BANKS, FINTECH AND REGULATORY AGENCIES: THIRD RELEASE

Further to our previous articles (see link), we take this opportunity to introduce another controversial issue regarding regulation in Argentina.

Crypto companies offering yields

The BCRA is attempting to target on (some minor) Exchanges offering high yields to their users for keeping their money in their wallets. Yields are (generally) paid in the same cryptocurrency held by users in the different platforms. That is to say, if I hold Bitcoin (BTC), the company offers to me a yearly yield payable in BTC. The same happens with dollar-pegged stablecoins; there are many platforms offering yields between 10% and 15% yearly in currencies equivalent to one dollar for keeping your funds with them. For countries like Argentina, yields over 10% in dollars are quite attractive irrespective of the risk involved. As reported in this article of Bank Magazine, the BCRA has some concerns regarding these rewards and opened an investigation suspecting of a pyramid scam like the Ponzi scheme or similar. For the Central Bank, the alert lies on the lack of physical assets to evaluate the risk, mostly combined with tricky advertising.
In this sense, investing with an Exchange is quite similar to investing with traditional banks and financial companies; if you put your money in an investment fund or in a time-deposit, you cannot inquire about the destination of your money. But the GREAT difference is that traditional banks or financial companies are strictly regulated by state agencies as opposed to Exchanges.
Briefly, investments are based on trustworthy parties: assets and companies involved. If you keep $DAI (stablecoin) with an Exchange to be rewarded in dollars, you are “buying risk” linked to that coin and to the company receiving your money (which is supposed to use your money to make investments, usually in crypto, with higher yields than the rewards you receive). In my opinion, transparency is a key factor to enable crypto-related companies to work as reliable investment options, enabling investors to evaluate the risks involved.

Authorities’ roadmaps in the near future

The State has a growing concern towards cryptocurrencies and their associated vulnerabilities, attempting to monitor the crypto ecosystem. In a nation like ours, with tight exchange controls and high inflation, cryptocurrencies are seen like a safety valve.

Local authorities cannot decide if they represent a threat (for lack of control) or an opportunity (to release pressure on the “blue or parallel dollar”).

The summary reported by iProUp about the position of the public agencies up to May 2021 is quite interesting. Even though the adoption of any of the bills under analysis at Congress seemed quite imminent, the legislative agenda was aligned with other political issues and the bills were not discussed prior to the renewal of the Congress members. One of the main concerns is the use of cryptocurrencies for money-laundering (although this is carried out by many other means). The lack of definition of cryptoassets (they are not considered a currency by the BCRA nor financial assets by the CNV) implies that a purchase of real estate in BTC would be considered “a barter transaction” (without any control by UIF authorities).

For the time being, only some Exchanges are regulated by the BCRA as Payment Service Providers (PSP), depending on the services provided through their virtual wallets. A concerning issue for local authorities is the possibility to buy in pesos an asset equivalent to the dollar that is sold at a value equivalent to the parallel dollar but in a legal way (even offering yields in dollars). An option could be to monitor this type of transactions excluding regulation.

The specific monitoring regime for prevention of money-laundering established by UIF Resolution 300/2014 is in force since 2014. All “virtual currencies” are under the scope of mentioned Resolution including other currencies that are being developed such as the Digital Euro and the Digital Yuan (virtual currencies designed by central banks expected to be launched in the short term. Nigeria is the only nation with its virtual currency –eNaira- fully implemented up to now).

The AFIP keeps on collecting data from the crypto ecosystem. Read this article for more information. Today there are a lot of data available both of virtual and bank accounts (CBU and CVU accounts are equivalent in this sense) that can be easily traced. The main controversial issue among crypto-related companies, crypto community and State is the access to such data on an unrestricted basis or if such data should be made available upon an investigation in due course. We recommend to read the 5 frequent questions compiled by iProUp (it can be seen that most blocks are performed by the companies themselves for compliance purposes or to avoid penalties and fines).

The situation in other countries

Further to our articles on the American Situation and the European Situation, we recommend this article published by Errepar reporting some actions carried out during the first half in Mexico, the European Union, the OCDE (OECD-Organization for Economic Co-Operation and Development) and the position of several countries regarding crypto legal nature.