Colombia is slowly moving toward Bitcoin-friendly regulations

To say Colombia doesn’t have the best cryptocurrency regulations in the world would be an understatement. As it stands, crypto, and those who operate in it, have no legal status or protection in the country.

But a new breed of Colombian lawmakers are working hard to change that—even if at a bureaucracy's pace.

Despite an unfavorable legal framework, Colombia is still the third-most important FinTech economy in Latin America. In 2017, the number of FinTech businesses grew by 61 percent compared to the year prior, according to the Spain-based, FinTech incubator Finnovista. The next year, the Colombian FinTech Associated reported that the figure rose by another 76 percent. And this year, there are already 45 percent more FinTech startups than in 2018.

Some of these startups, such as Daexs and Panda, focus specifically on the blockchain and cryptocurrency industry. But they do so in a perilous regulatory environment.

Colombian law, for example, does not currently recognize the legality of cryptocurrency exchanges—and losing access to financial services for unlawfully handling cryptocurrencies, such as Bitcoin, is all too common.

A failed attempt at clarity

One of the most significant attempts to regulate the crypto industry came in the form of Bill 028 of 2018. The proposal sought to establish a set of rules that would formally legalize cryptocurrencies and their exchange via peer-to-peer transactions or through third parties, such as crypto exchanges, all while generating a tax of 5 percent per transaction.

But the Colombian Senate rejected the proposal in June for fear of giving way to fraudsters operating pyramid schemes, Ponzis, multi-level marketing, and other scams.

Decrypt contacted the Colombian Superintendency of Financial Assets to learn more about the government’s reasoning and clarify the current standing of cryptocurrencies such as Bitcoin under Colombian law. The response, formalized in a numbered document by the Superintendency, was precise:

"None of the transactional platforms or marketers of ‘virtual currencies’ such as Bitcoin are regulated by Colombian law. Nor are they subject to the control, surveillance or inspection of this Superintendency," the agency explained. It added that "there are no mechanisms to enforce compliance with transactions with ‘virtual currencies,’ which significantly increases the possibility of noncompliance.”

In other words, if you make any sort of transaction with cryptocurrency and are ultimately swindled somehow, the best you can hope for is to gripe and moan on social media. The Colombian government cannot help you.

What’s more, the Superintendency of Financial Assets emphasized that cryptocurrencies "do not constitute a value in terms of Law 964 of 2005; therefore, they are not part of the infrastructure of the Colombian stock market, they do not constitute a valid investment for the supervised entities, nor are there operators authorized to advise and/or manage operations on them.”

Colombians are well aware of the nebulous legal territory in which crypto operates in the country and yet—evidently—their enthusiasm for Bitcoin and other digital currencies goes undeterred. According to a recent survey commissioned by peer-to-peer Bitcoin exchange Paxful, 91 percent of Colombians are convinced that cryptocurrencies are the future of global trade.

At the same time, 86 percent said they believe Colombia needs to do a much better job regulating these markets.

Light at the end of the tunnel

Colombian Congressman Mauricio Toro of the Green Alliance Party is committed to make such change happen. The businessman turned politician has for the last year been pushing to clarify the law regarding crypto, including legalizing the operation of cryptocurrency exchanges in the country, through new legislation, Bill 097 of 2019.

Toro told Decrypt that he’s been in talks with Colombian Central Bank, the Superintendence of Finance, and a number of other government agencies to help move the legislation forward. But the reason it continues to take as long as it has to regulate the crypto market in Colombia, according to Toro, can be summed up in one word: Fear.