expressly including “fintechs”).
As we already highlighted in our previous newsletter, the BCRA seems to be gradually acknowledging the importance of the “interconnections” between all the electronic media infrastructures, entailing a greater recognition of non-regulated entities, but also a potential higher supervision of their activity by the regulator.
The BCRA expands its scope on non-banking collection companies
Non-financial companies that perform cash-in and cash-out services
On April 16, 2020, throughout a regulation that passed almost unnoticed, the BCRA issued a communication specifically aimed at “extra-banking collection companies”, regulating the companies’ attention to the public during the COVID-19 pandemic (Communication “A” 6977).
What is striking about this regulation and another similar Communication on this similar topic issued on May 28, 2020 (Communication “A” 7028), is that the BCRA expanded the scope of its regulation on an area that, until now, was not subject to financial regulations, except in the case of Complementary Agencies that had specific agreements to perform as correspondents of financial entities.
As mentioned in the previous item, these types of regulations seem to anticipate a more active role of the BCRA on the payment ecosystem in general, both regulated and non-regulated. In this particular case, it becomes relevant because extra-banking collection companies often create an important cash-in and cash-out channel for fintechs.
Participation of Digital Payment Aggregators in the “Ahora 12” program
Clarifications on reporting and on the role of Electronic Commerce Platforms
By means of Resolution No. 130/2020, published on May 11, 2020, the Secretary of Domestic Trade modified the provisions established in the General Regulations for the consumption promotion program “Ahora 12” (the “Program”).
Given the difficulties that the adhered Digital Payment Aggregators had in order to identify and report the information on the products and/or services sold through their platforms, it is now established that they should report (in a confidential way) the information of the merchants that sale their products and/or services through their payment platforms, reporting the items, provinces, amounts of such operations, as well as the details of the installments offered in each financial operation.
At the same time, the obligation to report the information on the products and/or services sold is put over the “Electronic Commerce Platforms” that participate in the Program (defined as “companies that carry out e-commerce activities, as well as distribution, sale, purchase, marketing and/or supply of product or service information through the Internet, or any other electronic means, regarding the goods and/or services included in the Program”).
SGRs are allowed to use blockchain technology
For executing reciprocal guarantee agreements by electronic means
Due to the extraordinary situation caused by the COVID-19 pandemic and the urge of small and medium-sized companies to guarantee their credit needs, the Ministry of Small and Medium-sized Enterprises and Entrepreneurs published on April 16, 2020 Resolution 50/2020, allowing the instrumentation of guarantee agreements between Reciprocal Guarantee Companies (“SGRs”) and their participating partner companies and/or third parties by means of electronic documents with electronic signatures.
Although the choice of the digital means and the criteria for validating the identity remain at the sole discretion of the SGRs, the resolution requires them to use “a system associated with blockchain technology” for such operations.
This is probably the first time in Argentina that a regulation officially recognizes and establishes the obligation to use blockchain technology for a certain activity (without specifying if it must be the Bitcoin, Ethereum or any other blockchain technology).
Alternative activities of FX agents are restricted
They may only engage in tourism and sale of tickets as a related activity
By means of Communication “A” 6999 dated April 30, 2020, the BCRA established that the foreign exchange agents (agencies and exchange offices) will only be able to carry out ancillary activities related to tourism and sale of tickets.
Under the previous Administration, the activity of the foreign exchange agents had become more flexible, allowing any businessman to carry out foreign exchange activities on a complimentary basis. This had motivated several fintechs dedicated to other businesses to join the foreign exchange activity. This will now be denied to them, in line with the closing of the registry of foreign exchange agents recently stated by the BCRA. The reorganization plans were to be submitted until the end of May and their compliance must be verified as of September 30, 2020.
New restrictions for SAS
Followed by a nullification action and a bill of law for their suspension
As we had previously reported in our newsletters, the General Inspection of Justice of the City of Buenos Aires (“IGJ”) continues to issue restrictions for the use of Simplified Joint-stock Companies (“SAS”), including the recent General Resolutions 17/2020, 20/2020, 22/2020 and 23/2020, issued between the end of April and during May 2020.
Among these modifications, a new “by-laws template” for the SAS was approved and entered into force as of May 27. This new by-law template (which speeds up the registration process by IGJ), brings some relevant changes, like the reduction of the term provided for SAS from 99 to 20 years, among other changes.
Moreover, during the month of May, the Association of Entrepreneurs of Argentina (ASEA) filed a legal injunction questioning the powers of the IGJ to issue regulations that restrict legal benefits for SAS. On the other hand, a bill of law presented by the pro-government sector of the Senate seeking to suspend for 180 days the constitution and registration of SAS in the country is pending legislative treatment.
The evolution of this discussion may be relevant for all those fintechs incorporated or with plans of incorporation via SAS.
Advances in the bill of law for the amendment of the IT Promotion Law
It got favorable approval in commissions
Last May 19, 2020, the Commissions of Communications and IT, and of Budget and Treasury of the Deputies Chamber issued favorable approval for the Bill of Law that proposes to amend the IT Promotion Law No. 27,506. Therefore, it is expected that voting by Congress will follow shortly.
It is worth mentioning that the favorable approval by the internal Commissions was obtained with amendments proposed by the block of opponents and had only one dissidence.