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Chile’s recently passed Fintech Law presents a transformational opportunity for the country, provided it appreciates lessons learned from other countries, experts tell VIXIO.
After five years of debate, on January 4, Chile adopted the Fintech Law, providing a legislative framework for fintech activities in the country.
Experts believe the law could position Chile at the forefront of fintech innovation and may heat up investment activity in the coming years.
Chile’s Fintech Law is “an important step in the evolution of the nation’s legal framework", Fabio Caldeira, Latin America general manager at Ozone API, told VIXIO.
“It has fired the starting gun on a wide-ranging transformation of the financial services industry.”
The law establishes a framework for open finance, which includes rules for sharing consumer financial information via secure APIs, as well as for payment initiation.
According to Caldeira, the new legal framework will drive a huge amount of activity and innovation as the market readies itself for open finance.
“We will see increased levels of innovation, investment in new market entries and new vibrancy in the economy,” he said.
In the longer term, the impact will be “broad-reaching and transformational for society as a whole”.
The secure, consent-based model for sharing data and embedding financial services in everyday experiences will lay the foundations for genuine transformation, helping tackle financial inclusion challenges, creating the foundations for a more digitally connected society and driving significant economic growth, Caldeira explained.
An opportunity to leapfrog other markets
To encourage innovation and competition, several countries have adopted open banking and/or open finance regimes. Some have taken a regulator-driven approach, while others have left it to the market to come up with solutions for safe data sharing.
According to Caldeira, countries with an effective regulator could maintain a greater speed of implementation, quickly engaging market participants and coordinating implementation stages according to local needs.
“We can expect, at least we certainly hope, that Chile will build on the learnings, best practices and mistakes from other similar initiatives around the world.”
This means an appreciation of the importance of standards to ensure high quality and secure implementation, and trust between market participants. This will help the country find the right balance between regulatory mandate, supervision and market forces, according to Caldeira.
“The opportunity exists to rapidly build on the best of the best and leapfrog other markets in the region,” he stressed.
By building on the successful examples of countries like Brazil, Saudi Arabia and Australia, “Chile has all the conditions to move quickly and offer the benefits of open finance to its population in record time”, Caldeira pointed out.
Crowdfunding, crypto and other fintech activities
The Fintech Law also establishes a legal framework to encourage the use of technology in the provision of financial services.
Specifically, the law lays out rules for alternative trading systems, including crypto platforms, credit and investment advisors, as well as for companies offering crowdfunding services, custodial services and order routing.
These companies will have to seek a licence from the country’s Financial Market Commission (CMF), which will be responsible for overseeing these activities and issuing regulations.
One of the key difficulties in applying existing regulatory frameworks to fintech companies is the fact that “there are new assets and practices that do not fit well”, according to Wes Cecil, chief strategy officer of the Structure.fi crypto platform.
For instance, how the new regulations address things such as non-fungible tokens (NFTs) will determine how much of a boost this will give to fintech in Chile, Cecil explained.
Therefore, the impact of the law will largely depend on the specific regulations and their implementation. But the fact that Chile is trying to harmonise with their existing legal frameworks and institutions “means they are focused on building a transparent and fair system”, he added.
"If Chile can craft clear, well thought out approaches to many of the key regulatory issues around crypto, they will place themselves in the forefront of fintech development,” according to Cecil.
