A closer look at Colombia’s regulations

The popularity of cryptocurrencies is growing in Colombia, yet adoption is still at an early stage: It is estimated that around 6.1% of the population own cryptocurrencies. Colombians use cryptocurrencies mainly for cross-border settlements and peer-to-peer transactions, as an alternative to the traditional banking system. This also goes in line with Colombia ranking fourth in terms of peer-to-peer Bitcoin trading volume and the country coming second for numbers of cryptocurrency ATMs in Latin America.

Colombia’s regulator acted early, yet cautiously. Already in 2014, the Superintendencia Financiera de Colombia (SFC) — the Government body with jurisdiction over the Colombian financial system — issued a guidance for cryptocurrencies. This guidance stated that cryptocurrencies are not considered legal tender in Colombia, as they fail to meet the respective requirements. Further, it prohibited financial institutions to hold cryptocurrencies, invest in them and broker cryptocurrency transactions. Lastly, it listed various concerns regarding cryptocurrencies, including that they may be used for illicit activities, such as money laundering and terrorist financing. This guidance was followed by a statement from the Banco Central de Colombia — Colombia’s Central Bank — confirming that cryptocurrencies are neither to be classified as legal tender in Colombia nor as a currency in general.

In recent times, the Colombian regulator has adopted a more open approach towards cryptocurrencies and virtual assets in general: In 2019, a draft proposal was released that aimed to provide legal definitions and regulations for cryptocurrencies, virtual assets and virtual asset service providers (VASPs), among other aspects. In 2020, parts of it were approved, including the setting up of a Sandbox program, which was subsequently launched in 2021. This Sandbox program allowed Colombian banks to test services involving virtual assets under oversight, but with less regulatory restrictions. Examples for pilots that were initiated under this Sandbox program are a partnership between Bancolombia — the country’s largest bank — and Gemini — an international cryptocurrency exchange, wallet provider, and custodian — to allow a limited number of clients to buy certain cryptocurrencies over their bank accounts and a similar partnership between Davivienda — Colombia’s third-largest bank — and Binance — an international cryptoasset marketplace — to enable its clients to buy virtual assets.

Also in 2021, the Unidad de Información y Análisis Financiero (UIAF) — the Financial Information and Analysis Unit and thus the country’s money laundering and terrorist financing (ML/TF) watchdog — unveiled that reported suspicious transactions also encompass transactions involving virtual assets. Consequently, to be able to specifically monitor such transactions, and subsequently to combat money laundering and terrorist financing activities involving virtual assets, Resolution 314 was issued in December 2021. It requires companies as well as individuals that execute transactions and services involving virtual assets, either for themselves or on behalf of a third party, to report to the agency. The reporting has to be done periodically and disclose individual transactions surpassing USD 150 and multiple transactions surpassing USD 450 (or the absence of such transactions) as well as active and inactive clients. These reporting requirements came into force on July, 1st 2022.

In parallel, the SFC continued to work — and still does — on additional regulations concerning virtual assets — with the aim to establish a comprehensive regulatory framework. A first step it took in that direct was to transform experiences gained from the pilots under the Sandbox program into a draft proposal on virtual asset trading rules for platforms. The SFC published the proposal earlier this year and gave the public the possibility to hand in comments until mid-August 2022. The final version of this regulation as well as further parts of the envisioned framework have not been published till date (26.10.2022).

Interested to learn more about digital asset regulations in other Latin American countries? Then have a look at our articles about Brazil and Argentina. Enjoy reading!