Over the past 12 months, the Argentine fintech market has grown significantly, despite the country's complex situation.
Based on the latest surveys, the local ecosystem is comprised of approximately 268 companies (almost twice the number of companies identified two years ago) and it is one of the largest markets in Latin America (along with Brazil and Mexico).
It is worth noting that the sustained growth the sector has been experiencing in recent times received an additional and significant boost due to the strict isolation measures adopted by the national government in the context of the COVID-19 pandemic. This generated in the public (both individuals and companies) an increased need for remote and flexible digital resources in order to carry on their day-to-day activities both in relation to electronic commerce and financial services.
Mercado Libre (an Argentine company that hosts the largest online commerce and payments ecosystem in Latin America) reported that during the third quarter of 2020, the consolidated online total payment volume in Argentina and Brazil grew 204% on a year-on-year FX neutral basis.
On the cryptocurrency front, the number of persons who acquired this type of asset grew 300% during 2020.
From a regulatory perspective, the Argentine Central Bank (BCRA after its name in Spanish) reviewed its prior position and actively regulated the main verticals of the industry (payments vertical and lending vertical) removing certain regulatory uncertainties and providing greater protection for consumers.
In the next 12 months, it is expected that the sector will continue to grow and develop both in the number of companies and businesses. Additional regulation is also expected to be enacted, especially with respect to crypto-assets and open banking.
The predominant business models in Argentina are related to the payments vertical and the lending vertical which together represent over 46% of the fintech market.
In the payments vertical, new businesses have developed that use technology in an innovative way, combining it with traditional business in order to speed up, expand and consolidate different payment mechanisms in a single platform and reduce the cost of payment processes.
With respect to the lending vertical, the predominant business model involves companies that provide credit financing with own funds, using innovative processes to get clients on board and assess their credit ratings.
In addition, there have been important new projects and start-ups in the regtech sector and in the provision of IT services to financial institutions and fintech companies, as well as in the use of blockchain technology.
In this sense, Argentina has a fertile ecosystem of companies and entrepreneurs that are developing software and generating products for both the local and foreign markets.
The domestic legal framework does not include comprehensive regulation applicable to all fintech business models and related innovations. Instead, the regulations are scattered through the entire legal framework, regulating specific issues in greater detail than others. In the following paragraphs most of the regulations applicable to the main verticals are reviewed.
With respect to payments verticals, Credit Cards Law No 25,065 (CCL) applies not only to credit card payment systems but also to debit cards, "exclusive purchase cards" and any other payment system where the operations "are related to credit card operations". Financial Entities Law No 21,526 (FEL) applies in principle to financial entities that provide payment services.
Before 2020, e-money systems were not expressly covered by any specific regulation within the Argentine domestic legal framework. The BCRA therefore issued a series of communications in 2020 aimed at regulating these businesses, which have been named “Payment Service Providers that offer payment accounts”. These new regulations impose certain obligations on the issuers, including the obligation to register before the BCRA, keep the funds of their clients segregated from their own funds, and perform specific information and reporting duties.
In addition, all these businesses and companies will also fall under the scope of the Civil and Commercial Code (CCC), the Consumer Protection Law No 24,240 (CPL), the Personal Data Protection Law No 25,326 (PDPL) and the Digital Signature Law No 25,506 (DSL), among others.
Online Lending Businesses
Online lending businesses are mostly regulated by the CCC, as regular lending operations, in addition to the CPL, the PDPL and the DSL.
That being said, in 2020 the BCRA amended the “non-financial credit providers” regime setting forth that companies which, according to the last financial statement, granted credits in excess of ARS10 million and are not financial institutions must register with the BCRA and comply with certain information and reporting duties.
Equity crowdfunding is expressly regulated by Entrepreneurial Capital Support Law No 27,349 (ECSL) and Securities and Exchange Commission (CNV after its name in Spanish) Resolution No 717/17.
