Fintech Department Bulletin | Fintech Legal News in Argentina No. 21.
by Daniel Levi
In this bulletin, you will find a selection of the main legal news related to the fintech and digital banking market in Argentina.
THE CENTRAL BANK APPROVES THE PURCHASE OF WILOBANK BY UALÁ
Sets a precedent for the shareholding structure of digital banks in Argentina
On June 9th, 2022, the Central Bank of Argentina (BCRA) announced that its Board of Directors approved the transfer of 100% of Wilobank’s share package in favor of Bancar Technologies Limited, a holding company of the Latin American fintech unicorn Ualá based in the United Kingdom.
This operation marks a precedent in the Argentine financial system, given that it is the first time that a fintech company acquires a bank in Argentina and it is also the first time that the BCRA recognizes a banking license to a closed company with a shareholding structure that has international investment funds of venture capital nature.
Beccar Varela assisted Ualá throughout the entire regulatory authorization filing with the BCRA, which lasted approximately 15 months and involved an arduous process of negotiations and cooperation with the regulator in order to frame the operation within current regulations.
The transaction must now proceed to its closing, which will take place in the coming days.
BILL FOR THE AMENDMENT OF THE AML LAW
Almost all fintech activities would now be covered by AML regulations
On May 31, the National Executive Branch presented before the Chamber of Deputies the bill 0009-PE-2022, to modify the current legislation related to the prevention of money laundering and financing of terrorism (AML/TF).
The project was promoted by the Financial Information Unit (UIF) and was discussed in working groups with other regulators, so there are expectations that the project will be debated and, eventually, approved.
Among the main novelties that the project brings, several verticals of the fintech ecosystem that until now were excluded from this regulation would be included as new Obliged Subjects for the purposes of AML/TF obligations.
Specifically, the following subjects are included or modified:
(i) Financial entities are subject to the regime of Financial Entities Law 21,526 and its amendments and those to which the BCRA extends its application in the exercise of its powers. In this sense, let us remember that the BCRA has been “extending” the application of Law 21,526 to new fintech activities not specifically covered by such Law, so that new fintech activities not expressly covered now could enter in the future through this subsection.
(ii) Cross-border remittance companies. These companies were previously included within the regulated activities of exchange houses regulated by the BCRA. Now, they are appointed independently.
(iii) Issuers, operators, and providers of collection and/or payment services. This would continue including card operators, but also will cover any kind of Payment Service Providers (PSPs).
(iv) Non-financial providers of credit, not contemplated in other cases. That is, entities that provide credit for retail with their own capital.
(v) Collective Financing Platforms. That is, those crowdfunding platforms regulated by the national National Securities Commission (CNV).
(vi) Providers of service with virtual assets. This category would include the provision of services involving crypto assets.
It is worth recalling that those who are designated as Obliged Subjects for AML/TF purposes must appoint a Compliance Officer, adopt a compliance policy, carry out KYC tasks, monitor operations and report to the UIF both systematically and in the event of suspicious activities.
FLEXIBILIZATION OF FX RESTRICTION FOR EXPORTERS OF IT SERVICES
Would be allowed to enter amounts in US$ and pay part of salaries in that currency
Through Communication “A” 7518, the BCRA made the foreign exchange (FX) regime more flexible for exporters of services, including exporters of IT services, both individuals and legal entities.
Until now, this regime forced exporters of services to bring to Argentina and convert to Pesos, at the official FX rate, the collection of exports made to non-resident subjects, which generated a certain disincentive for exporters. to bring foreign currency and also made it difficult for companies in the IT sector to retain talent.
Now, with the issuance of this new Communication, and subject to the fulfillment of certain requirements, individuals will be able to enter foreign currency to the country, without the need to settle it in Pesos, for up to a limit of US$12,000 in the calendar year (beyond that amount they must settle to Pesos as before).
