Fintech 2020

Last Updated March 02, 2020

Nicaragua

Law and Practice

Authors



Consortium Legal has fintech practice teams in Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica, consisting of outstanding professionals with recognised reputations and expertise in areas such as banking and finance, securities, insurance, regulatory compliance, real estate, corporate, taxes, intellectual property, consumer law, privacy and data protection, and litigation. The interaction between these specialists, along with their business-oriented perspective, offers a comprehensive approach to the challenges and opportunities presented by the fintech sector, the impact that emerging technologies are having on the financial industry, and the ways that innovations in digital technologies and changes in consumer practices are disrupting traditional business models and financial regulation. The firm advises clients on fintech matters related to data protection, consumer protection, business strategy, regulatory compliance, commercial contracts, tax structuring, capital raising, M&A, competition law, employment matters and commercial litigation, among other matters, enabling clients to navigate an increasingly complex environment at the intersection of finance, technology and regulation

In Nicaragua, the evolution of the fintech market has been rather slow. There is no special law that regulates the new technologies that apply to financial services. However, the market has seen increasing efforts on the side of financial institutions and service providers to promote a modernisation of the financial industry.

Examples of this trend include fostering the use of financial online services of a broad range, the use of e-wallets, the creation of an automated clearing house for processing cheques of local banking institutions, etc.

In Nicaragua, the following business models are currently predominant:

  • payment processing;
  • mobile wallets; and
  • remittances.

Financial institutions are also promoting online banking, in order to lower administrative costs and expedite clients' transactions.

In Nicaragua, the fintech industry does not have a special law nor an organic regulation. However, fintech companies must comply with general regulations that apply to banking, consumer protection, tax, civil and commerce law, personal data and others. In the case of banking regulation, there are reserved activities that require a licence, which are approved by the Superintendence of Banks.

It is important to mention that there are special regulations for e-money. Such business may be provided by non-banking financial entities to facilitate payment and collection transactions for goods and services through mobile services. In this regard, the providers of these services must comply with certain obligations established by the Superintendence of Banks.

There are no rules or regulations regarding compensation models. There is freedom to agree on the terms for the compensation of fintech services.

As for any other businesses, industry participants must comply with consumer protection regulations that require all information provided to customers, including price, to be disclosed in a clear, true, precise and timely fashion.

There are no specific regulations for fintech operations in Nicaragua, except for e-money business (see 2.2 Regulatory Regime).

It must be noted that non-banking financial institutions that provide e-money services must comply with specific requirements in order to obtain a licence to provide such services from the Superintendence of Banks.

In Nicaragua, there is no policy for the application of regulatory sandboxes.

In Nicaragua, the authority that has jurisdiction in financial services matters is the Superintendence of Banks (Superintendencia de Bancos y otras Instituciones Financieras), which is responsible for authorising, supervising, monitoring and overseeing the constitution and operation of all banks, branches and agencies of banks operating in Nicaragua, including state or private entities, national or foreign, that regularly engage in direct or indirect activities of intermediation between the supply and demand of financial resources or the provision of other banking services.

In Nicaragua, the outsourcing of services in favour of financial institutions is regulated.

Such regulations establish the requirements that must be included in the contract, such as the following:

  • experience and technical competence to implement the operation;
  • financial strength;
  • internal control;
  • contingency plans; and
  • insurance coverage.

These requirements must be assessed by the financial institution before subscribing to the outsourcing contract.

In respect of e-money activity, e-money entities will need to contract agencies and transaction centres in order to provide the services of payments or collection operations of goods and/or services. The requirements to contract with them include the following:

  • the acceptance of the e-money entities' full responsibility towards the user for the services provided through the agency or authorised transaction centre;
  • the rights and obligations of the parties;
  • compensation is to be received by the authorised agency or transaction centre for the services they provide;
  • the obligation to provide users with support for the transaction performed;
  • control measures to mitigate or cover the risks associated with the provision of the services;
  • service hours.
  • a responsibility clause in case of a breach of any of the parties; and
  • causes for termination of the contract.

No significant enforcement actions regarding the main verticals have yet been filed by the regulator. However, the Superintendence of Banks has sufficient authority to initiate actions to enforce the regulatory regime against financial institutions.

Industry participants and legacy players are subject to laws and regulations dealing with anti-money laundering, consumer protection and data privacy. However, legacy players have to comply with more extensive and stringent regulations on bank secrecy, cybersecurity and operation risk, which are not applicable to other industry participants on a mandatory basis.

The use of social media and similar tools is subject to general regulations, such as consumer protection and data protection laws.

The main objective of consumer protection laws is to protect the rights of consumers who acquire products or services, seeking equity, certainty and legal security in consumer relations.

The provider’s obligations include the following:

  • to ensure the proper functioning of the goods and services offered;
  • to support and resolve complaints made by consumers and users;
  • to honour the guarantee provided to the consumer or user; and
  • to answer for hidden defects.

In addition, providers are prohibited from doing the following, among other actions:

  • using unfair terms or conditions in contracts with consumers or users;
  • disclosing private information about consumers or users to third parties;
  • charging consumers or users a higher sales price than that displayed, informed or published;
  • spreading abusive or misleading advertising; and
  • charging additional fees, surcharges or fines for non-contracted services.

In respect of personal data, the main purpose of the law is to protect the right of personal and family privacy, according to consent, the processing of personal data, security and confidentiality.

There are no other mandatory or enforceable reviews by third parties.

Financial and insurance services may not be offered or provided by an unregulated entity. If a fintech entity wishes to offer a regulated product or service, it would need to act through a regulated entity.

There are no policies or regulations regarding robo-advisers in Nicaragua. In the securities markets, the offering and trading of securities is limited to authorised brokerage firms and agents, but there is no particular regulation for robo-advisers.

