Monday, January 24

Erick Rincón: Colombia’s sandbox will not be enough to regulate bitcoin

Key facts:
  • Rincón fears that the legislation around bitcoin will remain paralyzed for much longer.

  • Colombia is one of the few countries, with a high volume of trade, that still does not regulate bitcoin.

The Financial Superintendency of Colombia (SFC) launched a sandbox, or sandbox, which includes a pilot plan for the country’s financial system to gain practical experience on the purchase and sale of cryptocurrencies such as bitcoin (BTC). However, the project will not be enough for, starting from it, the step towards a regulation of the cryptoactive sector takes place, as indicated by the president of Colombia Fintech Erick Rincon.

A supervisory sandbox is not the same as a regulatory one and, in the case of Colombia, the one we have is one of the first. It is only a space for inspection of the processes of cash in (to convert money into cryptocurrencies) or cash out (convert cryptocurrencies into fiat), by those who interact with exchanges in front of financial institutions.

Erick Rincón, president of Colombia FinTech.

From their perspective, the sandbox is a good step taken by the Colombian government when he acknowledged that there was too much friction between financial institutions and cryptocurrency service providers operating in the country. “In some cases, there was a denial of financial service to clients who carried out some activities with cryptocurrencies, so, in the face of this problem, the Financial Superintendency launched this experimentation sandbox,” said the president of Colombia FinTech.

He adds that the pilot project seeks to develop some instructions for its supervised institutions, such as banks, interact with cryptocurrencies and with the platforms that offer services. Therefore, he believes that “this exercise should give peace of mind to all those involved in the sandbox, but it will not be the definitive step towards regulating the sector, as he pointed out in an exclusive interview with CriptoNoticias. You can see the video available in this link or by clicking on the main image of this article.

In February this year, the SFC authorized nine alliances, between local banks and bitcoin exchanges, to participate in the first sandbox tests. And today, several months after the tests were launched, it can be understood that the most significant result is that financial institutions and cryptocurrency platforms can sustain alliances and operate without conflict, unlike what happened in the past.

The pilot will not finish until next year, so we are still a bit far from knowing what the results may be. Some of the 9 alliances have not even started and it is possible that they will do so in December. This means that we will not have the results of the pilot project until December 2022.

Erick Rincón, president of Colombia FinTech.

The cryptocurrency and blockchain segment is the only one that does not have regulation within the fintech industry in Colombia. Source: Colombia Fintech.

Colombia postpones necessary bitcoin regulation

The sandbox for the financial technology sector (FinTech) that was launched by decree in September of last year, “is a necessary step, but insufficient to regulate the cryptocurrency sector,” explains Rincón.

He comments that the country has already been working on regulating the cryptocurrency industry for more than four years, but without taking the definitive step towards regulation. It is because there are still “interpretative complications and inappropriate comments about what the role of crypto assets in our society may become,” he explained.

Colombia does not have a historically high level of cryptocurrency adoption, but it is always in the top ten of the countries with the highest level of trading on digital asset platforms. The downside is that Colombia is one of the few countries with a high degree of negotiation, which has not yet regulated the sector. The country has already taken time to understand and learn about the cryptocurrency industry and now we have to take action. So I think that the sandbox is an important exercise, but not enough for the needs that this industry has today.

Erick Rincón, president of Colombia FinTech.

He adds that Colombia needs cryptocurrencies to be recognized at the legal level, under a regulation that makes clear the role they play for residents. Above all, now what bitcoin It is already recognized as a currency for the country’s financial system.

With the entry into force of the Bitcoin Law of El Salvador, whether we like it or not, this cryptocurrency is recognized as a currency in Colombia because our country controls about 50% of the financial assets of the Central American nation. This is because more than half of the Salvadoran banking system is in the hands of three Colombian giants. Therefore, regulating bitcoin should already be a national concern, especially since two of these banks are very important to Colombia.

Erick Rincón, president of Colombia FinTech.

What was referred by Rincón was reported by CriptoNoticias recently. He reported that Bancolombia, one of the main institutions in that country, is home to almost 27% of the banking market in El Salvador, while Davivienda and Banco de Bogotá each cover 12%.