As for legal entities, also subject to the fulfillment of certain conditions (among which they must demonstrate an increase in their exports), they may enter foreign currency directly to the country, also up to a certain limit, to allocate them to the payment of salaries, for up to 20% of net remuneration of their employees. This mechanism will prevent the performance of “blue-chip-swap” operations for a period of 90 days before and after the entry of the foreign currency.
REGULATION OF NEW PAYMENT FUNCTIONS
New registration requirements are created
Through Communication “A” 7462, the BCRA began to introduce important reforms in the legal regime of electronic payments, in order to reinforce the regulation on certain roles within the payment system and also continue increasing interoperability.
New regime for “Digital Wallets”
Although the BCRA had already issued in the past some regulations aimed at “digital wallet” operators (such as Communications “A” 7328 and 7363), it was a figure that lacked a precise definition and there were doubts about its distinction from the so-called “Payment Service Providers that Offer Payment Accounts” (PSPCP), which were the PSPs that until now had specific regulations for their activity.
Through Communication “A” 7462, issued at the end of February, the BCRA established a new specific regime for “digital wallets”, defined as the “service offered by a financial institution or payment service provider (PSP) through of an application on a mobile device or in a web browser that must allow –among other transactions– to make payments by instant transfers (PCT) and/or with other payment instruments –such as debit, credit, purchase or prepaid cards” .
With this new definition, the BCRA intended to capture within the payment regulation not only the PSPCPs, but also the applications (including bank ones) that aggregate accounts or cards and that do not necessarily issue their own accounts or cards, such as MODO or Ank, that until now were not covered by the figure of PSPCP.
As a result, there is now the generic global figure of “digital wallet”, within which are included the applications of financial institutions and PSPCP that offer their own accounts or cards (with or without linking with third-party accounts and cards) and those of PSPs that only aggregate payment accounts or third-party cards.
The role of the “Initiator” of payments
Along with the figure of “digital wallet”, the BCRA also defined for the first time the role of the “Initiators” of payments (PSI), as a new regulated function. This is the service that consists of “sending a valid payment instruction at the request of an ordering client to the provider of a banking account or payment account, or to the issuer of a payment instrument”.
The BCRA’s intention with this new definition was precisely to reach PSPs that allow payment instructions to be sent to accounts or cards, whether or not they operate with their own accounts or cards.
Other new regulated figures
Under the same Communication, the BCRA also included within the regulation of PSPs two new regulated figures: (i) the Automatic Teller Machine Networks (RCA) and (ii) the Electronic Funds Transfer Networks (RTEF) (aimed at those who act as processors or operators within the electronic transfer system, transmitting payment instructions between financial institutions and PSPs so that the transfers reach their destination).
New registration obligations
With this new Communication, new registration obligations with the BCRA also arise. On the one hand, the old registry that only considered the role of PSPCPs has now become a generic Registry for PSPs, where not only PSPCPs must register, but also PSIs, and RCAs and RTEFs.
It should be clarified that while the BCRA now expressly requires that the corporate purpose of companies wishing to register as PSPs must explicitly contemplate the development of activities related to the provision of payment services that motivate the registration, it still does not require an exclusive purpose, so PSPs can continue to fulfill several functions at the same time. However, in the case of PSPCPs acting as Initiators, they only need to register as PSPCPs.
Initially, there were some doubts regarding the registration obligation of PSIs, because the definition of “Initiator” is so generic that it could even reach terminal providers or payment gateways, even if they did not offer any type of Internet application. However, through subsequent Communication “A” 7495, the BCRA clarified that only those “Initiators” that offer the “digital wallet” service should register as PSIs.
On the other hand, the BCRA also created the Registry of Interoperable Digital Wallets, in which financial institutions and PSPCPs or PSIs that offer the “digital wallet” service must register, when, among their functionalities, they grant the possibility of making instant payments by reading QR codes.