Regtech businesses, provision of computer services and innovations in the use of blockchain technology are basically regulated by the CCC, the DSL and Intellectual Property Law No 11,723 (IPL).
Public Offerings of Securities, Securities Markets and Exchanges
Capital Market Law No 26,831 (CML) regulates public offerings of securities, securities markets and exchanges, and intermediaries operating in such markets; it also covers the public offering of term contracts, futures and options, their markets, clearing houses and intermediaries.
Insurtech activities fall under the general rules of Insurance Law No 17,418 (LS).
Many of the companies involved in these businesses will also be subject to Anti-money Laundering Law No 25,246 (AMLL).
Compensation models vary from business to business and vertical to vertical.
Businesses related to payments verticals are usually compensated through transactional commissions that are ultimately borne by the affiliated shops.
Businesses related to lending verticals are compensated through the interest rate charged to the borrower. It is important to mention that case law exists that limits the interest applicable to loans when such interest is deemed excessive.
In regtech undertakings and the provision of IT, as well as blockchain, and services to financial institutions and fintech companies, the compensation model is freely agreed between the parties (ranging from fixed amounts to variables per transaction).
While legacy players' activity tends to be highly regulated and centralised by the BCRA and the CNV, the regulation applicable to the fintech industry is more flexible and, as mentioned in 2.2 Regulatory Regime, is scattered across the domestic legal framework. Nevertheless, the BCRA and the CNV do issue specific regulations on certain verticals.
Unlike financial institutions, in some cases, prior authorisation from a state agency is not required to carry out or operate a fintech business.
There are also some distinctions from a tax perspective between transactions carried out by or through financial institutions and transactions carried out by or through fintech companies.
However, it is likely that the above-noted distinctions will gradually disappear.
There is no regulatory sandbox in Argentina.
In the same way that fintech's regulations are scattered (as mentioned in 2.2 Regulatory Regime), so is the jurisdiction of the different regulators involved in the sector.
The BCRA has jurisdiction over entities engaged in habitual intermediation between the supply and demand of financial resources (financial institutions) which fall under the scope of the FEL. It is responsible for the regulation and supervision of the monetary policy, credit policies and exchange control regulations and in this context, the BCRA can also regulate other activities when it understands that such regulation is advisable in light of the volume of the operations involved and for reasons of credit and monetary policy.
The CNV is the implementing authority of the CML. It has jurisdiction and oversight capacity on matters such as public offerings, entities engaged in brokerage activities, collective investment schemes and securities exchanges and markets.
Another relevant regulator is the Public Information Access Agency (AAIP), which functions as the implementing authority of the PDPL.
The Financial Information Unit (UIF) is the implementing authority under the AMLL.
The Superintendence of Insurance (SSN after its name in Spanish) has jurisdiction over the LS, supervising the activities of producers, intermediaries, and insurance and reinsurance entities.
Financial institutions may outsource several functions to third-party vendors. However, this activity is regulated by the BCRA, which must be informed of such arrangements and which may carry out inspections of the premises and activities of the vendors. Despite this, the outsourcing of regulated functions does not release a financial institution from its obligations vis-à-vis its clients and the BCRA.
Fintech providers are under no specific legal obligation to act as gatekeepers.
At the same time, these entities fall under the general security and diligence obligations contained in the CCC, CPL and PDPL and therefore must ensure that their platforms operate adequately.
In addition, depending on the nature of the business, fintech companies could fall under the scope of the AMLL and be considered as reporting entities under the regulations, subject to registration, KYC and suspicious transactions reporting obligations.
When the scope of the services provided by fintech companies is not well defined or fintech companies engage in activities that fall within the scope of the FEL or the CML, without the corresponding authorisations, both the BCRA and the CNV may initiate summary investigations.
