Chile watchdog publishes crowdfunding regs white paper

Wednesday, February 13, 2019

Press release from CMF (please note this is a machine translation of the original release, written in Spanish)

February 11, 2019

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In order to contribute to the proper functioning and development of the financial market, the Commission for the Financial Market (CMF) published today the White Paper "General Guidelines for the Regulation of Crowdfunding in Related Services".

This document closes a first stage in the discussion and analysis carried out during 2018 by the CMF regarding the pertinence of having a regulatory framework for Crowdfunding and Related Services in Chile and the general guidelines that should be taken into consideration for its design, in order to face the challenges and demands that may arise as a result of these new activities.

In the preparation of the White Paper, the experiences of foreign jurisdictions regarding the regulation of Crowdfunding and Fintech (Argentina, Australia, Brazil, Colombia, European Union - Spain, United States of America and Mexico), the principles and recommendations issued by international organizations on the subject (International Organization of Securities Commissions - IOSCO, International Association of Insurance Supervisors - IAIS, Bank for International Settlements-BIS, Financial Action Group -GAFI).

Also, in the analysis and preparation of this document have also considered the problems faced by the financial industry in Chile, opinions and assessments in the matter of companies called "Fintech", law firms, academics and other actors of the capital market local, through consultative tables held by the CMF during the past year.

The expectation of the CPM is that the publication of this report serves as a basis for the formulation of comments and additional clarifications, which allow us to move towards an adequate regulatory design that encourages innovation and greater inclusion in the provision of financial services, and at the same time protects adequately to the investors and users of these services and the integrity and financial stability, without generating unnecessary obstacles to the development of the sector.

The proposal of general guidelines for a regulation contained in the White Paper, is structured based on incorporating the following financial services to the regulatory perimeter :

  • Collective Financing Platforms;
  • Financial advisors;
  • Channeling of purchase or sale orders;
  • Alternative transaction systems, and
  • Custodians of financial instruments.

The proposal for the regulation of the Crowdfunding Industry of the CMF is based on 5 pillars:

  1. Proportionality: establish differentiated and proportional requirements according to the risks inherent to the particular activities carried out by each entity.
  2. Neutrality: that regulation does not generate regulatory asymmetries between those entities that are intensive in the use of technologies, compared to those that are not, or that are regulated based on the use of a particular technology.
  3. Integrality: that the regulation applicable to Crowdfunding not only addresses aspects of the activity itself, but also regulates services and related aspects, in order to allow companies to generate economies of scale or scope, and improve their competitiveness at the local and regional.
  4. Flexibility : that allows the coexistence of different business models and that these may change over time without it being necessary to constantly adjust this regulation.
  5. Modularity : recognizing that the service can be broken down and, therefore, that there may be service providers that only perform a component of the value chain of the same, which is why the requirements that the entity must meet have a direct relationship with the different components that you are going to make.

For each of the aforementioned services that are proposed to be incorporated into the financial regulation and supervision scope, a proposal is formulated of particular and differentiated requirements in attention to the risks involved, which may involve registration requirements, information requirements, knowledge accreditation, risk management, solvency and liquidity, and / or guarantees, and prevention of money laundering and terrorist financing.

Additionally, the White Paper proposes to review the existing financial regulation in some matters in order to update it to the reality of Fintech, as well as other aspects that need to be addressed, such as the prevention of asset laundering and financing of terrorism.

The White Paper " General Guidelines for the Regulation of Crowdfunding in Related Services " ( Link ), is published on the CMF website.

[1] White Paper: It is a government report in which it makes public its guidelines on a particular issue, and aims to help decision making by the people or entities to whom it is addressed. [The publication of this report adds to other initiatives of this nature that have been inputs for the subsequent development of regulations and bills.