Fintech 2024 Comparisons

The evolution of the fintech market in Panama continues to be a point of interest for foreign investment and the local development of start-ups, although there is limited specific regulation in place, despite the clear interest on the part of the public and private sectors in the development of this market.

From a regulatory perspective, there has been limited development in the last year, as none of the several bills that have been submitted in the legislative branch of government have been successful. Nevertheless, fintech business has continued to grow, including tech business models developed by traditional players in the banking business.

In the next year, the most significant development would be if, finally, legislation could be put in place that allows for more legal certainty and security in these types of businesses, particularly in regard to their standing vis-à-vis the local regulators.

Even though the fintech landscape is wide open, Panama’s new and legacy players have currently concentrated on a few specific business models, as follows.

Payment Service Providers (PSPs)

These companies offer payment processing services by digital means, such as peer-to-peer, merchant services, or cross-border transactions. Generally, these companies offer technological integrations or standalone platforms that ultimately facilitate payments in a prompt and secure manner.

Cryptocurrency Exchanges

Due to the current lack of regulation, legacy players generally do not participate in this business model. However, despite the lack of formal regulation, new players are entering this space and offering this service. Some of these players offer most of the services provided by well-known cryptocurrency exchanges (custody of fiat and/or cryptocurrency, exchange, leverage, etc), while others are limited to the exchange of fiat and/or cryptocurrency.

Digital Wallets

Due to the lack of regulation regarding digital wallets, legacy players have been able to leverage on their banking licences to provide digital wallets within their respective ecosystem. New players have mostly avoided this business model due to the potential liabilities derived from infringing the current deposit-taking regulations.

Panama has a unified regulatory regime, meaning that there is no distinction between state or federal regulation. Industry participants can be subject to one or more of the following three verticals that compose the regulatory regime.

Banking

The main legal source for this vertical is Executive Decree 52 of 2008 – the Single Text of the Banking Law (the “Banking Law”) – and the sector is supervised and regulated by the Superintendency of Banks (“SBP”). The SBP oversees banks, trust companies and exchange houses, thus any business model which carries out activities within the referred scope will be subject to either registration or licensing requirements from the SBP.

Securities

The main legal source for this vertical is Decree Law 1 of 1999 on the Securities Market in the Republic of Panama and the Superintendence of the Securities Market (the “Securities Law”). The sector is supervised and regulated by the Superintendency of the Securities Market (the “SMV”), which oversees brokerage houses, investment advisers, stock exchanges, fund administrators, clearing houses, and credit rating agencies, among others. Thus, any business model that carries out activities within the referred scope will be subject to licensing requirements from the SMV. Additionally, the SMV supervises issuers and the registration of public offerings of securities.

Financial Companies

There are various legal sources for this vertical, which encompasses lending companies, pawn shops, money remittance houses and movable goods leasing companies. This vertical is supervised and regulated by the Directorate of Financial Companies attached to the Ministry of Commerce and Industry (the “MICI”). Lending companies are entities that engage in lending activities without deposit-taking activities.

As stated above, depending on the scope of the business model, a company may be subject to one or more of the regulations detailed above.

Companies normally charge their customers directly, having clearly communicated pricing and payment terms. However, depending on the specific business model and the regulatory vertical in which the company operates, there may be additional standards or specific information that must be included in the disclosures. For example: (i) whenever a brokerage house has a conflict of interest, a separate and independent disclosure must be made to the customer; and (ii) lending companies must include specific information (interest, term, number of payments, etc) in their contracts. In general, local law requires companies to provide full disclosure to their clients with regards to the compensation models of their business.

As of now, the regulations applicable to fintech industry participants do not differ from those applicable to legacy players. This is due to the lack of formal recognition of newer business models and more innovative enterprises in Panama’s regulatory framework. In other words, the regulatory landscape has not caught up with the emergence of fintech. Local laws and regulations have been made and implemented around traditional financial institutions, and these regulations do not yet include more flexible parameters or simplified licensing requirements for fintech companies.