To enroll in this new Registry, financial entities, PSPCPs or PSIs must obtain a certification from each administrator of immediate transfer schemes (currently Coelsa, Prisma and Red Link) stating that the service offered allows the reading of QR codes generated by each and every one of the acquirers of said schemes.
Adaptation deadlines
For registration in the new Registry of Interoperable Digital Wallets, the BCRA established a deadline of April 15, 2022 for financial entities, PSPCP and PSI that were already offering the service. In addition, it granted until May 1, 2022 for the administrators of immediate transfer schemes to offer a formal procedure for those new operators who wanted to integrate their wallets into the available QR code schemes.
On the other hand, the BCRA established that those PSPCP or PSI that were already registered, or that were processing their registration or that must process their registration as such, would have 90 days from a date to be determined by the BCRA to readjust the Operational and Commercial Description originally provided at the time of registration, or to request a new registration, as the case may be. Through Communication “B” 12333, the BCRA announced that the date to start counting said term would be May 27, 2022.
THE INTEROPERABILITY OF PAYMENT REVERSE REQUESTS IS EXPANDED
The local “Open Banking” model is growing for payments
Shortly after having regulated the new figure of “digital wallets” (which, as we saw above, recognizes the possibility of enrolling accounts and/or cards issued by third parties in the same application), on May 19, 2022 the BCRA issued the Communication “A” 7514, with the intention of imposing that this connection becomes mandatory for all financial institutions and PSPCPs, so that the interoperability of the Transfers 3.0 immediate transfer program is also extended to the use of accounts.
Until now, interoperability in instant payments had only been established for (i) direct payments between accounts offered by a financial institution or PSPCP and accounts offered by other financial institutions or PSPCP, and for (ii) payments with QR codes, so that users could scan the QR codes of any acquirer (through a “passive payment request”) through any bank or non-bank application that allows scanning QR codes.
On the other hand, the BCRA long ago had regulated the figure of DEBIN (Immediate Debit), which allowed transfers to be generated online (only between bank accounts), through reverse payment orders (that is, where the payment request is generated by the recipient of the payment and is subject to the authorization -spot or recurring- of the payor).
Through this new Communication, all administrators of instant transfer schemes must now implement mechanisms so that users can make –from a bank or payment account– immediate “pull” transfers that allow, through the debit of the account of the client receiving the request, and after he has authorized it (spot or recurring), the immediate crediting of the funds in the account of the requesting client.
This tool, if used by the same user for their own benefit, could allow the user for example, to top-up their payment account from their PSPCP application, making a debit against their bank account, without having to leave the application of their PSPCP.
In the same way, this tool could also be used to make instant payments to merchants from the wallet of any financial institution or PSPCP, through payment reverse requests made against accounts that are not necessarily provided by said application (something that until now could only be done through QR code or DEBIN payments between bank accounts).
Likewise, given that the “Transfers 3.0” instant transfer system still coexists with the DEBIN tool, the BCRA clarified that from now on the DEBIN will no longer be only between bank accounts, but can also be made between bank accounts and payment accounts (given that some wallets had been using DEBIN as an account linking system).
This means that, in practice, all bank and non-bank payment applications will eventually have to become “digital wallets” with account interoperability, since this direct link functionality with third-party accounts will be mandatory.
The deadline for these implementations has been set for September 30, 2022.
As a result of this new regulation, it was rumored that VISA would impose on its acquirers and payment facilitators which offer merchants the payment through QR codes, that such codes also must allow users to make payments with VISA cards enrolled in any digital wallet (as we saw above, interoperability is currently only provided by law for payments between accounts or QR codes that link accounts, but not with cards). VISA would also aim for this implementation to be ready in September. In the recent past, VISA had manifested its opposition for its plastics being freely used as an instrument for Transfers 3.0.
