For the past few weeks, the Council of the Financial Market Commission (CMF) of Chile has been holding meetings with representatives of supervised industries and fintech associations to communicate the work plan regarding the regulatory process for the implementation of the new law promoting Financial Competition and Innovation, known as the Fintech Law.

This has been well-received by the industry as it advances in a technical process that is public, transparent, and participatory. It is good news because, despite its supervisory and oversight role, the CMF has promoted dialogue with various fintech stakeholders to facilitate the application of the law. The CMF has listened to the industry to understand its needs and opinions before issuing specific regulations.

It’s important to note that this law establishes a regulatory framework for a range of companies offering financial services that are currently not regulated or supervised by the CMF. These services include crowdfunding platforms, alternative transaction systems, credit advisory, custody of financial instruments, financial instrument intermediation, and order routing.

Having 18 months to establish regulations and provide specific guidance for the law allows the CMF to gradually regulate technology-based financial services, enabling the market to adapt organically. Furthermore, active oversight provides greater security to users since operating with supervised entities helps prevent falling victim to fraud or other crimes.

The Fintech Law is the result of a process that began in 2018 with working groups organized by the Commission, the submission of a legislative proposal to the Ministry of Finance in 2019, and subsequent legislative work by the Executive branch with the support of the CMF and the Central Bank. This process has also received support from international organizations such as the Inter-American Development Bank, the International Monetary Fund, and the World Bank, drawing on successful experiences of fintech and open finance globally and regionally.

Another positive aspect is that the CMF will require all registered fintech companies to meet various obligations, including information disclosure, corporate governance, and risk management, encompassing cybersecurity and information security requirements. Depending on the specific business of the newly supervised entities, additional requirements such as knowledge and suitability (for credit and investment advisors), minimum net worth (for alternative transaction systems and instrument custody), provision of guarantees, among others, must be fulfilled.

Regarding the future effects of this law, it will promote greater competition in the market by opening doors to new players who can offer services that were traditionally within the realm of traditional financial institutions, such as payment services and electronic transfers, or services that did not exist until recently, such as crowdfunding platforms. Secondly, it will encourage investment in the fintech industry as the law provides legal certainty for new investors, especially foreigners, who, being unfamiliar with the local reality, now have the assurance that their businesses will be regulated with clear rules.

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