Written by León Lanis V., Paralegal
In recent weeks, Chile has seen great advances in the reforms to its financial regulations. As we have previously discussed in other blogs, Chile is undergoing an extensive review and reform of the financial market, updating it to modern standards and aiming to put Chile at the forefront of financial innovation and inclusion. The biggest reform being the so-called Fintech Law (No. 21.521), which completely changed the rules of the game, allowing new actors to participate and effectively compete with traditional actors of the market.
As mentioned, in the last few weeks, legislators and regulating bodies have been heavily working on new laws and sectoral regulations that will put Chile as one of the most innovative countries in the finance market. Here, we will update you on the latest news on financial regulation and why they matter.
NEW IMPLEMENTATION REGULATION FOR OPEN FINANCE
As we have previously mentioned, Chile is on its way to become the first ever country to implement a general level open finance system (‘OFS’). The objective of the OFS is to make financial data user-centric, leaving the user in complete ownership of his/her data, and can (by using specific rules of consent) transport such data to any financial service provider duly registered in the Financial Markets Commission (‘CMF’).
The OFS was created by the aforementioned fintech law, but it needed extensive implementation rules which the CMF had 18 months of deadline to provide after the law came into force.
The CMF recently published its long awaited OFS regulation (‘NCG 514’), which includes the following provisions:
Perimeter: Perimeter refers to which companies may or must act within the System, and which roles they must follow in order to participate. The law -and subsequently the regulation- states three types of institutions that participate in the system.
- Information Providers: these institutions are specific financial services providers registered with the CMF. These must participate in the information exchange, providing other institutions with client information when requested and consented by the user. We won’t dive into the specific requirements, but the regulation deals with consent management, information security, deadlines, etc.
- Information Based Services Providers: these institutions may voluntarily participate in the system by registering as such and by complying with the regulation’s provisions. These institutions make sense of the data received from the aforementioned institutions and make profit out of providing other institutions or users with useful data for decision-making. Some of the most relevant uses of such institutions is credit scoring. These institutions must deal, under NCG 514, with compliance models, risk assessment and management, data protection officers, amongst many other provisions.
- Payment services providers: these participants, which are compelled to participate in the system, are those companies which offer bank or savings accounts to the public and use such accounts (or third party’s accounts) in order to execute payment orders. These institutions must deal with similar provisions to the previous services providers.
With this regulation, banks and traditional financial services providers won’t be able to discriminate against smaller actors which require user’s data while complying with the regulation, ending a long period of oligopoly in the financial market.
Type of information: the information that will be traded in the OFS includes: terms and conditions (‘T&C’), client enrolment data, historic financial positions, account on financial instrument use, current products of the client and minimal necessary payment information. The idea is that all the aforementioned, when consented by the data’s owner, should be swiftly transferred to other institutions.
Inscription of Institutions: the CMF will have two different registries, one for Information Based Services Providers and one for Payment Services Providers. Information Providers won’t need to register, as with the general inscription as Financial Services Providers will automatically ask them to comply with the OFS regulation.
Information exchange methods and channels: This aspect is probably the most important point of the regulation, in our view. One of the trickiest parts of allowing such an open data model for financial services to operate is ensuring a swift yet secure channel of data communication. In this regard, the CMF resolved that Application Programming Interfaces (‘API’) are the tools to solve this question. APIs, in a nutshell, are data intermediaries, which through communication protocols allow separate computer systems to communicate swiftly and securely when naturally they shouldn’t be able to communicate. NCG 514 includes all the protocols, standards and certifications the APIs must comply with in order to be legitimate communication channels of the OFS.
Security and data protection: NCG 514 includes an extensive review of data protection and cybersecurity standards to comply with in order to ensure confidentiality, availability and integrity of the data.
NEW REGULATION FOR CARD OPERATORS
The Central Bank of Chile (‘BCCh’) recently updated its Payment Services Providers (‘PSP’) regulation, in order to include new services to the regulatory scope. The new rule now includes services of International Payments with National Issued Payment Systems (also known as ‘cross-border acquisitions’) and Internal Payment Systems (or ‘closed payments’).
In summary, these services will now need to be registered with the CMF’s PSPs registry and comply with minimal capital (depending on the volume of transactions) and operations compliance models. Any PSP under the aforementioned services which have a volume greater to 100% of the operational threshold of the sub-acquisition will be responsible for the commerce transactions they operate.
CONSOLIDATED DEBT REGISTRY
Last but not least, is the consolidated debt registry bill. We have discussed in previous blogs, but by way of summary, the debt registry bill seeks to create a unified database of all the debts from people and companies to financial services providers that can be accessed by other finance companies which seek to know the level of indebtedness of a person or company. This consolidated resource of debt information will be managed by the CMF (which will not have direct access to the data), and will help companies improve their risk assessments and prevent enhancing the national indebtedness levels.
This bill has now been fully approved by both the Senate and Congress and is now ready to become law. The only thing pending for the bill to enter into force is the ratification of the president and its publication in the Official Gazette.
CONCLUSION
The changes in law highlight Chile’s dedication to positioning itself as a significant force in international finance. By implementing sophisticated regulations, Chile aims to foster a more competitive financial marketplace while maintaining rigorous standards for compliance. However, the journey toward these ambitious goals is ongoing. The full impact of these regulations on the market remains to be seen, especially for smaller players who may find the regulatory costs challenging to bear. Moving forward, it will be crucial to monitor how these changes affect all market participants and to consider adjustments that ensure both robust competition and equitable opportunities for businesses of all sizes.