CLARIFICATIONS ON THE DEFINITION OF “PAYMENT ACCOUNTS”
Doubts about the scope of the registration obligation are cleared up
In the midst of the noise caused by the various regulations mentioned above, the BCRA also took the opportunity to make some clarifications on the definition of “payment accounts” offered by PSPCPs, helping to eradicate some doubts that remained unresolved.
Thus, through Communication “A” 7495 issued at the end of April, the BCRA clarified that payment accounts must be denominated in Pesos and they must allow users to both order and receive payments (previously, the rule said “order and/or or receive”).
In this way, some doubts that persisted about the scope of the definition are ended. It is now clear that accounts that only operate with crypto assets or in foreign currency are not covered by the definition, nor are accounts that only allow ordering or receiving payments but do not offer both functionalities.
CLARIFICATIONS ON FEES AND LIMITS ON INSTANT TRANSFERS 3.0
Through Communication “A” 7485, also from April of this year, the BCRA introduced some clarifications regarding the collection of fees and limits for transfers in the schemes of instant transfers under the Transfers 3.0 system.
On the one hand, it clarified that the fact that acquirers (individually) are required not to charge different fees for the same category of products or services does not imply that there cannot be competition between different acquirers, for which purpose they could offer fees different from those charged by another acquirer.
Likewise, the BCRA clarified that the equivalences of the limits expressed in UVAs (the unit of measure) under this regime will be published by the BCRA in the months of March, July and November, but those that are in force will apply until they are updated.
CYBER SECURITY AND FRAUD ISSUES
The BCRA and the courts begin to allocate responsibilities
As the use of electronic payments increases (pursuant to the latest Financial Inclusion Report published by the BCRA towards the end of April this year), the number of cases of fraud in payments also increases, for which both the BCRA and the courts have begun to pay more attention to this matter.
For now, the BCRA, which had already established some preventive measures in the past through Communication “A” 7328 for the enrollment of accounts and cards in wallets, has now once again reinforced the security measures and consents of users that must be adopted in those cases, as well as began to distribute in greater detail the responsibility of the participants of the instant transfer schemes in the face of user claims.
Thus, through Communication “A” 7463, issued at the end of February, the BCRA emphasized the need to have the client’s consent both for the enrollment of accounts, and at the time of making each payment, as well as to grant the client the possibility of establishing limits of use and the possibility of unlinking said accounts in a simple and immediate way in case of suspicion of fraud.
Likewise, through the same Communication, the BCRA urged that the administrators of instant transfer schemes establish the responsibilities of each scheme participant in cases of fraud management, so that claims are managed in a coordinated manner and traceability, confidentiality and integrity of the transactions carried out is guaranteed. In particular, it is established that customer attention for fraud claims must fall on the provider of the affected account (financial institution or PSPCP).
Finally, a period of 180 days was established for the implementation of the measures.
On the judicial side, there are more and more fraud cases coming before the courts, whether due to phishing, spoofing, identity theft or credential theft, among others, where judges are usually inclined to attribute responsibility to the entity of the account or card with respect to which the fraud is operated, even when it cannot be established with total clarity the way in which the perpetrators accessed the respective passwords.
NEWS ON CRYPTO ACTIVITIES
Banks are banned from entering the business. Accounts in crypto-exchanges are seized.
Just two days after Banco Galicia and Brubank simultaneously enabled their clients the possibility of operating with crypto assets through a foreign third party, the BCRA issued Communication “A” 7506 on May 5, by which it prohibited all financial entities to carry out or facilitate their clients to carry out operations with digital assets –including crypto assets and those whose yields are determined based on the variations crypto assets– that are not authorized by a competent national regulatory authority or by the BCRA.
This prohibition was accompanied by a harsh press release, where the BCRA stressed the risks involved in operations with crypto assets while recalling that the activity of financial entities must be aimed at financing investment, production, and the consumption of goods and services required by both domestic demand and for export. It also pointed out that the different actors involved in the operations with these assets may not be established in the country, which could generate deviations from the regulations.