There is currently no regulatory sandbox available for fintech companies. Regulators are aware of the lack of specific regulations relating to fintech companies, and depending on the business model, they try to accommodate fintech within the existing legal framework. However, they are ultimately limited by the lack of regulations and, in many cases, they simply state that the fintech company is not subject to their supervision.

As mentioned in 2.2 Regulatory Regime, the regulatory reach of each of the three main regulators of the financial sector is determined by the activities carried out by the company. For example, if a single company engages in public lending and issuing securities, said company will have to engage with the MICI and SMV. As a result, companies need to have clarity over the specific services to be provided and obtain the applicable registrations or licensing. 

Depending on the nature of the regulated function, it may or may not be allowed to be outsourced. Whenever local regulations allow for outsourcing, they generally state the requirements that the vendor must meet, or state whether said outsourcing is subject to notification or prior approval from the regulator. The vendor is generally responsible to the party contracting the outsourcing, but engaging in outsourcing does not exclude the contracting party from its obligations and responsibilities to the regulator. Outsourcing of regulated functions must be evaluated on a case-by-case basis.

Panama has issued several laws and regulations relating to anti-money laundering (AML) matters. In this sense, financially obliged subjects have a responsibility to monitor and examine the activities carried out on their platforms or servers. However, this responsibility stems from being a regulated financial subject and not from being categorised as a “gatekeeper”. At present, there is no formal categorisation of a company as a “gatekeeper”.

The three main verticals and their respective regulators share similar enforcement actions. The applicable regulator has the faculty to impose penalties based on the evaluation criteria determined by the corresponding legal source. Generally, the legal source determines which actions and/or omissions are defined as very serious infractions or lesser infractions. Depending on the extent of the infraction, sanctions can include monetary fines, loss of licences or registration to carry out the activities, suspension of activities, removal of personnel from the position of administration or control, or other measures as mandated by the applicable law.

As mentioned before, there are no distinctions between legacy players and fintech companies. In general terms, however, there are a few applicable non-financial service regulations.

The Electronic Commerce Law

In Panama, electronic commerce is regulated by Law 51 of 22 July 2008, as amended to date (the “Electronic Commerce Law”), which applies to businesses that work through the internet and are offered in Panama. The Electronic Commerce Law relates mainly to electronic contracts and the conditions relating to the validity and effectiveness of said contracts and establishes the obligations and responsibilities of providers of commercial services through the internet, including those who act as intermediaries in the transmission of content by social media networks and the exchange of commercial information and documentation electronically, including offers, promotions and contests.

The Data Protection Regulation

Law 81 of 2019 regulated by Executive Decree 285 of 2021 (the “Data Protection Regulation”) regulates the protection of personal data of natural persons, as well as its handling, storage, and treatment. The Data Protection Regulation applies to data processing that originates or is stored in Panama and data processing carried out within the framework of a commercial activity on the internet, or any other means of electronic or digital communication in accordance with the Electronic Commerce Law, to guarantee data protection in activities aimed at the Panamanian market.

Whenever a person/entity obtains the personal data of its users, it is important that it implements a privacy policy that respects the “ARCO rights” enshrined in the Data Protection Regulation. Such person/entity must also obtain the necessary consents from its users for the collection, use and processing of their personal data, in addition to complying with the requirements in case of transfer of said personal data to third parties (local or cross border).

Law 45

Law 45 of 2007 (“Law 45”), which dictates regulations on consumer protection and defence of competition is also applicable to financial service providers. In general, Law 45 implements standards for providing information in a clear, truthful manner and without inducing confusion. For example, credit products must expressly and visibly indicate the total amount of the debt, the effective interest rate applied and its calculation method, the commissions, as well as indicating the natural or legal person providing the credit.

Assuming that industry participants have some kind of registration or licensing, they will generally be required to obtain audited financial statements from auditing firms and present them to the regulators, along with other information.

Industry participants generally do not offer unregulated products and services in conjunction with regulated products and services. In any case, this must be evaluated on a case-by-case basis to determine the possible interpretation of the regulator.       

