Crypto regulation to make a slow move in Latin America

Cryptocurrency adoption in Latin America moves forward in leaps and bounds, as its citizens increasingly turn to digital assets as a means to hedge against local currency depreciation and, in some cases, rising inflation.

FREMONT, CA: According to a report by Chainanalysis, Argentina, Venezuela, Colombia, and Brazil were among the top 20 nations with the most significant bitcoin adoption as of 2021. Latin America is responsible for around 9 percent of all global cryptocurrency transactions. Regulatory organisations across the region have offered high-level recommendations on how to deal with crypto assets, generally as part of broader frameworks rather than tailor-made regulations on the emerging sector. Some governments, on the other hand, are looking towards industry-specific regulation, with measures in the works to regulate the sector on its own, rather than as part of a broader fintech charter.

Cryptocurrency regulation has been either integrated into larger financial technology legislation or postponed in most Latin American countries as authorities take a "wait and watch" approach to the industry's development. Existing regulations or the absence thereof are viewed positively by industry experts. According to Mexican consultancy firm CryptoFintech, Except for Bolivia, Venezuela, and Central American countries like Panama, Nicaragua, and Guatemala, most Latin American countries take a "permissive position" toward cryptocurrencies.

However, as adoption expands, so does the need for regulators to provide a framework that protects users while still promoting the business. Experts remark that more and more governments are now open to cryptocurrencies initiatives. However, when regulators observe the ecosystem's rise, they are compelled to enact restrictions to keep the industry under control which is not an easy task. Another remark made is that the crypto business is so large and ever-changing that attempting to draw a complete picture of all of its features now and combining them in legislation might end up causing more problems than anything else. At times regulation is the need of the hour, but there are also hazards associated with implementing it poorly. Further, it was claimed that failing to include entrepreneurs in the conversation could lead to a monopoly on the industry, suffocating innovation. Chile's government presented a fintech law in Congress that covers many subsectors, including cryptocurrency, in the Andes. Cryptocurrencies are given a framework that defines them as a financial investment product, and Chilean industry sources indicate that they were actively involved in the writing of the document. If Chile succeeds, it would join Mexico with comprehensive fintech legislation. In 2018, the North American country made history by becoming the first in Latin America to pass its own fintech law. According to public statements made by government authorities, no particular crypto rules are planned at this time, and regular banks are mainly restricted from offering trading services.

There is no regulating authority for crypto assets in Colombia. Some financial authorities, such as the central bank, have, nevertheless, issued a set of guidelines. However, as the use of cryptocurrencies develops in Latin America, with many people putting their money in them or using them as payment methods, regulators are under increasing pressure to provide an appropriate legal framework. In a recent study, the International Monetary Fund argued that regulators should act to establish rules for the industry because "crypto-assets are at the heart of the fintech revolution" and are "possibly transforming the international monetary and financial system in significant ways."

The underlying concerns associated with digital assets necessitate regulation: high volatility, anonymity, cyber risk, market manipulation, and fraud. It is a huge task to establish a complete, uniform, and coordinated regulatory approach to crypto. However, experts are anticipating achieving financial stability while reaping the benefits of the underlying technology advancements. A high-level guidance approach or generic fintech rules that include cryptocurrencies as a vertical, according to an Argentine lawyer, are not suitable, given that industries under fintech might differ significantly within themselves. Given that many crypto service providers operate across borders, making the work of monitoring and enforcement more challenging. However, in Latin America, this has not yet been the case, despite numerous unusual experiments. No Latin American country went as far as El Salvador in terms of cryptocurrency. When the Central American country made Bitcoin a legal tender for all transactions, it elevated it to a whole new level. Its ruling, which went into effect in September 2021, piqued the curiosity of regional regulators. Although most governments are unlikely to follow El Salvador's lead, many are pushing for particular cryptocurrency regulations. Brazil, which had earlier adopted a high-level approach, is now closer to establishing sector-specific legislation. The lower house of Congress passed a law regulating cryptocurrency trading by the end of 2021. The measure would establish a supervisory board that would be chosen by the President and in charge of oversight.

Argentina has made one of the most spectacular growths in Chainanalysis' adoption score, jumping from 28th place in 2020 to 10th place this year. Although there is no particular law governing crypto-assets, certain measures in the works may address the topic. Some, though, are doubtful about how far they can go, they do not have the correct methodological approach.