In more detail, Banco Agrícola, which is the largest banking entity in El Salvador, has responded, since 2007, to Grupo Bancolombia. Therefore, now more than ever bitcoin must be regulated in Colombia, as detailed by Rincón.

Erick, who is also a lawyer, expresses concern that does not see that the regulation of the cryptocurrency sector will occur in the short term In colombia. And in that sense, he lists the reasons why, until now, it has not been a priority to legislate on crypto assets such as bitcoin in his country.

On the one hand, there is the fact that the end of the presidential term is approaching, since, in the year 2022, presidential elections will be held. Plus, an important definition of terms is still pending in terms of cryptocurrencies by the government sector.

The current government will not even know the results of the sandbox pilot project. So, for all this, I think it is very important that the public agenda that the different presidential candidates have today be able to pick up this issue of crypto assets that has an important reflection from the point of view of exchange policy and, why not, even the monetary policy of Colombia.

Erick Rincón, president of Colombia FinTech.

Rincón said that digital assets have a great adherence in Colombian society and he envisions that they will be of great importance as a possible financial instrument. Source: Capture YouTube / Insurtech Colombia.

Five routes to regulate bitcoin, which one will Colombia take?

Rincón lists the five possible ways a country can be inclined to regulate the cryptocurrency sector. However, he clarifies that it is not yet clear which route Colombia will take.

When we talk about regulating the crypto-assets industry, the fundamental thing is to be clear that there is a need to balance legal and operational security with all the innovation proposed by the development of this type of digital assets. In Colombia, different debates have been taking place about the best way to regulate bitcoin and at the global level we have seen that there are five alternatives to do so that are not even exclusive, but can coexist in a complementary way.

Erick Rincón, president of Colombia FinTech.

In that sense, he points out that a first way can be the total prohibition of the industry, limiting trade of cryptocurrencies. The second way occurs when a country does not recognize cryptocurrencies as a financial instrument, but as a digital asset that carries tax consequences.

The third possibility is to create rules that define cryptocurrencies as financial payment instruments. While the fourth way is the one that El Salvador has followed when decreeing bitcoin as legal tender.

Rincón also talks about a fifth way, like the one that Mexico has followed, which is also the same that has been proposed in Colombia. Under this approach, the regulation of the fintech industry occurs, and with it, exchanges and other service providers in the cryptocurrency sector. This seeks to mitigate the risks that users have when they operate on these cryptoactive platforms, says Rincón.

I consider that a country selects one of the ways to regulate cryptocurrencies depending on the degree of maturity that a certain discussion has and the political will that is had at the precise moment in which the conditions are met. El Salvador was not so mature in the use and adoption of crypto assets, but there was a fact and the political will to decree bitcoin as legal tender.

Erick Rincón, president of Colombia FinTech.

For Rincón, Colombia has a deep reflection pending on the role of bitcoin and other cryptocurrencies in society and their use as a financial instrument. Source: Pexels.

Educate as homework while regulation is in the waiting room

Although Colombia must wait for a better definition of what will happen in regulatory matters with respect to the cryptocurrency sector, Rincón believes that, in the meantime, we must not stop and continue working on financial education.

Due to the price fluctuation of crypto assets, the population always has the expectation that they can earn a lot and that is something that attracts the unwary. So the best thing we can do to deal with this is to educate our people to make better decisions when registering and investing, so as not to be cheated.

Erick Rincón, president of Colombia FinTech.

A recent investigation determined that 34% of the population of Latin American countries, such as Colombia, Mexico, Chile, Argentina and Brazil, accept that the “lack of knowledge” in the field of bitcoin is the main reason why they prefer not to invest in the cryptocurrency sector.

Colombia and Mexico were the countries that showed greater distrust when investing in bitcoin, due to lack of knowledge about the ecosystem. In contrast, Latin America has been taking, more and more momentum, as a fertile ground for the cultivation and growth of the bitcoin and cryptocurrency ecosystem.

According to the survey, one of the main reasons people consider investing in cryptocurrencies is to “protect assets from inflation and economic instability.”

In this sense, Argentina, Brazil, Colombia, Chile and Mexico lead in terms of its use, not necessarily in adoption, showing great growth thanks to new developments and projects that have been consolidated within the region.