AML rules impact fintech companies, because the regulation does not distinguish between established legacy players and fintech companies. Thus, except for specific vertical regulations, the obligations and responsibilities will be the same across the board.        

Law 23 of 2015 (“Law 23”) adopts measures to prevent money laundering, the financing of terrorism and the financing of the proliferation of weapons of mass destruction, and dictates other provisions which are further regulated by Executive Decree 363 of 2015 (“Regulation of Law 23”). Article 22 of Law 23 lists the financially obliged subjects, which are supervised by the SBP in matters of compliance with Law 23, the Regulation of Law 23, and other corresponding agreements related to the prevention of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction (the “Compliance Laws”). The Compliance Laws establish a series of measures that financially obliged subjects must implement to prevent the improper use of their services.

It is worth noting that it is possible for an entity to be subject to the Compliance Laws, but not subject to licensing requirements. For example, entities dedicated to payment processing services and issuers of electronic money are financially obliged subjects and must register with the SBP in order to comply with the Compliance Laws, but they are not required to obtain a licence for their activities. Thus, it is possible that a fintech company may not be required to have a licence from any of the regulators, but it could be subject to registration requirements with the SBP, only for the purposes of the Compliance Laws.

Law 23 establishes a regime of administrative sanctions for those that violate its provisions. The supervisory bodies will apply sanctions considering the seriousness of the offence, the recurrence and the damage caused. Sanctions may include fines of between USD5,000 and USD5 million and these may be imposed on individuals and entities that fail to comply. In addition, progressive sanctions are provided for continuous violations, and corporate responsibility is established, attributing the acts of employees to the obliged entity.

As mentioned previously, Panama does not have a special regulatory framework for companies in the fintech industry, including robo-advisers. Therefore, there are no applicable regulations or requirements for robo-advisers, besides the applicable AML legislation (Law 23) and the Data Protection Regulation. However, SMV regulates “investment advisers”, which is any person who, in exchange for compensation, carries out the business of advising others regarding the determination of the price of securities or the convenience of investing, buying, or selling securities, or who prepares and publishes studies or reports related to securities, or advises in forex. However, these regulations for investment advisers apply to individuals and companies, through their employees, that offer investment advisory services to their clients, but there is presently no clarity as to whether these regulations apply to robo-advisers.

Presently, legacy players in Panama have not developed or are only beginning to develop robo-adviser services for their clients. However, it is only a matter of time before all legacy players will be offering these services to their clients, since there is a trend in Panama for legacy players to create and implement fintech products and services, based on modernisation and the current changing dynamic of services offered to a new wave of clients that want to leverage technology for their financial services.

There are no special regulations in Panama about best execution of customer trades. However, some securities laws applicable to brokers establish that the individuals that carry out broker services have an obligation to perform their duties with the diligence and care that a person uses in their business. In addition, brokers must perform their duties under strict observance of ethical principles, good conduct and transparency.

There are no significant differences in the business or regulation of loans to individuals, small businesses and others, as the activity of extending loans to persons and/or legal entities is regulated based on the source of the funds that are used to extend the loans, and not on whom the funds are loaned to. Entities that extend loans are either licensed banks, whose activities are regulated by the Banking Law, or financial companies (empresas financieras), whose activities are regulated by Law 42 of 2001 (as amended from time to time, the “Financial Companies’ Law”). An entity will be regulated under the Banking Law when it raises funds from the general public (through deposits or other means) and then uses those funds to, for example, extend loans to third parties. On the other hand, an entity will be regulated under the Financial Companies’ law when it uses its own funds to extend loans to third parties.

Both licensed banks and financial companies will look into the potential client’s creditworthiness in the Asociación Panameña de Crédito (APC), a tool used by such entities to assess a person’s credit rating, in order to correctly assess the risk attached to the loan. Moreover, licensed banks are required, by law, to have credit committees and risk committees, which assess and approve (or reject) loans, based on the potential borrower’s profile and the credit risk of the transaction.

