Cryptocurrency Regulation in Chile Prior to 2024

Chile’s approach to cryptocurrency regulation prior to 2024 showcases a progressive adaptation to the evolving digital financial landscape, with significant developments in legal frameworks and regulatory guidelines.

Enactment of the Fintech Law

A major step in regulating cryptocurrencies in Chile was the enactment of Law No. 21.521, known as the Fintech Law, on January 4, 2023. This law aimed to promote financial competition and inclusion through innovation and technology in financial services. It specifically defined crypto-assets and virtual financial assets as digital representations of value, excluding money, that can be transferred, stored, or exchanged digitally. The law included provisions for regulating activities related to crypto-assets, both as financial instruments and as a means of payment. The Financial Market Commission (CMF) was tasked with issuing relevant regulations for crypto-asset service providers, including exchanges, investment advice, custody, order routing, and brokerage services​

​Regulation of Crypto Exchanges and Custody Services

The Fintech Law explicitly regulated exchanges as alternative trading systems, requiring registration and authorization by the CMF. Similarly, custody services for financial instruments were regulated, with a clear definition and requirement for CMF authorization. However, areas like borrowing/lending and yield/staking were not expressly regulated, leaving a gap in the regulatory framework for these activities​

​Registration and Authorization Process

To operate legally, crypto service providers needed to register in a special register administered by the CMF and obtain operating authorization. The registration process required companies to focus solely on providing fintech services and to meet various other requirements. The CMF was responsible for verifying compliance with information and disclosure obligations, corporate governance, risk management, operational capacity, and other specific requirements for each service. Importantly, no fee was charged for registration and authorization, though providers had to meet costs related to money laundering prevention and other regulatory compliance​

​Judicial and Administrative Pronouncements

Several judicial and administrative pronouncements have been made regarding the use of crypto-assets. The Central Bank of Chile and the CMF issued memos clarifying the status of crypto-assets and their use as a means of exchange and investment, though not as legal tender. Additionally, the Financial Analysis Unit (UAF) provided guidelines on virtual assets to guide reporting entities on suspicious transactions and behaviors​

​Compliance Requirements for Crypto Service Providers

Crypto service providers were required to register with the UAF under categories relevant to foreign currency and money transfer due to their ancillary activities. They were subject to anti-money laundering laws and corporate criminal liability laws, with comprehensive compliance requirements including KYC procedures, anti-money laundering protocols, reporting of suspicious operations, and appointment of compliance officers​

​Tax Implications for Crypto Transactions

In Chile, crypto-asset transactions were subject to general tax rules. Profits derived from buying and selling digital assets were taxable as income for individuals and legal entities. Service providers related to crypto-assets were required to apply Value Added Tax (VAT) to their service commissions. Additionally, crypto-asset exchanges had specific obligations related to the annual filing of affidavits and compliance with tax regulations for first category taxpayers​

​Use of Crypto-Assets as Means of Payment

The CMF allowed the use of crypto-assets as a means of payment if agreed upon by the parties involved. The Central Bank recognized crypto-assets as a mechanism for the exchange of goods and services, and the Fintech Law acknowledged stablecoins as part of national payment methods, subject to prudential regulation. However, the tax regime treated crypto-assets primarily as investment assets, presenting challenges in their widespread use as a means of lower-value payments​

​In summary, Chile’s legislative landscape for cryptocurrencies prior to 2024 reflects a comprehensive approach to integrating these digital assets into the financial and legal systems, with specific regulations for various aspects of their use, trading, and compliance, though some areas remained underdeveloped or unregulated.