As mentioned in 2.2 Regulatory Regime, all fintech businesses fall under the provisions of the CCC, based on the similarities of the businesses in question to nominated businesses contemplated in the CCC. In addition, the general rules applicable to contracts and obligations under the CCC include the following topics: liability regime (Section 1708 et seq), accountability regime (rendición de cuentas) (Section 858 et seq), the principle of good faith (Section 961), standard form contracts (Section 984 et seq), etc.
The DSL also applies since this regulation incorporates the concepts of digital document, electronic signature and digital signature into the Argentine legal framework and establishes the terms of equivalence between these new concepts and the concepts of material document and handwritten signature.
The PDPL sets forth a number of rights that companies, as holders of personal data, must recognise in relation to the owners of such information. This rule also limits the way in which data can be collected and processed and specifies certain actions that the companies must execute before the competent authority.
BtoC business is subject to the CPL. This regulation lays down different provisions aimed at safeguarding the position of the consumer as the weakest party in the contractual relationship.
Regulation of Cybersecurity
There is no uniform set of rules regarding cybersecurity. Responsibility (including the indemnification regime) arising from the loss of information by fintech companies is governed, in principle, by the CCC, the CPL and the PDPL. Resolution 47/18 issued by the AAIP sets forth a series of recommended security measures aimed at facilitating compliance with the PDPL, including matters related to the collection of personal data, access control, control of changes, back-up and recovery, vulnerability management, information destruction, security incidents and development environments. Regarding financial entities, BCRA Communication “B" 11847, establishes the obligation to communicate any security incident to the external audit management.
Regulation of Social Media
Social media and similar tools are not subject to any specific regulation, and are mainly governed by the CCC, the PDPL and the CPL. In addition, there is relevant case law regarding the responsibility of companies administering these kinds of tools.
Regulation of Software Development
Software development is basically regulated by the CCC and the IPL.
In addition to regulators, there are other relevant players actively involved in the sector. The most important fintech companies are grouped in the Fintech Chamber, and different bank associations represent the interests of financial institutions. There are also important organisations that promote the use of blockchain technology in its various forms.
In Argentina, there are several cases of industry participants offering unregulated products and services in conjunction with regulated products and services.
Many fintech companies offer their unregulated products and services in conjunction with their regulated products and services within the same legal entity. For example, Mercado Libre operates simultaneously from a single entity as an e-wallet provider, a marketplace and a non-financial credit provider.
In addition, the BCRA has allowed financial institutions to participate in fintech companies and provide unregulated services through these companies.
Robo-adviser services can vary, ranging from financial advice to the possible assumption and automated management of the client's investment portfolio based on their profile.
Robo-advisers are subject to the same regulations applicable to agents (brokers and investment managers) who are authorised to participate in exchanges and markets under the CML and the CNV regulations.
Through its rules and general resolutions, the CNV regulates different figures that could use robo-advisers as an investment tool. Therefore, the use of a robo-adviser by an agent regulated by the CNV will be subject to the general rules applicable to such activity.
Legacy players continue to carry out their activities within the existing legal framework.
Despite the notorious popularity robo-advisers are gaining among investors, the implementation of a robo-adviser's solutions by traditional players is not currently widespread.
In line with international guidelines, proper execution of client operations involves knowing the integral profile of the client (their risk profile as well as their financial expectations) and, on the basis of this information, providing advice in a reasonable manner that is personalised and consistent between the profile of the investor and the recommended trade.
When the online lender is a financial institution (which finances its loans with third-party deposits), the activity is heavily regulated by the BCRA in order to safeguard the funds of the general public. In this sense, there are restrictions on the amount of the loans that can be granted, the concentration among sectors, etc.
Where the online lender is a fintech company (in which case, the main source of funds is own capital and the securitisation of previous loans), its lending activity is not subject to specific regulations other than the registration, information and reporting duties mentioned in 2.2 Regulatory Regime.
It is worth noting that fintech lenders tend to cater to the credit market which is not usually covered by traditional lenders, ie, individuals with insufficient credit records.
