On 19th September, the Bank of the Republic published a report, which analyzes the situation of cryptoassets worldwide and issues recommendations for regulatory policies to be taken in Colombia. This report has been published in the context of the recent statements of the Minister of Finance, Alberto Carrasquilla, who said he was working on legislation to regulate digital transactions in the country. According to the officer, the regulation will promote greater participation of banks in financial technologies (FinTech), while also guaranteeing consumers’ rights regarding digital platforms.

The report highlighted six challenges for a future regulation of cryptoassets. These are:

• Control of money laundering and financing of terrorism: in view of the fact that cryptoassets seek to guarantee the anonymity of their users, the report recommends strengthening preventive measures of transactional monitoring, as well as the obligation to report certain financial movements to the control authorities, in order to prevent illicit activities.

• Consumer protection and public resources: the operational and cybercrime-related risks when interacting with intermediaries and cryptoassets providers are another challenge for the authorities. The report recomends strengthening cybersecurity measures and establishing adequate compensation mechanisms in case of loss of assets as a result of hacking.

• High price volatility and financial aspects: the report argues that the high volatility of cryptoassets raises questions about the custody, clearing, settlement and purpose of their operations. While traditional payment systems do cover these aspects, cryptoassets do not. In view of the high volatility of the latter’s prices, any regulation in this regard must complement them in order to limit the potential financial speculation they may entail.

• Exchange rate management and capital flows: by operating on the Internet, cryptoassets allow the participation of agents on a global scale without being tied to any jurisdiction. Any regulation in this respect must thus limit their scope, in order to ensure that they comply with the regulations of the corresponding jurisdiction.

• Fiscal and tributary aspects for the country: the tributary scope of a regulation of cryptoassets will depend on whether they are considered assets or currencies. The report takes the position that they are assets and, as such, they are susceptible to property taxes and capital gains taxes. At the same time, these schemes generate tariffs and commissions from operators, revenues that could also be subject to taxes.
• Monetary sovereignty and financial stability: allowing the use of cryptoassets would place serious limitations on monetary sovereignty, monetary policy and national financial stability, since payments, contracts, price fixing and other aspects of financial intermediation would be made in a currency not issued by the Colombian Central Bank.  

The report concludes that cryptoassets have too many limitations as both a means of payment and value deposits, as well as little relevance compared to the transactional volumes of traditional payment systems with a global presence. However, in view of the exponential growth of cryptoassets, it is considered important to monitor this market and its developments.