There are a variety of sources from which funds can be raised by a company in Panama, such as loans or equity investments from peers or private equity firms, loans from banks and/or financial companies, as well as by private or public offerings of securities. Lending between peers or by private equity firms does not require licences or permits, as long as such activities do not fall within the definition of “banking business” (as defined and regulated under the Banking Law), and as long as it is not in the ordinary course of business. If the activity of lending to third parties is habitual and within the ordinary course of business, the entity would be considered a financial company, as regulated under the Financial Companies’ Law, and would require a licence issued by the Ministry of Commerce and Industry to carry out such activity.

On the other hand, equity fund-raising may be regulated depending on the target of the equity fund-raising. In Panama, public offerings of securities are regulated by the Securities Law and Agreement No 2-2010 (as amended) issued by the SMV.

Under the Securities Law, public offerings of securities must be registered with the Superintendence when such offer or sale is made by an issuer or an affiliate of the issuer, or by an offeror of said issuer or said affiliate in the Republic of Panama. A sale or offer for sale of securities will be deemed to have been made in the Republic of Panama when such offer or sale is made to people domiciled in the Republic of Panama, regardless of whether such offer or sale was made from the Republic of Panama or from abroad. All those securities that are the object of a public offering, except for those securities that are exempt from registration with the SMV, require authorisation from the SMV. To obtain such registration, a registration application, together with the prospectus regarding such offering, needs to be submitted for approval to the SMV.

Exemptions From Registration

However, the Securities Law allows for certain exemptions from registration, such as (i) sales or offers for sales of securities that are made to persons domiciled outside the Republic of Panama; (ii) sales or offers for sales of securities made by an issuer or an affiliate of the issuer, or by an offeror of said issuer or said affiliate, to no more than 25 persons, and which result in the sale of said securities to no more than ten persons, within a period of one year; or (iii) sales or offers for sales of securities made by an issuer or an affiliate of the issuer, or by an offeror of said issuer or said affiliate, to institutional investors (as defined by Agreement 1-2001 issued by the SMV, as modified from time to time). Note, however, that while the last exemption in (iii), does not require registration, certain formalities need to be complied with pursuant to Agreement 1-2001 issued by the SMV, such as notifying (as opposed to registering) the SMV of such offering.

Syndication of loans frequently occurs in Panama, however, there are no specific laws or regulations regarding the syndication of loans.

In Panama, even though there has been growing interest over the last few years and bills have been submitted to further regulate the Sistema Nacional de Pagos, to include regulations for none banks or financial companies involved in payment processes, regulation is currently focused on the clearing house side which is performed and supervised through and by the Banco Nacional de Panama, a state-owned bank.

There is no regulation which grants authority to monitor, supervise or authorise payment processors which are not banking entities, except for the limited authority granted to the SBP for the purposes of Law 23. Therefore, there is room for the creation or implementation of new regulations to the extent they work within the clearing house system and existing local regulations.

Money transfers are regulated by Law No 48 of 2003 (“Law 48”) and therefore the person habitually engaged in such an activity would need to be registered, in the Money Remittance Company Registry (the “Registry”), as a Money Remittance Company (Casa de Remesas) with the Directorate of Financial Enterprises (DFE) of the MICI. Law 48 applies to persons that are habitually engaged in the transfer of money within Panama or from Panama.

Cross-border payments performed by banks are regulated by the SBP and certain rules and regulations apply to state-owned, general and international licensed banks performing wire transfers as ordering banks, intermediary banks and beneficiary banks.

Fund administrators are regulated by means of SMV Agreement 5-2003. A fund administrator is someone delegated the authority to administer, manage, invest and dispose of the securities and assets of an investment company. Any person that will conduct the activities of a fund administrator in or from Panama will be required to obtain a licence from the SMV. Thus, a person becomes regulated if their activities fall within the scope of the fund administrator.

Persons that provide administrative services such as accounting, secretarial or other administrative tasks, are not considered fund administrators.

