In September 2020, the Government of Colombia announced a pilot plan to carry out cryptocurrency transactions between bitcoin exchanges (BTC) and local banks. Today, a year after that announcement, it can be understood that the most significant result of these tests is that financial institutions and cryptocurrency platforms can sustain alliances and operate without conflicts, unlike what happened in the past.
The sandbox regulatory framework for the financial technology (FinTech) sector that was launched by decree in September last year, integrated the pilot study with cryptocurrencies. This in order for the financial system to test cash in (money deposit) and cash-out (money withdrawal) transactions with crypto assets.
The project proposes that companies that offer services with cryptocurrencies that operate in Colombia, or want to operate, must go hand in hand with an entity supervised by the Financial Superintendence (Superfinancial).
To participate in the pilot plan, exchanges had to meet a series of requirements to be submitted to the regulatory body in December 2020. One of them was to make alliances with financial institutions.
Of the 14 proposals submitted, only 9 met all the required requirements: Banco de Bogotá with Bitso and Buda; Bancolombia with Gemini, Davivienda and Powwi with Binance; Banco de Bogotá with Buda; Coltefinanciera with Obsidiam; Coink with Banexcoin; Movii with Panda and Bitpoint.
Last June, the Bitpoint alliance and the company specialized in electronic deposits and payments Movii, became the first authorized to start operations. In less than 3 months nearly 1,000 registered persons have transacted more than USD 320 million regarding the trade of bitcoin, ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTC), according to Colombian media.
Soon Movii will also start operations with the Panda exchange and it is expected that Bancolombia and Davivienda will receive the green light to begin their trials. Subsequently, The pilot plan will integrate other financial entities such as Banco de la República or the Superintendency of Companies, among others, as indicated by the financial superintendent Jorge Castaño Gutiérrez, to El Tiempo de Colombia.
Castaño added that, Once this stage is complete, the results analysis phase will begin, which will run until March 2022, when there will be a complete evaluation and definitive results on the viability of the mechanism.
For now, it is clear that exchanges and banks can make alliances. It is also clear that the Colombian financial system has changed its vision regarding cryptocurrencies, leaving behind the financial blockage that some exchanges, such as Buda, suffered in the past.
In 2017, a year after starting operations in Colombia, the Chilean company faced problems in its relations with the Colombian banking system. It happened when Davivienda closed his account without prior notice, arguing that the measure was taken by order of the Financial Superintendence, as reported by CriptoNoticias at the time.
Towards the regulation of Bitcoin and other cryptocurrencies in Colombia
Referring to the pilot plan with crypto assets carried out by exchanges and banks in Colombia, Alejandro Beltrán, Buda’s country manager, hopes that the controlled operations will serve so that soon the industry has a regulatory framework.
“The Superfinanciera has not yet expressed it like this, but we all hope that this is the gateway for cryptocurrency platforms to be able to formally operate in the country,” added Beltrán during an interview conducted on the YouTube Blockchain Summit Latam Analysis program, hosted by Chilean developer Cristóbal Pereira.
The manager also explained the objectives achieved by the pilot plan so far. Among them, that cryptocurrency service operators participating in the project implement or manage risk management systems in compliance with international standards of the Financial Action Task Force (FATF).
Too exchanges must offer consumer rights protection and, among other elements, provide guarantees that users’ claims will be addressed.
In addition, operations between banks and exchanges must have records of the terms and conditions of the alliance, the contract between the supervised entity and the cryptocurrency exchange platform. In the same way, they must have their own integrations to the cash in and cash out system with the banking entities.
The pilot plan will allow “to replicate the good practices of the financial system in the field of crypto assets,” said Beltrán.
In any case, the alliance between banks and exchanges can hide a background, according to Mauricio Toro, a member of the Colombian House of Representatives for the Green Party. From his perspective “the banks have gigantic power and everything is being in their power.”
Toro believes that the banking sector “is getting a very hard hand” to gain interference in decision-making. “They want to bank a system that is totally contrary to traditional banking,” he said.