In this way, the doubts about the possibility of financial entities in Argentina being directly involved in this type of business were eliminated.
On the other hand, in an interesting ruling of the Province of Tucumán (File. No. 1681/22 – Civil Court in Documents and Location I of San Miguel de Tucumán (Tucumán) –05/17/2022– non-final judgment), within the framework of an executionary trial for the collection of a promissory note, the intervening court authorized the seizure of the defendant’s accounts on Binance platform (maintained abroad), thus reaffirming the principle by which digital assets form part of the debtor’s patrimony like any other asset subject to the common pledge of creditors.
UPDATES ON TAXATION
The monthly reporting regime of AFIP is updated
In tax matters, the recent Argentine Federal Tax Authority (AFIP) General Resolution No. 5193/2022 stands out, which updated the base amounts that trigger the reporting obligation on the identity, balances and movements in accounts reached by General Resolution AFIP 4614/2019.
This monthly information regime reaches all “subjects that administer, manage, control or process asset movements through electronic or digital management platforms, on behalf of and by order of individuals and legal entities residing in the country or abroad, including Payment Service Providers (PSPs) that offer payment accounts”. This regime also includes accounts with movements in cryptocurrencies.
As of the May 2022 period, accounts that have registered total movements during the reported period equal to or greater than AR$30,000 (previously it was AR$10,000) must be identified. Also, balances that, at the end of the reported month, are higher -in absolute values- to AR$90,000, must also be informed. Likewise, with respect to individual movements in accounts, when the type of operation is a bank and/or virtual transfer, only those of an amount equal to or greater than AR$200,000 must be reported.
Córdoba introduces a new collection regime for payment accounts
At the provincial level, on May 13, the Province of Córdoba issued Decree 510/2022, through which it created a new “Collection Regime in payment accounts of PSPCPs” with respect to the Turnover Tax.
This regime would only apply to payment accounts opened in the name of those who are taxpayers of the Turnover Tax in the Province of Córdoba, on all amounts in Pesos, foreign currency and/or securities or instruments of purchasing power similar to legal tender, which are credited in payment accounts -regardless of their modality, nature and/or kind- opened in PSPCPs. The persons subject to the tax will be identified in a list to be published by the provincial tax authority. Simplified taxpayers and transfers between accounts of the same owner are expressly excluded.
PSPCPs registered as such with the BCRA will be obliged to act as collection agents for the regime, as long as they are taxpayers of the Turnover Tax in the Province of Córdoba.
Tax injunctions on virtual accounts continue
Finally as regards tax matters, a new ruling (File 49233/2021 – “National Treasury – AFIP v/González Damián Alfredo s/Fiscal Execution” – Federal Social Security Court No. 10 – 02/18/2022 – judgment not final) ordered the seizure of the sums that the executed person was entitled to receive in Mercado Pago and Brubank accounts, as another precedent of the proactivity that the tax authority is adopting in the seizure of payment accounts or accounts in digital banks.
THE CNV PROMOTES INNOVATIONS IN THE CAPITAL MARKET
It launched a Fintech Hub and projects a differentiated regime for IT companies
Fintech Hub
Under the name “Innovation and Financial Inclusion Hub”, through General Resolution 926/2022, the National Securities Commission (CNV) created last April a space that will function as an open and informal collaborative communication channel between entities with innovative projects in the financial sector and the CNV.
The objective of the Hub will be to generate a space for public-private collaboration, promoted and directed by the CNV, in order to foster innovation and exchanges between the agency, its regulated entities and innovative entities.
The CNV presented this Hub as a kind of “sandbox”, intended for entities with service technology projects and/or innovative financial products, under the agency’s jurisdiction, that carry out their activity, in a non-exclusive manner, in the country.
Participation in the Hub requires prior application and compliance with certain requirements and conditions for the entity and the project presented. Participation, which will have a maximum duration of 12 months, will be voluntary, free of charge and will not generate any contractual link between the entities and the CNV.