The contractual terms between fund administrators and investment companies are determined by the model contract of the fund administrator, which is presented to the SMV when requesting the licence. The model contract is a reference, and it may be adjusted on a case-by-case basis as long as it does not contravene applicable law.

Securities Trading Platforms

The Securities Law specifies that trading platforms on which securities and other financial instruments are traded should be regulated by the SMV and require a licence issued by such entity. The Securities Law defines “securities” as “[a]ny bond, negotiable commercial instrument, or other debt security, stock (including treasury stock), recognized stock right in a custody account, share, participation unit, participation certificate, securitization certificate, trustee certificate, deposit certificate, mortgage certificate, option, and any other security, instrument, or right commonly recognized as a security or determined by the [SMV] to constitute a security”. On the other hand, “financial instruments” are defined by the Securities Law as “[a]ny contract that gives rise to the creation of a financial asset for one entity and the creation of a financial liability or equity instrument for another entity”. Financial instruments thus include all financial assets and financial liabilities, whether securitised or not, as well as all their derivatives, whose underlying assets can be currencies, precious metals, and others. The Securities Law classifies securities trading platforms as “self-regulated entities”. For such purposes, securities trading platforms must have internal rules and regulations, based on the following principles:

• to protect the interests of investors;
• to promote co-operation and co-ordination among individuals responsible for processing information about securities, as well as for trading, safeguarding, clearing, and settling securities;
• to ensure the fair and representative participation of its members in governing bodies;
• to ensure that the fees and expenses to be paid by its members are reasonable and equitably shared among them;
• to report to the SMV any violations of the Securities Law by its members, directors, officials or employees;
• to monitor members, directors, officials and employees to ensure compliance with their internal rules, and to establish corresponding disciplinary procedures and sanctions;
• to ensure the confidentiality of transactions; and
• to prevent deceptive and manipulative practices or any other actions that may affect market transparency, in order to promote fair practices in securities trading and to foster the development of an efficient market.

Commodities Trading Platforms

Panama also allows for commodities trading platforms pursuant to Law 23 of 1997 (as amended from time to time) and Executive Decree 11 of 1998 (as amended from time to time). Commodities trading platforms are regulated by the National Commission of Commodities Exchange and require a licence to operate. Brokers also require a special licence to trade commodities within such trading platforms. Panama has one commodity trading platform, known as the Bolsa Nacional de Productos, SA (“BAISA”). Products that can be negotiated on commodities exchanges are any goods, services and products, whether of domestic or foreign production, and contracts or commercial documents that, in any way, represent, establish or grant rights over said goods, services or products.

As explained above, securities and financial instruments are regulated by the Securities Law and the SMV, while commodities are regulated by Law 23 of 1997 (as amended from time to time) and Executive Decree 11 of 1998 (as amended from time to time).

There are presently no applicable laws or regulations with regard to the issuance or transaction of virtual assets in Panama. There was an attempt to legislate the matter by means of Bill 697 of 2022, which ultimately did not become law. Moreover, the SMV has issued public statements indicating that cryptocurrencies are not “securities” (thus not regulated by the SMV) and warning the general public of the risks associated with cryptocurrencies, due to the fact that, in their view cryptocurrencies:

• lack a legal framework and thus are not under any supervision or regulation by a financial regulatory authority in the Republic of Panama;
• have no inherent value, being intangible, and their circulation occurs through the internet;
• do not have the approval or regulation of a central authority;
• are vulnerable to money laundering;
• are highly volatile and speculative assets; and
• involve a high risk of fraud.

Moreover, the SMV has issued public opinions stating that it does not have the legal authority to regulate or supervise crypto-exchange platforms, and has advised that any entities that create and operate these platforms, must, in order to secure their investment, rights and obligations, limit their liability by prioritising transparency and warning investors or “users” that cryptocurrencies are not regulated.

There are no regulatory listing standards.

In the case of registered securities and financial instruments, based on industry practices, public offerings for a total amount of less than USD12 million are not very common. Particularly, in the case of bonds, Agreement 2-2010 does require that the duration of revolving bond programmes be for no more than ten years. This does not mean that the maturity of the bonds issued under a revolving programme cannot be more than ten years from the date of issuance, but merely that the programme under which the issuer can issue the bonds, cannot last more than ten years.