Fintech companies engaged in the online credit market use a wide array (with greater or weaker security) of digital on-boarding systems, in the sense that they identify and are commercially linked to clients remotely via digital document and electronic signatures.
These companies are increasingly availing themselves of the opportunity to collect, process and cross-check customer information in order to reinforce customer identification and credit risk prediction.
In recent times, the BCRA and UIF have also authorised banks to introduce a fully digital on-boarding experience, which has led to the emergence of 100% digital financial entities.
See 4.1 Differences in the Business or Regulation of Loans Provided to Different Entities and 4.4 Syndication of Loans.
Although they are not a syndication of loans in the traditional sense, crowd-lending platforms that currently operate in the local market (where loans are funded by several investors through the platform) could be regarded as a case of syndication of loans.
This activity is not expressly regulated in Argentina, although the fintech companies involved in this line of business are being increasingly scrutinised by the BCRA.
Payment processors can use existing payment rails or create and implement new payment rails.
Over the last couple of years, the BCRA has promoted the inter-operability among different payment methods. For this purpose, it has created the so-called Uniform Virtual Code (CVU) to identify payment accounts in payment service providers (PSPs) and enable direct transfers between those accounts and existing accounts in financial institutions. In addition, it has introduced standards for payments through rapid response codes (QR codes) which are being used in the shops so that third parties can function as facilitators, aggregators or groupers of credit card payments.
In 2020 the BCRA made progress on this front by implementing its “Transfers 3.0” programme, which makes it possible for customers to execute payments from any type of account (banking account or payment accounts opened with a PSP) using a single QR code displayed in the shop.
Argentina has a series of exchange control regulations aimed at restricting the outflow of foreign currency.
In this sense, and broadly speaking, specific requirements are applicable to the inflow of funds, and the remittance of funds outside the country may, depending on each particular case, be restricted or subject to the prior authorisation of the BCRA.
Investment funds are regulated by Law No 24,083 (IFL) and by the CNV regulations.
Within this regulatory framework, the management and administration of investment funds must be carried out by an authorised stock corporation (sociedad gerente) or by a financial entity authorised under the FEL to act as a portfolio manager of marketable securities.
In addition, the entities responsible for the management of the investment fund usually resort to advisory, processing and back-office services provided by third parties.
In Argentina, certain aspects of the contracts between companies that manage investment funds and their advisers or service providers are regulated.
The terms of these contracts tend to reflect and cover the obligations applicable to fund managers, seeking to ensure the performance and effectiveness of the operation of the investment fund.
In addition to the traditional exchanges and markets regulated by the CML and the CNV resolutions, crowdfunding businesses are being formed (such as platforms where people who require financing are connected with people who are willing to grant it) and a significant number of crypto-asset exchanges have emerged in recent times.
Within the universe of cases involving crowdfunding (lending, donation, sale of goods or services, and equity), as mentioned in 2.2 Regulatory Regime, only equity crowdfunding has been expressly regulated. The remaining business models fall under the scope of the general provisions of the CCC, among other regulations.
With respect to crypto-asset exchanges, see 7.3 Impact of the Emergence of Cryptocurrency Exchanges.
See 7.1 Permissible Trading Platforms.
Depending on their nature (functionality or representation) some crypto-assets could be considered as marketable securities and they are therefore subject to the provisions of the CML. This conclusion stems from a CNV communication posted on the CNV's website in December 2017.
Although crypto-asset exchanges are not regulated as such, if crypto-assets that could be assimilated into marketable securities are traded in a specific exchange, the exchange in question would fall under the scope of the CML.
With respect to anti-money laundering regulations, crypto-asset exchanges are not formally considered as subject to reporting requirements. However, in practice, crypto-asset exchange administrators act as reporting entities subject to the AMLL, identifying their clients, tracking their operations, and even reporting suspicious operations.
In addition, exchange control and tax regulations refer to crypto-assets.
