BDO in Uruguay – Cr. Ignacio Algorta – Business Consulting Manager – [email protected]
Last month, the Central Bank of Uruguay (BCU) submitted to the Ministry of Economy and Finance a preliminary bill that proposes to incorporate certain regulatory changes in order to provide a legal framework for the regulation of Virtual Assets (AV).
On this occasion we will refer to the new categories of companies that would integrate the financial system in case the draft is approved, and that therefore would be subject to the power of authorization, regulation and control by the BCU.
The entities that make up the financial system are listed in art. 37 of the Organic Charter of the BCU (Law No. 16,696). There, the institutions that make up the financial intermediation system are mentioned, being understood as such, the activity that consists of satisfying the demand for financial resources, providing the applicants with resources economically unrelated to the intermediary, offered by third parties.
As a result of the foregoing, the BCU concludes that the operation with AV through the delivery of external financial resources, implies the performance of financial intermediation and, therefore, is subject to regulation and control of the BCU.
In AV operations, it is possible to identify the participation of different subjects: developers and issuers, miners (transaction processors), trading and exchange platforms (exchanges) and providers of wallet and custody services. Next, we describe the two new figures that would integrate the financial system in case of approval of the aforementioned bill.
AV Service Providers (AVSP)
The BCU defines PSAVs as entities that regularly and professionally provide one or more AV services to third parties. Such services include: the exchange of AVs (whether for fiat money or for other AVs), the transfer, custody and administration and the participation and provision of financial services related to the offer and/or sale of an AV by the issuer. .
The BCU clarifies in its preliminary draft that the mere creation of software to broadcast an AV does not make the programmer a PSAV, unless it also performs the functions included in its definition.
As a consequence, the BCU suggests amending the Organic Charter to include the PSAVs that perform financial intermediation within the supervised entities.
Virtual Asset Issuer (EAV)
According to the BCU, EAVs are natural or legal persons that issue any type of AV included within the regulatory perimeter or request the admission of regulated AVs on a trading platform. If AVs are classified as AV Values, they are covered by the regulation. We remind that AV Securities is understood as the digital representations of securities issued through the use of distributed registration technologies, which can grant rights such as ownership, the reimbursement of a specific sum of money or the right to a share in future economic benefits.
Given the above, the BCU suggests modifying Law No. 18,627 (Securities Market Regulation), establishing the category of AV Securities, as a kind of book-entry value. Book-entry securities are defined as those that are issued in series and represented exclusively by book entries made by a registering entity and that meet the requirements established by law and regulations.
It is worth mentioning that EAVs can be included within the definition of electronic money given by the Financial Inclusion Law (Law No. 19,210), if the AVs issued are Stable AVs (digital representation of value designed to minimize the volatility of its value). fully backed by a single fiat currency.
Although the BCU defines the regulatory perimeter of certain subjects participating in AV operations, the particular nature of each AV must be considered when determining the applicable legal framework, highlighting the importance of addressing substance over form.
The regulator recognizes the need to establish a legal framework for consumer protection, avoiding the use of AVs as an instrument for money laundering and aligning itself with international regulators.
With the preliminary project presented, the BCU took a new step towards the regulation of AVs. In any case, some subsequent complementary regulation is to be expected.
The notorious growth in the use of AV justifies the need for its consideration in order to establish regulations at the local level, which contributes to strengthening the confidence of users and investors.