BDO in Uruguay – Cr. Ignacio Algorta, Business Consulting Manager – [email protected]
Context
In December 2021, the Central Bank of Uruguay (BCU) published the “Conceptual Framework for the regulatory treatment of Virtual Assets in Uruguay”, as a result of work carried out by an interdisciplinary team on the regulatory approach to Virtual Assets. In this opportunity we will analyze the main aspects considered there. Today Uruguay does not have a regulation on Virtual Assets. However, two bills related to this issue have already been presented and are under study.
The document issued by the BCU identifies risks and benefits for users, the financial system and the BCU itself. Among the main risks identified, the following stand out: fraud and scams for users, cyber attacks, money laundering, the systematic risk of financial stability and the reputational risk for the BCU. But there are also certain
benefits derived from its correct application, such as greater efficiency and interoperability of securities markets and payment systems, which is no small thing.
Definition of Virtual Asset
The Conceptual Framework defines a Virtual Asset (hereinafter “VA”) as a digital representation of value (or contractual rights) that can be stored, transferred and traded electronically using distributed ledger technologies (including block chain or blockchain) or other similar technologies. The relevant difference between an AV and a cryptocurrency is that the latter was created with the aim of fulfilling the functions of money and serving as a means of payment.
Virtual Asset Classification
The BCU document distinguishes between:
– AV Securities: they grant property rights, the reimbursement of a sum of money or the right to obtain future economic benefits (for example, an AV representing a debt title).
– Utility AV: those that can be exchanged to access a product or service (for example, fan tokens representing the right to vote).
– AV Stable: they are those that seek to minimize the volatility of their value measured in terms of a fiduciary currency. Two categories are identified, those that are asset-backed and those that are not. Stable VAs with backing grant rights over the reserve assets that support their issuance, and the user may request the issuer to reconvert them. The backing can be in fiat currency through deposits in a bank; in a collateralized currency basket; or a mix of currencies and assets with different degrees of collateralization.
On the other hand, the Stable AVs without backup, control the AV offer to adapt it to the demand through an algorithm (sequence of instructions that allow actions or programs to be executed). – AV of exchange: they are used for exchange or investment (for example, Bitcoin).
Regulatory perimeter
In order to define whether an activity should be regulated, the BCU evaluates different scenarios based on the type of VA and the economic use that is given to them. The VAs that would be included in the BCU regulation according to the Conceptual Framework are detailed below:
– AV Valores in their possible uses for investment or capital raising (they would be regulated by the Stock Market).
– Although the regulation would not include the AV of Utility or the AV of Exchange, the traditional financial instruments that refer to an AV of Utility or Exchange would be included (for example, financial derivative contract with underlying in these AV) .
Interchange VAs would also be included under the regulation when their use as a means of payment affects the National Payment System.
– Stable AV backed 100% by a single currency and that meet the current definition of electronic money (they would be regulated by the Payment System). Those that do not meet the definition of electronic money would require specific regulation.
– The regulation would also include the exchange of any AV for money and the exchange between different forms of AV.
The subjects subject to regulation would be the Issuers and AV Service Providers. The former are those who issue AVs included within the regulatory perimeter, or request admission to an AV trading platform. The latter are entities that regularly and professionally provide AV services to third parties (for example, Casas de
Change of AV and electronic wallets).
Final comments
The use of AV has been growing very significantly in recent times. That justifies the need for its consideration at the local level. The work of the BCU invites to make contributions in the matter.
Users must be aware of the risks that are assumed when investing in this type of asset, since generally good returns imply considerable risks.
AV regulation is essential to strengthen the confidence of users and investors. With the document issued by the BCU we are on our way.