With respect to securities trades in an organised exchange, Agreement 5-2003 issued by the SMV, which regulates order handling, establishes that brokerage firms need to require their clients to issue orders that are clear and precise in their scope and meaning, so that both the issuer and the recipient of the order are fully aware of its effects. Orders may also be recorded with prior authorisation from the client, if placed over the phone. Entities that receive orders are required to execute them or take the necessary measures to deliver them to the entity responsible for their execution on the same day of their receipt, or if this is not possible, on the next business day. The entity receiving an order will include it in its order register, in strict chronological order, assigning each one a consecutive number and identifying which broker received each order.

Note that these rules only apply to entities that handle orders with respect to securities and financial instruments that trade in organised exchanges in Panama or elsewhere in the world.

Peer-to-peer trading platforms of registered securities are currently not permitted in Panama, as the Securities Law requires that all trades of registered securities must be carried out through a stock exchange and through the investors’ brokers and their brokerage accounts.

With respect to trading securities not subject to registration and other assets (such as cryptocurrencies), these are not regulated in Panama.

For peer-to-peer trading to prosper in Panama, the Securities Law would need to be amended to specifically carve out these innovative platforms from the definition of stock exchanges and establish clear rules on the type of transactions that peer-to-peer trading platforms can handle. However, fraud, money laundering and cybersecurity threats are big concerns for Panama’s regulators, so changes are unlikely to happen very quickly.

Brokers, who are regulated by the Securities Law and the SMV, may not recommend to a client to buy, sell, or hold an investment in a specific security unless they have reasonable grounds to believe that such recommendation is suitable for said client, based on information provided by the client in an investigation conducted by the securities firm or securities broker to determine the investment objectives, financial situation, and needs of said client, as well as any other information about said client known to the securities firm or securities broker. It is prohibited for any securities firm or securities broker managing an investment account on a discretionary basis or determining the volume and frequency of transactions made based on the client’s inclination to follow the suggestions of said securities firm or securities broker, to carry out transactions that are excessive considering the magnitude and nature of said investment account, the needs and investment objectives of the client, and the transaction pattern of the investment account, in light of the commissions earned by the securities firm or securities broker.

Moreover, brokers are required, by law, to provide fair treatment to all their clients, and when, in the same transaction, a securities firm, in addition to acting on behalf of a client, acts on its own behalf or on behalf of a third party, it must inform the client, particularly if there are any conflicts of interest.

Payment for order flow is not regulated in Panama.

Under the Securities Law, markets should be designed to prevent deceptive and manipulative practices or any other actions that affect market transparency, to promote fair practices in securities trading, and to encourage the development of an efficient market.

High-frequency and algorithmic trading are not regulated in Panama.

Market makers are regulated by Agreement 2-2011 of the SMV, which regulates securities brokers, and dictates that stock exchanges must establish the rules that will govern market makers. The Latin-American stock exchange has established a rulebook for market makers, which indicates that market makers are a “fundamental pillar in financial markets, providing the opportunity to expand market reach and even engage in international transactions, leading to the benefit of being more recognized in other countries”. Under said rulebook, any securities broker can apply to be a market maker, which application is subject to the consideration of the board of directors of the stock exchange.

In Panama, the regulations do not make a distinction between funds that engage in these activities and dealers that engage in these activities. 

The Securities Law in Panama does make a distinction about a dealer and a fund. The Securities Law defines a “broker‐dealer firm” as a legal entity engaging in the business of purchasing and selling securities or financial instruments for third parties or on its own account. The operation of a broker-dealer firm is regulated by Title III of the Securities Law and Agreement No 2-2011 of the SMV. On the other hand, the Securities Law defines a “fund” (“investment company” in Panama as used in the Securities Law), as a legal entity, trust or contractual arrangement that, by issuing and selling its own participation quotas, engages in the business of obtaining money from the investing public through one payment or periodical payments for the purpose of investing and trading securities, foreign exchange, metals and supplies, chattel property or any other property determined by the SMV. The operation of a fund is regulated by Title VIII of the Securities Law and Agreement No 5-2004 of the SMV. 

