The first week of May 2023 (and the following weekend) concluded with a significant move that shook the legal and compliance departments of the Argentine FinTech ecosystem. In spite of previous political positions such as the statement made by the Minister of Economy to entrepreneurs of the crypto industry regarding the free circulation of cryptoassets “within a legal and fiscal framework”, this is becoming increasingly difficult due to the lack of clarity and foresight in terms of regulation. Even though some specialized media such as BeInCrypto had already predicted a regulatory move during 2023, this measure took everybody aback.
The Central Bank of the Argentine Republic (BCRA) issued Communique “A” 7759, attacking the crypto market in a brief paragraph and with a confusing real scope. The text of the measure is so short that it almost fits into a twit. The rule sets forth that Payment Service Providers (PSP) shall not carry out or facilitateto their clients the execution of transactions with “unregulated digital assets” (basically cryptoassets); further specific definitions “to be reported later”..
As a result, this unclear rule –which seriously damages legal safety- has halted Mercado Pago from integrating a crypto Exchange in its platform for Argentina, as it does in other countries. Considering that Mercado Pago is a company that belongs to a group that was created in Argentina and with the high local crypto adoption, the company was expected to incorporate cryptocurrencies into its investment offering for local users sooner rather than later. As regards the high adoption rate in the Argentine crypto ecosystem, I agree with José Trajtenberg’s, analysis, in the sense that this type of measures is oneof the main causes of legal uncertainty(other causes are economic uncertainty and chronic high inflation).
Among the companies that offered crypto trading in our country, Uala has suspended its crypto business and has given clients a deadline to sell or transfer the virtual assets they hold. Others like Personal Pay and Modo shall also be restricted from offering crypto investment services (at least directly).
Unfortunately, this rule lacks technical accuracy and the announcement made by the BCRA is very similar to the one released when Banco Galicia was banned from offering cryptoassets to its clients: the ban is simply announced without clear regulatory concepts. For further details you can read this article. In line with this statement, Ámbito Financiero has published an article that is consistent with a Central Bank that seeks to ban this type of activities for entities that manage pesos of Argentine citizens.
Let’s remember that Communications issued by BCRA are, within the normative hierarchy, in the lower tier and are often used to provide some further details on applicable rules or to regulate matters specifically delegated (reason why the constitutionality of a BCRA Communication restricting these activities is a debatable issue). Even though PSPs are regulated by the monetary authority, the fact of banning them from carrying out a legal financial activity without any explanation does not seem to be reasonable at all.
Almost all relevant players of the crypto ecosystem rejected the measure (which was released surprisingly just a few working hours before weekend). Besides some controversial personalities such as Carlos Maslatón, we have the comunicado de la Argentine Fintech Chamber’s press release(supporting a jointly cooperation between regulatory bodies and companies and their representatives in order to design a clear legislation) and the position of the NGO Bitcoin Argentina(focused on the negative impact for Argentine workers and savers by hindering the legal access to financial assets, boosting the informal market with higher risks). From our blog, we strongly stick to both positions.
Amidst fears and users’ panic almost all platforms had to make clear the scope of the measure (even confusing for themselves). Here you can find the Twitter threads posted by Bitso and Belo. We recommend this summary by BeInCrypto with relevant players’ opinions (entities and companies).
From our Law Firm, we contacted Chainalysis,a data analytics company and Caroline Malcom, Vice President of Global Public Policy, commented as follows:““If Argentine regulators seek to protect consumers, BCRA’s announcement is unlikely to operate as an effective strategy. In fact, such a measure could undermine the security of Argentine citizens, already under huge economic pressure. At Chainalysis we are committed at studying the adoption of digital assets globally and data are very clear: bans or quasi-bans are not effective and the use and adoption of digital assets have increased in those countries banning such activity.”.
I recommend the analysis by Ricardo Mihura, reported by El Economista regarding the potential
scope of the measure.
After a deep analysis of the announcement, I believe it has raised many concerns and uncertainty instead of bringing light to this topic. Legislation should be vested with clarity and transparency.
As reported by BA Opina, official sources would have declared that the rule excludes crypto-native companies (matching the analysis made by Bitso, Belo, Lemon, BuenBit, Satoshi Tango and others in their social networks) and that only comprises “large virtual wallets that began to offer these services recently”. This confirms the assumption that the rule is purported to hinder Mercado Pago from having access to these services as well as Ualá, Modo, Personal Pay and others. It would have been better to tighten control with a clear legislation including mentioned concepts with binding effects, thus avoiding general panic in the FinTech market and reassuring those users who have funds in exchanges allowed to deposit and to withdraw in pesos.
Restrictions imposed over some companies as regards services or activities are quite normal and, in fact, insurance companies, banks, exchanges, etc. are often subject to some type of restrictions. Once the dust settles, situation seems to be clearer. The truth is that most exchanges, in spite of their trade names, have their businesses branched out: on one side, they receive and make payments in pesos through a company registered as PSP (own or partnered with another company); on the other side, they trade cryptoassets through another company (often based in other country). Thus, PSP finally operate as simple “on – ramps” with zero crypto activity, reason whythe announcement by BCRA would have no impact over a great portion of the crypto industry.
Within this context, it is advisable for the companies involved, to keep their business apart. After FTX crashthe division between PSP services and exchange crypto trading seems a rather healthy and reasonable step. Particularly, in the case of FTX, both companies operated separately. By means of a fraudulent mechanism, executive officers made withdrawals of the customers’ deposits from the Exchange to make other investments on behalf of the other company, concealing the diversion of these funds for their own benefit while defrauding FTX’s investors.In this case, controls failed (from the regulated and traditional sectors), it had nothing to do with crypto, it was a fraudulent asset stripping.
In connection with this fraud, regulators argue that “if the corporate scheme for both companies (FTX and Alameda) had only Beenone Company, fraud would have been easier to be achieved”. (We do not know but, perhaps, control would have been weaker).
As regards PSP, considering the vision of Argentine regulatory bodies (BCRA and CNV) that cryptoassets are highly volatile and risky for investors, their intention of keeping PSP accounts in pesos apart from the crypto “speculation” sounds rather “reasonable”. In this sense, I believe that, in the near future, Argentine legislation will require PSPs and banks to keep their capital apart from crypto companies’ capital.
While debates in Argentina address issues like these, that is to say, if those companies managing pesos should be permitted to offer cryptoassets and the applicable legislation drives progress back in terms of crypto adoption, industry projections and legal safety, Hong Kong regulator fosters state support for the blockchain and crypto industries. This article published by Cointelegraph reflects the new crypto licensing regime to trade cryptocurrrencies.
While the future of cryptocurrency will be shaped by regulators, the regulatory landscape is likely to be divided into three categories in the years ahead: some jurisdictions will boost the crypto industry, others will impose severe restrictionsand, in a minor proportion, other jurisdictions will ban the crypto activity. Amid these concerns, this industry will continue to flourish in crypto-friendly jurisdictions with all the value it generates and the many benefits involved for their communities. In contrast, non-safe crypto environments will only be left with “on-ramps” like PSPs. Whatever the future of the crypto market may be, there is a lot of work to be done in terms of regulation and education globally.
