‘Chile doesn't have the luxury of creating a subpar fintech law’

A well-designed regulatory framework and incentives for investors and entrepreneurs. 

Those are the central requirements to help make Chile a regional financial technology hub as other countries also compete to pull in foreign capital, according to local experts.

Chile has already built up a fintech ecosystem of around 180 companies – seen as playing an important supporting role in wider efforts to turn the country into a financial services export heavyweight. The local fintech industry also wants to beef up its muscles.

Currently, some fintech activities are not covered by existing financial services regulations, potentially hampering the expansion and scaling up of these ventures. 

Chile’s finance ministry has draft fintech legislation under development, while a data protection bill – seen as another key part of the jigsaw – remains in congress after being submitted several years ago.

On the fintech proposal front, finance ministry and regulatory officials have been working with industry chamber FinteChile and regional development bank IDB. 

The legislative proposal will cover fintech activities related to the capital markets and open finance, Kevin Cowan, deputy chairman of financial services regulator CMF, said in a presentation. 

A key objective is creating a modular framework that can be updated and amended with relative ease.

“The first thing needed, to attract investment, is legal certainty: therefore, a legal framework is important,” said Isabel Margarita Bravo, board member of Chilean nonprofit InBest, tasked with promoting the country’s financial markets in the international community.

Citing solid growth achieved by the local fintech sector in recent years and the diversity of players, Bravo said rules were needed that not only support innovation and business creation, but also address the area of market risk-mitigation. 

“This is a dynamic industry that could generate a lot of investment but, clearly for this, it’s important to have a regulatory framework,” Bravo said.

Bravo also told the webcast that incentives for both entrepreneurs and investors were needed.

This was echoed by Gonzalo Kirberg, CEO of Chilean crowdlending heavyweight Cumplo, who also called for industry development policy and outlined the importance of providing a base from where fintechs can expand internationally – key to their long-term growth prospects. 

“To take an important step, a regulatory framework is necessary,” said Kirberg during a seminar hosted by Chile’s fintech chamber FinteChile and organized by events group CMS. 

“A regulatory framework can be very good, mediocre or bad: but what it does do is provide certainty,” he added.

Kirberg said regional fintech law pioneer Mexico, whose framework is seen needing tweaking, has nevertheless attracted strong flows of investment. 

He added: “The challenge for Chile is to create a regulatory framework that incentivizes investment via a small country. We haven’t got the luxury of having a subpar framework because, all other things being equal, investors will obviously prefer entering Latin America through the two principal markets, Brazil and Mexico, because of their size.

“Therefore, if we want to become a place where they place their chips – international funds and tech heavyweights – we’ve got to have a better regulatory framework [than others do].”

Rosario Celedón, a financial innovation consultant to Chile’s finance ministry, said the clock was ticking and that congress should view legislative measures as state policy. 

“We have a window of time, because, I would say, in this space, countries are competing to obtain a strategic position,” Celedón said.

Celedón said officials were carrying out associated research and analysis based on data and experiences of other countries. 

Diego Herrera, a financial markets specialist at IDB, said similar.

Herrera told the webcast: “All potential regulatory advances in Chile will be the result of research, will be the result of analysis based on numbers and will be the result of a real analysis of the Chilean fintech ecosystem, and I think that this will generate very good results from the perspective of public policy.”

Delegates said Chile was well-placed to attract investment, which would help diversify the country's export mix, bring in skilled professionals and help with economic recovery efforts. "We can’t miss this opportunity," Bravo said.