CMS Expert Guide to Crypto Regulation in Chile

Disclaimer: This chapter was last updated 7 February 2024 and does not reflect any subsequent developments. The information provided is intended for general informational purposes and should not be construed as legal advice.

Cryptoassets fall under the regulatory framework of Law No. 21.521, which promotes financial competition and inclusion by embracing innovation and technology in the provision of financial services ("Fintech Law"). Enacted on 4 January 2023, the law is currently in the process of becoming fully operational.

Within this legal framework, crypto-assets and "virtual financial assets" are defined as "digital representations of units of value, goods or services, with the exception of money, whether in national or foreign currency, which can be transferred, stored or exchanged digitally." The Fintech Law specifically governs activities related to cryptoassets, both as a financial instrument and as a medium of payment.

Consequently, the Fintech Law explicitly regulates a defined set of "Fintech Services". The regulated activities for cryptoasset service providers encompass: (i) alternative transaction systems (cryptoasset exchanges), (ii) investment advice, (iii) custody of financial instruments, (iv) order routing, and (v) brokerage of financial instrument (as a whole, the “Crypto Services”).

On 12 January 2024, the Financial Market Commission (Comisión para el Mercado Financiero or “CMF”) issued General Rule No. 502, with the purpose of regulating the registration and authorisation of financial service providers under the Fintech Law ("NCG 502").

Scheduled to take effect on 3 February 2024, General Rule No. 502 mandates that financial service providers seek registration in the Registry of Financial Service Providers and obtain authorisation from the CMF to operate in Chile. Otherwise, they must refrain from continuing to provide services and can focus solely on concluding their operations.

Furthermore, the Fintech Law introduces amendments to primary banking regulations to include, as means of payment, “digital, electronic, or computerised representations registered through systems that use distributed ledger or other similar technologies for units whose value is directly determinable and backed by money, be national or foreign currency”. Likewise, the Central Bank of Chile is empowered to issue prudential regulations for those cryptoassets that meet minimum standards and conditions in matters of security, reliability, acceptability, use and massiveness.

• Exchange: Yes, exchange is expressly regulated by the Fintech Law as an alternative trading system. These are defined as: "a physical or virtual place that allows its participants to list, offer or trade financial instruments or publicly offered securities." Registration and authorisation by the CMF are required.
• Custody: Yes, the Fintech Law expressly regulates the custody service for financial instruments and defines it as: "to hold on its own behalf or on behalf of third parties, financial instruments, money or currencies that come from the flows or sale of financial instruments held in custody, or that have been delivered by them for the acquisition of financial instruments or to guarantee operations with those instruments." Registration and authorisation by the CMF are also required.
• Borrowing: Is not expressly regulated and there are no guidelines issued by the regulator in this matter.
• Yield: Is not expressly regulated and there are no guidelines issued by the regulator in this matter.

To carry out the “crypto services” outlined in the previous question No. 1, it is imperative to undergo a structured registration process managed by the CMF, followed by the acquisition of operational authorisation.

To obtain registration, the company must have as its sole activity one or more of the defined “fintech services” and comply with other requirements set out in NGC 502. Once the registration application is submitted, the CMF has a maximum period of 30 days to respond.

The successful completion of this registration process is dependent on the applicant satisfying the payment of fees specified in Article 33 of Decree Law No. 3,538, amounting to approximately USD 400.

Simultaneously, securing operating authorisation from the CMF is a crucial step. The CMF has a maximum period of six months to decide on the request.

During this comprehensive process, the CMF will verify the following points: (i) systems and procedures to comply with information and disclosure obligations; (ii) corporate governance and risk management requirements; (iii) operational capacity for certain services; (iv) establishment of guarantees to ensure compliance with obligations arising from the activity, for certain services; (v) suitability and knowledge for the provision of certain services; (vi) minimum equity and (vi) specific requirements for each particular service.

In summary, participating in "crypto services" requires a thorough registration process overseen by the CMF, followed by obtaining operational authorisation. The CMF, with a 30-day window for registration and six months for authorisation, scrutinises the application's completeness and compliance. Successful registration is contingent upon fulfilling specified fees, approximately USD 400, in accordance with Article 33 of Decree Law No. 3,538.

There are both judicial and administrative pronouncements, among which the following stand out:

Central Bank of Chile: Office Memo No. 219 dated February 6, 2019, stated that cryptoassets are digital representations of value that can be used as a means of exchange and investment but are not considered legal tender, currencies, or foreign currencies.

CMF: Office Memo No. 20,088 dated June 9, 2016, expressed that cryptoassets are not regulated as securities under Law No. 18,045 on the Stock Market but can function as a means of exchange as long as the parties agree. However, it has been established that services related to cryptoassets must comply with the AML/CFT regulatory framework (requirements are detailed in question No. 5).

UAF (Financial Analysis Unit): In the context of AML/CFT, the 2021 Alert Signals Guide was published, which includes a chapter on Virtual Assets aimed at guiding reporting entities on the behaviors and characteristics of individuals or transactions that could lead to a suspicious operation.

Local Police Court Proceedings: Regarding consumer protection under Law No. 19,496. In these lawsuits, one of the major cryptocurrency exchanges was sued and even though it was not convicted the rulings concluded that: (i) since exchanges provide intermediation services for which they charge a commission, there is a consumer relationship with their clients, making consumer protection regulations applicable; and (ii) the terms and conditions are relevant for clients to determine the scope of the service and the associated risks.