Both business models require authorisation from the SMV. In the case of a broker-dealer firm, the legal entity requires a licence issued by the SMV. In the case of a fund, the legal entity must be registered with the SMV. 

There are no regulations in Panama for programmers and programming to develop and create trading algorithms and other electronic trading tools, provided the programmers are not performing trades. 

There are no regulations in Panama for decentralised finance.

In Panama, financial research platforms are not subject to registration. 

There are certain rules applicable to the disclosure of information in public offerings, for example, in order to protect privileged information and the manipulation of the market. See 7.9 Market Integrity Principles.

As mentioned before, there are no regulations in Panama regarding financial research platforms; therefore, there are no regulations applicable to conversation curation. However, it is expected that financial research platforms should have internal rules about the behaviour and use of the platform.

Insurance and reinsurance business is supervised and regulated by the Superintendence of Insurance and Reinsurance of Panama (Superintendencia de Seguros y Reaseguros or SSR). The underwriting process is a mix of market customs, regulations (depending on the type of insurance) and, in addition, each insurance company will follow its own internal policies and rules.

There is only one insurance regulator, which is the SSR, and regulation is mainly focused on the following lines of business, each of which requires its own respective licence:

• personal – individual life in all its modalities, collective or group, personal accidents, health, industrial, annuities, income, disability, loss of income, assistance to travellers or any other insurance covering exposure to loss and risks of persons;
• general – fidelity, fire and similar, maritime, land and/or air transport, sea and air hull, automobile, aviation, civil liability, theft, technical branches, property titles, various risks, extensions of manufacturer guarantee, or any other insurance not included in the field of people and/or guarantee/bonds; and
• guarantee and bond – compliance with contract, with payment and other related guarantees or bonds related to the construction of works or for the supply of materials or equipment or any other bonds/guarantees.

Each of these lines of business has different applicable regulations (eg, for purposes of reserves or obligations of the parties).

Regtech providers are not regulated in Panama. However, financial companies generally use their services in order to comply with AML laws, such as Law 23.

In Panama, there are no regulations regarding the terms and conditions of contracts with regtech providers. Therefore, financial services companies have the flexibility to negotiate the contractual obligations of the parties with the regtech providers.

Due to a lack of regulation, traditional players have been reluctant to implement blockchain technology in the provision of their financial services.

There have been some legislative initiatives in recent years, but none have made it into law.

The most recent one was Bill 697 of 2022 “that regulates the marketing and use of virtual assets, the providers of virtual asset services, and dictates other provisions” (“Bill 697-2022”). Bill 697-2022, sought to:

• provide legal, regulatory and fiscal certainty to the use and holding of crypto-assets, the providers of virtual asset services, commercial actors of virtual assets and issuers of virtual assets and electronic money and other goods in the Republic of Panama, including the mitigation of risks of illicit use of such technologies;
• promote financial inclusion, the emergence of a robust ecosystem of innovation in financial services, greater competition among financial service providers, and freedom of choice by the financial consumer; and
• allow the incursion of the Republic of Panama in the provision of state-of-the-art technology services that promote financial inclusion through a virtual assets exchange platform and an official digital wallet, where natural and legal persons carry out transactions of these new technologies in a secure manner.

The original bill was approved by the National Assembly and later partially vetoed by the President of the Republic and returned to the National Assembly to be debated and adjusted according to the president’s veto. On 28 October 2022, the National Assembly approved an updated version of Bill 697-2022 after adjusting those articles that were vetoed. On 26 January 2023, the President of Panama presented an objection of unconstitutionality to the Supreme Court of Justice to decide on the constitutionality of Bill 697-2022 as approved by the National Assembly on 28 October 2022 (the version partly vetoed by the Executive Branch). On 14 July 2023, the Supreme Court of Justice decided that Bill 697-2022 was not constitutional and thus put an end to the bill.

