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An expanding Chilean cryptocurrency startup – established with help from the government – has vowed to keep its digital doors open after the country's banks pulled down their shutters on the fledgling sector.
Santiago-based CryptoMKT – which operates in the market with players including Buda and Orionx and received a 10mn-peso (US$16,500) startup grant from state development agency Corfo – is taking legal action over the closure decision.
The company, founded in 2016 and staffed by engineering and law graduates with an average age of 28, is also in talks with fintechs over potential payment-processing alternatives.
In Chile, banks do not charge a commission on standard electronic transfers.
"Cryptocurrency startups in Chile aren't going to close because of the barriers being put up by the banks," CryptoMKT commercial manager Daniel Dupré told BNamericas. "There are [payment-processing] alternatives, which we didn't look into previously because they have an associated cost."
"It's not the first problem we've faced," he added.
"[BancoEstado's] decision came as a shock," he said, explaining that the company had been working with the bank in the area of blockchain technology and had meetings scheduled.
CryptoMKT works with platforms Ethereum and Stellar and has 30,000 clients in Chile and a total of 50,000 in Latin America. The company employs 15 people in Chile and also operates in Argentina, Brazil and Spain. It plans to expand into Colombia, Mexico and Peru by the end of July.
The company handles about US$80mn in transactions a year. Dupré said company profits and salaries were small.
About 40 people are employed in Chile's cryptocurrency trading sector.
CryptoMKT is part of non-profit organization Enterprise Ethereum Alliance, established to leverage the open source platform and whose members include BBVA, British Petroleum, BNY Mellon and Microsoft.
While some banks have not given a reason for their stance, some executives have cited concerns over financial crime, particularly the risk of money laundering. This is among the most commonly cited globally by authorities seeking greater regulation of the sector.
Scotiabank Chile CEO Francisco Sardón was reported as saying last week that his bank was "doing its job" and that there was no deliberate "persecution" of the cryptocurrency industry. Itaú CorpBanca CEO Milton Maluhy did not give a reason for the bank's decision but said that regulations needed drawing up
Local paper Pulso cited BancoEstado as saying in a letter to trader Buda, informing it of its account closure decision, that it had decided not to operate with companies involved in the cryptocurrency sector while there is "no regulatory recognition of said activity."
Sector association Abif recently issued a statement saying that it does not get involved in account decisions taken by individual member banks.
Last week finance minister Felipe Larraín said he was in talks with the central bank about possible cryptocurrency regulations.
There is currently no regulation governing cryptocurrencies in Chile. The central bank does not recognize them as legal tender.
'HARMING CHILE'S REPUTATION' AS A CHAMPION OF INNOVATION
Dupré said local banks simply do not understand the cryptocurrency sector or blockchain, and he rejected arguments about money laundering, citing automated internal security procedures in place at CryptoMKT and the fact the company complies, voluntarily, with anti-money laundering unit UAF's regulations.
He said the move was damaging to the country's reputation as a promoter of technological innovation.
"This gives the country a bad image. On a global level, stories have already appeared in international media in England, the US that Chile, in some way, has taken an anti-innovation stance."
Dupré called for stakeholders to sit down together to discuss issues and work on a potential regulatory framework like that recently adopted by Mexico.
In a joint public statement published in national newspaper La Tercera last month, CryptoMKT and Buda called for "intelligent regulations that permit innovation to flourish."