It is worth noting that in 2020, draft legislation aimed at regulating cryptocurrency exchanges was submitted to congress and is expected to be discussed during the course of 2021.
Within the context of equity crowdfunding mentioned in 7.1 Permissible Trading Platforms, equity crowdfunding platforms must review and select the projects that will be offered for financing. For this purpose, a project selection guide must be prepared which must include objective, reasonable and non-discriminatory parameters applying measurable and consistent criteria. In addition, the platform must contemplate procedures to inhibit or cancel potentially fraudulent projects.
CNV rules set down the guidelines on how agents must execute orders placed by investors. In this respect, it is established that orders must be executed in the terms given by the clients and promptly entered into the order registration system of the market. Furthermore, the agents are required to have procedures in place which allow them to enter orders into the computer trading system of the interconnected market where the best market conditions are available to their clients; and the system used by agents must ensure the complete registration in the ticket or settlement of the order identifier.
In addition, the CNV has specific rules for equity crowdfunding, as referred to in 7.1 Permissible Trading Platforms.
In addition to the crowdfunding platforms already mentioned, crypto-asset exchanges that operate in a decentralised manner have also emerged from smart contracts stored on the blockchain that allow the execution of peer-to-peer transactions.
These exchanges have no specific regulation, and the prevailing doctrine is that responsibility for an exchange’s operation lies with whoever implemented the exchange, although the supervision of these platforms gives rise to important and obvious challenges.
As mentioned previously, equity crowdfunding platforms allow for direct interaction between investors and entrepreneurs. In this sense, it is understood that these platforms must take all the necessary actions and measures that might be required to guarantee a reliable, predictable and more formal financial environment for the client, to properly assess the risks involved in investing in, or proposing, a project.
In Argentina, the practice of payment for order flow is generally not well regarded, as this could affect market transparency and would be contrary to the duty of loyalty and diligence owed to investors.
CML recognises the following principles:
Within this context, the following are considered contrary to market integrity:
The creation and use of these technologies in Argentina are regulated by the markets and exchanges that operate in the country as part of the self-regulating powers granted by the CML and CNV regulations.
According to CNV regulations, market makers can only function in a principal capacity.
CNV regulations specifically delegate to each market and exchange the drafting of the rules and registry applicable to market makers. CNV regulations only enunciate certain minimum requirements that the markets must follow when issuing the rules that regulate the activity.
In Argentina, the regulations do not distinguish between funds that engage in these activities and dealers engaged in these activities.
There is no specific regulation regarding the creation of trading algorithms and other electronic trading tools. These kinds of tools are subject to the regulations set forth by each of the markets and exchanges that operate in the country as part of the self-regulating powers granted by the CML and CNV regulations, as well as the general rules of the CCC and the IPL.
Financial research platforms are not subject to registration. However, their activities are regulated by different sets of rules.
Certain legal provisions issued by the CNV, within the context of public offerings, set forth prohibitions regarding the use of privileged information, and the manipulation and deception of the market. For further information about market principles, see 7.9 Market Integrity Principles.
In addition, the CCC rules on civil liability, the provisions of the Criminal Code regarding crimes against the economic and financial order, and the CPL, among others, could also apply.
See 9.2 Regulation of Unverified Information.
In recent years, the insurance contracting process has become increasingly flexible and agile, by taking advantage of the possibilities of digitisation. As an example of this, the SSN has allowed insurance companies to issue policies with digital signatures, and to receive instructions from their customers through digital platforms.
In addition, with the increased ability to obtain and process information about policyholders and the risks that fall on insured assets, insurance companies have been steadily improving their results.
Each of the different types of insurance (eg, life, property and casualty) has its specific regulation, as provided by the LS and SSN rules, mainly set up before the rise of insurtech.
See 2.2 Regulatory Regime and 2.7 Outsourcing of Regulated Functions.
