As Security Token Offerings (STOs) rose in popularity in the past several years, governments and regulatory bodies across the world are trying to keep up with this phenomenon with legal developments in every jurisdiction. However, there are more than a few large markets in South America that need to be covered on the topic of STO regulations.
As a whole, South America lacks consistency in the token offering regulation of different countries, and that applies to both Initial Coin Offerings (ICOs) and STOs. The majority of South American countries allow ICO use for free-range projects but have stricter regulations for security token offerings. Several countries have recently announced plans to take advantage of the blockchain technology, which has a variety of applications across multiple industries. However, some have put special legal requirements in place. Let’s take a look at them individually.
Mexico is a large market for cryptocurrencies with a population of 130 million people, making it a lucrative target for crowdfunding campaigns.
ICOs in Mexico are regulated by the country’s FinTech act, which was approved by the lower house of Congress in early March 2018. It presents a cornerstone for the “secondary laws”, which will define the whole country’s stance towards crypto assets and ICOs.
ICOs, as such, are not illegal in Mexico, but companies that hold security token offerings are at risk of violating the country’s Securities and Exchange Act. If a cryptocurrency is defined as a security (presents a share in the ownership of the company, brings dividends to owners, etc.), the security token offering should be registered with the appropriate government’s office.
Security token offerings are allowed in Brasil. Comissão de Valores Mobiliários (CVM) or the Brazilian equivalent of the Securities and Exchange Commission is the regulatory body that oversees the newly established market.
Cryptocurrencies issued during security token offerings are subject to the Brasil’s Securities and Exchanges Act, which requires the companies conducting such crowd sales to register their offering.
To date, CVM informs that no security token offering was legally registered nor approved by the Commission. In 2014, Brazilian Revenue Service, the country’s authority declared that cryptocurrencies are taxable and their holders must file capital gains on their tax returns. Further to this, in January 2018, CVM announced that cryptocurrencies are not considered to be financial assets.
Most recently, Brazilian investment funds were authorised to indirectly invest in cryptocurrencies by Comissão de Valores Mobiliários (CVM), the country’s securities regulator. At the same time, The Department of Federal Revenue of Brazil (RFB), the regulatory body in charge of collecting taxes in the country, announced that it now expects monthly reports on crypto assets operations from the country’s cryptocurrency exchanges.
Argentina has adopted an approach towards token offering regulation as that of Brazil. The country’s Comisión Nacional de Valores (The National Securities Market Commission) states that ICOs aren’t regulated by any laws currently.
However, cryptocurrency issued through security token offering campaigns fall under the country’s Commercial Code of the Nation and Article 2 of the Capital Market Law.
If such a security token offering is not registered correctly, the company could face administrative and criminal liabilities.
Both regular and security token offerings are allowed in Colombia. That being said, the country’s Superintendencia Financiera de Colombia (Financial Superintendence of Colombia) warns investors that any government’s body does not protect them if they decide to participate in such projects.
Colombia doesn’t recognise cryptocurrencies as legal currencies and token offerings as legal tenders.
Cryptocurrencies, ICOs and STOs, are outlawed in this country.
The Bolivian government issued a ban in 2014 going as far as banning citizens from using any currency not approved and regulated by the country’s laws. To this effect, 60 individuals were arrested for conducting a workshop connected to crypto.
The use of virtual currencies and STOis prohibited in Bolivia. The Central Bank has stated that the use of money not issued by the monetary authority is not allowed in the country. Cryptocurrencies such as Bitcoin and security tokens are not regulated, and therefore, the Central Bank warns about the possible losses that people using them are exposed to.
The Central Bank of Chile has issued an official statement stating that cryptocurrencies are not recognised as legal, financial instruments. To this effect, security token offerings are not subject to the regulation or supervision of the monetary authority.
Cryptocurrencies can be legally traded, bought and sold with no regulation. Tokens issued in security token offerings are subject to other laws and financial regulations as set forth by the Central Bank of Cuba.
The status of cryptocurrencies and security tokens in Peru is controversial. While STOs are allowed in the country, the digital assets issues in them are subject to the regulation of the Central Reserve Bank of Peru and the Superintendencia de Banca y Seguros.
The Central Bank of Costa Rica and its decentralised agencies (órganos de desconcentración máxima) establishes the colón as the monetary currency in Cost Rica and advises against the use of unregulated digital assets. Moreover, Bitcoin and other tokens issued in ICOs andSTOs are not recognised as legal tender in the country and do not have the backing of the Central Bank or the state of Costa Rica.
Investors can participate in STOs in Costa Rica at their own risk and responsibility, as these operations are not contemplated by the banking regulations or the payment mechanisms authorised by the Central Bank of Costa Rica.
Selling and buying digital currencies as well as organising STOs is legal in Paraguay. The Central Bank of Paraguay, which is the highest monetary authority in the country, or the Banking Superintendent, which regulates banks and finance companies, do not attempt to control or to persecute miners, traders and users of cryptocurrencies. There are no legal acts which specifically allow to monitoring of this sector of the economy.
Along with the launch of a government-backed national cryptocurrency, Uruguay has adopted a positive approach towards cryptocurrencies and security token offerings. Although there’s no comprehensive crypto-law existing in Uruguay, both trading cryptocurrency as well as organising STOs are legal in this country.
The Changing Landscape of Token Offering Regulation in South America
Despite some South American countries showing signs that they are open to cryptocurrencies and STOs, other jurisdictions are less tolerant of this new type of asset class. Fundraising using digital currencies via STOs is prohibited in El Salvador and Ecuador, for example. Ecuador devised a specific regulatory framework along with the country’s digital currency backed and controlled by Banco Central del Ecuador. The set of regulations outlaws all other decentralised forms of currencies, such as Bitcoin and Ethereum. Additionally, ICOs and STOs are also prohibited under the Organic Monetary and Financial Organic Code.
The governments of Guatemala, Honduras, the Dominican Republic and Nicaragua don’t recognise altcoins and tokens as official currency or form of payment. ICOs and STOs are permitted with the general advise issued to investors that no regulatory body can guarantee the safety of funds invested. Security token offerings are subject to taxation and the application of financial laws pertaining to the nature of the issued digital coins.
Cryptocurrencies have become an essential asset to people, companies and governments in recent years. While, at first, this led to robust funding for many different STO projects, multiple fraud cases have highlighted all the issues with the new and unregulated sector. The digital currency remains less safe and accessible to people compared to traditional currencies. However, the number of security token offerings increases with each day as a more secure form of ICOs. These STOs need to abide by many different regulation laws. Places like Mexico and Venezuela have just started with regulatory committees. Meanwhile, other countries, such as Brazil have formally subjected cryptocurrencies and token offerings to its financial laws. This attempts to make this new class of digital securities safer for investors and holders and promote long-term use.
New legislation and regulatory frameworks are a pivotal move in creating an environment for more transparent security token offerings for all parties involved. This will not only be incredible for the crypto community but South American countries as well, stimulating economic development, education and providing regulatory measures that will leave out fraudulent cryptocurrencies.
Influx is expected in South American countries whose laws have opened the doors for companies across the globe with interest in launching a government-approved, regulated security token offering. Such a move is a measured step by current governments in changing the future of countries towards more diversified fintech ecosystems. Embracing such a modern approach to finance is undoubtedly poised to dramatically alter the cryptocurrency markets in this part of the world.