In its launching act, the CNV indicated that it had a special interest in exploring projects that bring innovations in the use of tokenization and blockchain technology within the capital market. The CNV also announced that it is working on a regulation for private placements, which may also benefit this type of projects.
Public Offering Regime for IT Companies
In another initiative to promote the technology sector, the CNV launched a public consultation on a bill of resolution to establish a simplified public offering regime for companies in the knowledge economy sector, which would allow them to issue shares or negotiable obligations in the Argentine capital market under a much less bureaucratic procedure than the general regime. The project was published under General Resolution 932/2022.
ONGOING CASES ON THE EXECUTION OF ELECTRONIC SIGNATURES
Case precedents are still divergent on the matter
The courts continue to issue rulings related to the ability of documents signed with an electronic signature to prepare a judicial executive process, mainly promoted by the companies Afluenta and Wenance, which have been the most active in the attempt to execute their delinquent debtors before justice.
Although until now there have been mostly rulings against admitting the electronic signature (when it does not comply with the extremes of the digital signature) as a sufficient element to prepare a judicial executive process and summon the debtor to acknowledge its signature, isolated rulings also continue to appear in various jurisdictions admitting their ability, supporting recent technological advances.
For example, while in the ruling “Afluenta S.A. v. Celiz, María Marta s/ Executive collection” (12/14/2021) the Chamber of Civil and Commercial Appeals of San Isidro (room II) dismissed the suitability of a title with an electronic signature to prepare a judicial executive process, in the case “Afluenta SA v. Olivia Josefina Belén s/Cobro Ejecutivo” (04/13/2022) another Chamber of the Province of Buenos Aires (the Chamber of Civil and Commercial Appeals of Lomas de Zamora, room III) admitted that the debtor could be summoned to acknowledge their signature in order to prepare the executive process.
REFORMS TO THE CORPORATE PURPOSE OF THE MINT
Does it open a door for the possible issuance of CBDCs?
Although at the end of August of last year the President of the BCRA had anticipated in a public conference that the monetary authority was not considering for the moment the issuance of a digital Peso, a recent reform to the corporate purpose of the Mint aroused curiosity about this issue.
Through Decree 207/2022, it was decided to expand the corporate purpose of said state company, based on “the advancement of digital environments in terms of transactions and payments, traceability, validations and certifications of documents and processes, artificial intelligence and digital governance, as well as the emergence and proliferation of “blockchain” technology, cryptographic technologies and digital assets”.
Although no official initiative resulting from this reform has been heard so far, it should not be surprising that in the short or medium term the government or the BCRA will begin to explore innovations in this regard, in line with what regulators from other countries are already doing in the region, such as Brazil, which has a specific agenda on CBDC since the middle of last year.
DISCUSSIONS ON THE INTERNET AS A PUBLIC SERVICE CONTINUE
Actions continue to be brought against its constitutionality
On May 3, 2021, in the proceedings “Argentine Internet Chamber v. National State”, the Federal Administrative Contentious Chamber, room II, revoked a ruling that had rejected in limine a collective action promoted by the Argentine Internet Chamber tending to declare the unconstitutionality of decree 690/2020, by which information technology (TIC) companies were established as essential and strategic public services in competition.
As a result, the collective action initiated will be able to continue its course, and joins similar actions initiated with the same objective by the companies Telecom, Telefónica, Telecentro, and by the Cable Television Association, which have also obtained precautionary measures.
Although it is a tangential issue for the fintech industry, the outcome of these cases could influence the cost of internet provision in the country and the investment conditions for its expansion and development.
Please, do not hesitate to contact us should you require any additional information on these matters.
Sincerely,
Daniel Levi
María Shakespear
Pablo J. Torretta
Franco Montiel
Luciana Liefeldt
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This bulletin contains summaries of standards that are published and to which we refer. They are in no way complete or imply legal advice. If you require legal advice, please contact us.