Contractual terms regarding the provision of technology services are established on a case-by-case basis from the negotiations of the respective parties, since the outcome of such negotiations will vary on a case-by-case basis according to the negotiating strength of each party in a particular case.
Financial services firms try to impose the following contractual terms on technology providers, among others:
Traditional players are using (and planning to use) blockchain technology in order to improve the processing, management and storage of information, as well as to automate the execution of certain processes, execute transnational payments, and tokenise and trade financial assets.
Research and exercises are currently being carried out between financial institutions and private sector providers. In addition, within the framework of the national government, the Blockchain Federal Argentina project (BFA) has been put in motion. The BFA is an open and participatory multi-service platform designed to integrate services and applications on blockchain to be enhanced through the contribution of the public, private and academic sectors.
There is no specific regulation regarding blockchain technology in Argentina.
That being said, it is generally understood that the existing regulations in the DSL and the CCC regarding digital documents, and electronic and digital signatures, are sufficient to allow the use of blockchain technology, although, in practice, this should be reviewed on a case-by-case basis.
Regulators have so far limited themselves to warnings and making consumers aware of the risks involved in the use of this technology. In addition to the CNV statement mentioned in 7.3 Impact of the Emergence of Cryptocurrency Exchanges, in 2014 the BCRA published a general public announcement which, although alerting the public to the disadvantages and risks of cryptocurrencies, also confirmed that their use was not restricted under its regulations.
New regulations are expected to be issued in the near future, aimed at companies that operate with cryptocurrencies (such as exchanges and wallet providers), and a prior authorisation regime may be introduced. For further information, see 7.3 Impact of the Emergence of Cryptocurrency Exchanges.
There are no specific regulations applicable to crypto-assets. However, as mentioned in 7.3 Impact of the Emergence of Cryptocurrency Exchanges, it is possible that certain crypto-assets could be assimilated into marketable securities. This could be the case with what are commonly known as "tokenised securities" or "asset tokens", which are tokens that represent an underlying asset or debt, or participation in future income or in the increase in value of the issuing entity or a business.
As such, tokens that function as currency (payment tokens or cryptocurrencies) and tokens that function as digital coupons, granting access to services or functionalities ("utility" or "user" tokens, or appcoins) do not fall within the scope of the CML and the CNV.
In Argentina there is no specific regulation applicable to issuers of blockchain assets although, as mentioned in 12.3 Classification of Blockchain Assets, where crypto-assets are tokenised securities that could be assimilated into marketable securities, the issuance of such assets would fall under the provisions of the CML.
See 7.3 Impact of the Emergence of Cryptocurrency Exchanges and 7.6 Rise of Peer-to-Peer Trading Platforms.
Investment funds in Argentina are not yet authorised to invest in blockchain assets.
In line with the CNV and BCRA’s interpretation of tokenised securities and utility tokens, it could be understood that cryptocurrencies have a different character and as such there is no restriction on their use as a means of payment or investment.
DeFi ("decentralised finance") platforms are not expressly regulated in Argentina. However, please see 12.2 Local Regulators’ Approach to Blockchain.
Both the BCRA and the UIF have incorporated some provisions supporting the open banking concept into their regulations, eg, by allowing banks to share their client’s information at their request within the framework of digital on-boarding processes.
However, these rules have not yet been fully implemented and adopted in practice by the industry and the absence of sufficient regulations prevents open banking’s full deployment.
It is worth mentioning that draft legislation on personal data protection exists (which to a certain extent replicates the GDPR). This draft legislation incorporates the right to personal data portability, thereby allowing for the consolidation of open banking. However, little progress has been made towards enacting this legislation.
In addition, in practice, fintech providers have implemented platforms which allow clients to access all their bank accounts in different entities.
There is general agreement that this process could expose clients' personal data due to the increase of information flow. It is in this context that a full open banking exercise will require that the protection of personal data is strengthened and reviewed.
In effect, market players are concerned regarding cybersecurity and how liability would be allocated among the different parties in case of a breach.