Cryptoasset providers are obligated to adhere to compliance requirements stipulated in Ley Fintech and NCG 502. These regulations establish a systematic framework for corporate governance and risk management, tailored to the unique characteristics and operational scale of each entity. This determination is intricately linked to specified blocks determined by business volume, which include considerations of clients, transactions, and custodied amounts.

These requirements address key aspects such as the role of the board or its equivalent body, the establishment of minimum policies, procedures, and control mechanisms, and the delineation of functions pertaining to risk management and internal audit. This nuanced approach ensures that entities can adapt and implement governance and risk management practices that align with their service offerings and operational magnitude, fostering a tailored and effective regulatory environment.

Conversely, service providers related to cryptoassets have been registered in the Registry of Reporting Entities of the Financial Analysis Unit (Unidad de Análisis Financiero or “UAF”) under the categories of "other entities authorised to receive foreign currency" and "money transfer companies" due to the ancillary activities they perform. Consequently, virtual asset service providers are subject to the regulatory requirements outlined in Law No. 19.913 (Anti-Money Laundering Act) and Law No. 20.393, which establishes corporate criminal liability. This dual regulatory framework ensures that these providers adhere to stringent anti-money laundering measures and corporate accountability standards.

Compliance requirements are summarised as follows: (i) have effective Know Your Client (KYC) procedures, (ii) have procedures to determine ultimate beneficial owners, (iii) have anti-money laundering and combating the financing of-terrorism manuals with effective protocols to detect alerts and unusual activities, (iv) report suspicious operations to the UAF, (v) report cash operations to the UAF, (vi) have a compliance officer, (vii) have continuous procedures for detecting persons on international blacklists or politically exposed persons, (viii) develop a certified crime prevention model, and (ix) appoint a crime prevention officer.

However, there are additional requirements that must be met for cryptocurrency exchanges to obtain bank accounts, which are explained in question No. 7.

The main players in the cryptocurrency exchange market in Chile are Buda.com, CryptoMKT and OrionX. Within the brokerage market, Mercado Pago (the largest Latin American fintech company) has entered with its cryptocurrency purchase, sale and custody services. However, there are currently a few banks in the country that offer services related to cryptocurrencies.

Yes, there are banking entities that work with service providers related to cryptoassets.

Currently, there are procedures and enhanced due diligence requirements that service providers must comply with to operate with these banks. Among the requirements are the common legal requirements for the company or legal entity, general compliance requirements, and some specific requirements focused on the risks of the activity, which can be summarised as follows: (i) forensic blockchain analysis to understand transactions and detect abnormalities; (ii) KYC tools that include proof of life and identity verification; (iii) two-step authentication procedure for customers of crypto service providers (2FA); (iv) complex corporate governance systems, including a suspicious operation reporting committee (ROS); (v) corporate governance of information technologies; (vi) in-house back office; (vii) information security management system compliant with ISO 27001.

It should be noted that in a case brought before the Antitrust Court by the exchanges against certain banks in the country for unjustified account closures, BICE Bank, Banco de Chile, and Scotiabank submitted their account opening policies as evidence. Additionally, Buda.com successfully opened an account with Banco de Crédito e Inversiones.

Furthermore, the Fintech Law, in Article 29, has stipulated the requirement for "public, objective, and non-discriminatory conditions" for access to bank accounts by regulated financial institutions.

In tax terms, it is important to note that transactions with cryptoassets are subject to general rules, which involve the declaration and payment of taxes on the profits derived from buying and selling these digital assets. These profits are classified as follows:

• For individuals, profits from buying and selling cryptoassets are considered income and are subject only to the Global Complementary or Additional Tax. These profits must be declared based on the amount received.
• For legal entities, profits obtained are considered income and are subject to the general taxes established by the law, such as the First Category Tax and the Global Complementary or Additional Tax.

Additionally, for providers of services related to cryptoassets, Value Added Tax (VAT) is applied to commissions for services such as buying and selling cryptocurrencies on behalf of third parties, as well as sending, receiving, and storing cryptocurrencies. Therefore, it is necessary to issue an invoice or receipt reflecting the corresponding VAT for these services.

Furthermore, crypto asset exchanges have an obligation to file the Annual Affidavit No. 1891, which covers the buying and selling of shares, other securities, and digital assets, as well as other related operations. They must also comply with all obligations applicable to first category taxpayers, including declaring the start of activities, determining the taxable base according to actual income, maintaining records, submitting periodic affidavits and provisional monthly payments, and filing the annual income tax return.

According to the CMF, cryptoassets can be used as a means of payment if the parties have previously agreed to it. Similarly, the Central Bank has recognised cryptoassets as a mechanism for the exchange of goods and services.

Furthermore, the Fintech Law acknowledges that stablecoins may be considered part of the payment methods and subject to their own prudential regulation by the Central Bank, as they are part of the national payment chain.

However, the current tax regime considers cryptoassets as investment assets and taxes them accordingly, which presents challenges when using them as a means of widespread and lower-value payments.

Yes, the Central Bank issued a preliminary report in May 2022, assessing the issuance of a central bank digital currency (CBDC) for Chile. This report concludes that the issuance of a CBDC would contribute to achieving a more competitive, innovative, inclusive and resilient payment system capable of protecting personal information, particularly in the context of advancing towards the digitisation of the economy.

However, the Central Bank also highlights the various challenges involved, which are being investigated by the “Blockchain Observatory” (an internal management body from the Central Bank itself).

There are no regulatory initiatives that specifically focus on the metaverse or that seek to regulate it differently than any other use of the internet. However, during the month of March 2023, the Senate Committee on Future Challenges participated and collaborated in organising the international seminar "Opportunities and Challenges of the Metaverse," in which one of the panels discussed the legal challenges of this new reality.