Blockchain assets are not regulated in Panama.

This is not regulated in Panama.

This is not regulated in Panama.

This is not regulated in Panama.

Currently, there is no regulation applicable to digital assets, cryptocurrencies, or virtual currencies in Panama. However, both the Superintendence of Banks of Panama (the “SBP”) and SMV have issued public notices and opinions (respectively) stating that they do not monitor cryptocurrencies in general. Each entity has specifically established the following:

The SMV

Through Opinion 07-2018, the SMV indicated that it does not consider cryptocurrencies (specifically, bitcoin) as currencies, given that to date “in the Republic of Panama, no inherent value has been given to bitcoin or another type of cryptocurrency”. The SMV also confirmed that the concept of “securities” under the Securities Law does not encompass virtual currencies and/or currencies, so bitcoin is not considered a security. Finally, the SMV established that there is no forex regulation applicable to cryptocurrencies, since it only applies to currencies which are an exclusive and incidental activity of the broker-dealer houses.

Through a statement issued on 25 April 2018, the SMV referred to cryptocurrencies as “digital assets that are intended to make purchases, sales or other financial transactions, are created by companies or individuals and are stored electronically in a blockchain, a database that maintains a permanent record of these digital transactions”.

Therefore, the SMV does not consider that digital assets, cryptocurrencies or virtual currencies are subject to its supervision, so no licence is required to operate the activity object of this memorandum: “activity of exchange of virtual currencies or cryptocurrencies, using bitcoin as currency and with a view to adding other cryptocurrencies...”

The SBP

Unlike the SMV, the opinions of the SBP are not publicly confirmed. However, on 24 April 2018, the SBP issued a public notice where it warned the general public about the use of “bitcoin or any other instrument of the same category” indicating that these do not have specific regulation, and are not within the competence of the SBP. Additionally, establishing that “as usual, the regulated entity must maintain due diligence measures to prevent the improper use of their services and platform, in accordance with the provisions of the Banking Law, Law 23 of 2015 and Agreement 10 of 2015 and other applicable regulations”.

Although cryptocurrencies, digital assets and virtual currencies are not regulated in Panama, there are platforms under which these assets are traded or stored. Those operating these platforms would be advised to implement certain compliance measures, such as due diligence and KYC based on local regulation, to prevent the misuse of their services before allowing any person to use their platforms.

DeFi is not regulated in Panama.

NFTs are not regulated in Panama.

There is no local specific regulation on open banking. The banking business continues to be regulated and supervised by the SBP. Control over a natural person’s information has been more clearly secured by the existing Data Protection Regulation (as defined in 13.2 Concerns Raised by Open Banking), which grants authority to natural persons to request all their personal data held by third parties.

The Data Protection Regulation regulates the protection of the personal data of natural persons, as well as its handling, storage and treatment. The Data Protection Regulation applies to the processing of data that originates or is stored in Panama and data processing carried out within the framework of a commercial activity on the internet, or any other means of electronic or digital communication in accordance with the Electronic Commerce Law, to guarantee data protection in activities aimed at the Panamanian market. The Data Protection Regulation includes obligations for banks and technology providers related to data privacy and data security. Furthermore, the SBP issued Regulation 1-2022, which establishes special regulations in relation to personal data handled by banks.

Therefore, consent of the customer/client is the general rule, as well as having the appropriate privacy policies and security protocols in place.

Both the Banking Law and the Securities Law contain dispositions that prohibit and sanction fraudulent activity. Legislation does not provide a specific list of the elements of fraud, however, in a general sense, fraud requires a person to have intent to deceive for personal gain or to cause harm to others by making false statements, material omissions or misrepresentations. Panama’s Criminal Code also contains dispositions relating to fraud and financial crimes.

Regulators supervise their regulated entities to prevent and detect any kind of fraudulent or illicit activity. They focus on investment fraud, accounting fraud, payment fraud and others.