There is no regulation for robo-advisers in Nicaragua. Some legacy players are using robot operators for customer service in different channels, such as social media and web pages.

These practices regarding robo-advisers are still not applicable in Nicaragua.

In general terms, there are no relevant differences in regulations for loans in consideration to the borrower. Financial institutions may apply different criteria for approving credit facilities, considering different factors.

There are various forms of underwriting on the public offering market. The private offering market could be as contractually determined, assuming the applicable regulations are complied with. In the local primary markets there are firm commitment underwritings and guaranteed underwritings, which may be executed by broker-dealers in the regulated markets.

Traditional sources of funding loans are available, such as taking deposits, lender-raised capital, subordinated debt, and public or private issuances. The use of peer-to-peer lending is not developed in the fintech market. Companies dedicated to granting loans in Nicaragua are not able to receive money from the public, so they must seek their funds from investors or from funding entities.

The syndication of loans is permitted by Nicaraguan law and actively used by local players. There is no special process for syndicated loans, which follow the same guidelines as all other regular loans. The terms of the contract will govern the transaction.

Payment processors shall use the existing payment rails regulated by the Central Bank of Nicaragua. Other payment rails should be authorised by such authority.

Cross-border payments and remittances are not regulated in Nicaragua. However, remittance companies shall comply with anti-money laundering provisions and register with the Financial Analysis Unit (Unidad de Análisis Financiero).

Fund administrators are regulated by the Securities Market as Investment Fund Administrators, and require a licence in order to provide services and undertake the activities required of such kind of entity. The regulation differentiates between two types of funds: companies that manage non-financial assets, and companies that manage financial investment funds.

The contractual terms for assuring performance and accuracy by fund administrators can vary depending on whether the company is a regulated entity or not. In the regulated sector, the law provides most of the information on performance rules and accuracy. For non-regulated actors, it depends on the contractual terms agreed between the parties.

Fund administrators act as gatekeepers for anti-money laundering purposes, and have the duty to report any suspicious or unlawful activities.

The Nicaraguan Stock Exchange handles public offerings of securities. No other local trading platforms are currently available in Nicaragua.

General provisions for trading assets are found in the Civil and Commercial Code of Nicaragua. The trading of securities is subject to the special Law of Capital Markets.

To date, there are no regulations applicable to cryptocurrencies in Nicaragua. The emergence of cryptocurrency in the region has not yet resulted in a change to regulation.

Traditional securities have to be registered with the Superintendence of Banks and the Nicaraguan Stock Exchange. Trades can only take place through brokerage firms registered on the Stock Exchange, unless a private placement takes place.

There is no specific regulation on this matter in Nicaragua.

There is no specific regulation on this matter in Nicaragua.

There is no specific regulation in this matter in Nicaragua.

There is no specific regulation concerning payment for order flow.

There is no specific regulation about the creation and usage of such technologies.

There is no specific regulation in regard to exchange-like platforms.

There is no specific regulation in this regard.

There is no specific regulation in regard to the best execution of trades.                      

Funds and dealers have different licences. Only broker-dealers can execute transactions directly in the local exchange; funds need a broker-dealer to transact in the local market.

There is no applicable regulation regarding rules of payment for order flow.

There is no specific regulation in this regard.

There is no specific regulation in regard to unverified information.

There is no specific regulation on this matter.

There is no specific regulation on this matter.

Insurtech is not specifically regulated in Nicaragua.

According to the applicable law, there are different types of insurance and each type has its specific regulation, treatment and coverage. The most common insurance policies offered are life, property, casualty, all risk insurance, and civil responsibility.

Regtech providers are not regulated in Nicaragua.

If legacy players enter into regtech contracts, they must comply with the regulations of outsourcing services. Some matters may not be outsourced, such as the anti-money laundering monitoring of financial institutions.

Regtech providers are not regulated in Nicaragua.

As far as is known, there are no current initiatives for legacy players implementing blockchain in the financial services industry.

Local regulators have not yet referred to the implementation of blockchain technologies in financial services, nor have there have been any specific proposals or consultations on blockchain technology interest.

This matter has not yet been regulated in Nicaragua.

This matter has not yet been regulated in Nicaragua.

This matter has not yet been regulated in Nicaragua.

This matter has not yet been regulated in Nicaragua.

This matter has not yet been regulated in Nicaragua.

This matter has not yet been regulated specifically for blockchain in Nicaragau. The Data Privacy law will have to be observed.

This matter has not yet been allowed or regulated in Nicaragua.

This matter has not yet been allowed or regulated in Nicaragua. Bank secrecy principles apply to financial services, so, once allowed, this type of service will need to comply with particular regulations.

Consortium Legal

Del antiguo Hospital Militar
1 cuadra al Norte
Managua
Nicaragua

+505 2254-5454

+505 2254-5295

rtaboada@consortiumlegal.com www.consortiumlegal.com
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Law and Practice

Authors



Consortium Legal has fintech practice teams in Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica, consisting of outstanding professionals with recognised reputations and expertise in areas such as banking and finance, securities, insurance, regulatory compliance, real estate, corporate, taxes, intellectual property, consumer law, privacy and data protection, and litigation. The interaction between these specialists, along with their business-oriented perspective, offers a comprehensive approach to the challenges and opportunities presented by the fintech sector, the impact that emerging technologies are having on the financial industry, and the ways that innovations in digital technologies and changes in consumer practices are disrupting traditional business models and financial regulation. The firm advises clients on fintech matters related to data protection, consumer protection, business strategy, regulatory compliance, commercial contracts, tax structuring, capital raising, M&A, competition law, employment matters and commercial litigation, among other matters, enabling clients to navigate an increasingly complex environment at the intersection of finance, technology and regulation

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