Argentina regulates payment service providers

Back to Banking Law Committee publications

Carlos María Melhem
Allende & Brea, Buenos Aires
cmelhem@allende.com

Franco Jofré
Allende & Brea, Buenos Aires
fjofre@allende.com

Introduction

Since the new Argentine Federal Administration took office in December last year, the Argentine Central Bank has changed its approach to Fintech companies and has started a regulating process in order to monitor and supervise the sector in Argentina more closely. The recent regulations passed on payment service providers (PSPs) are a clear sign of a new approach. 

According to the Central Bank authorities, the PSP regulation intends to bring transparency to transactions made through PSPs and to improve the protection of Fintech customers at a time when social isolation due to the Covid-19 pandemic has made digital payment critical for a country such as Argentina, which has one of the lowest bankarisation rates in Latin America.^[1]

Previous regulations

Argentina has recognised the important of new technologies for development and as a result in the past few years legislation has been improved to try and encourage growth in the Fintech industry. Also, in an attempt to promote financial inclusion and easier access to financial and Fintech services, the Central Bank established few regulations on PSPs and Fintechs – until now.

Below is a summary of the regulations passed under the former federal administration, which were clearly aimed at creating a friendly regulatory framework for Fintechs.

Mobile payments

With respect to money transfers, in 2016 the Central Bank issued regulations creating a legal framework for mobile payment platforms (MPPs)^[2] that obligated local banks to provide their customers with electronic means for making wire transfers or electronic payments to third parties associated with the platforms through any electronic device, irrespective of the kind of entity receiving the funds or the clearing system used. Pursuant to these regulations, financial institutions and banks had to give their customers the option to use MPPs through e-wallets, mobile points of sale and payment buttons, guaranteeing the technology neutrality to third parties that intended to develop MPP solutions.

Virtual uniform code

In 2018 the Central Bank created virtual uniform codes^[3] (CVUs). They allow the identification and traceability of fund transfers between accounts where at least one is on a PSP, facilitating interoperability between bank accounts and PSP accounts.

Certain standards for the use and provision of CVUs were also established, which stated that: (1) PSPs must offer their customers the possibility of generating and receiving credits online; (2) PSPs must provide their customers with immediate crediting of funds; and (3) all financial institutions and banks must be able to receive and generate transfers of funds from and to PSP accounts through the use of CVUs.

Regulation on payment service providers

Payment service providers and payment accounts definitions

As aforementioned, on 9 January 2020, the Central Bank issued Communiqué ‘A’ 6859,^[4] regulating for the first time the activity of PSPs in Argentina. The regulation defines PSPs as legal entities that, without being financial institutions or banks, serve at least one function in a ‘retail payment scheme’ within the overall framework of the Argentine payment system, such as offering payment accounts. In addition, the regulation provides that:

• ‘retail payments’ include transfers of funds or payments of high and low amounts, with the exception of those made by banks among themselves and with the Central Bank, which are considered ‘wholesale payments’;

• ‘payment schemes’ are systems of commercial, technical and/or operational rules that make transfers of funds possible, involving at least three parties: a payer, a receiver and one or more PSPs. The following are not considered ‘retail payment schemes’: (1) ‘payment schemes’ regulated by the Argentine Securities and Exchange Commission (Comisión Nacional de Valores) for primary placement and/or secondary trading, and/or clearing and/or settlement of securities; and (2) ‘payment schemes’ for the purpose of withholding and/or collecting and settling amounts to cancel taxes or other obligations to any of the state levels or agencies; and

• every ‘payment scheme’ must have an administrator to define its rules and to be responsible for  compliance with applicable regulations.

In this sense, the regulation defines payment accounts as accounts offered by a PSP to its customers to make or receive payments.

Operating requirements

In relation to the operation of payment accounts opened by PSPs, the regulation provides that:

• customer funds credited to payment accounts offered by PSPs must be available at all times – immediately upon demand by the customer – for an amount at least equivalent to that credited to the payment account. To this end, the systems implemented by PSPs must always be able to identify and individualise the funds of each customer; 

• for transactions on their own account (eg, payment to suppliers or of salaries), PSPs must use an ‘operational’ bank account separate from the bank account in which the PSP customers’ funds are deposited;

• 100 per cent of the customers’ funds must be deposited, at all times, in the customers’ bank account in pesos with an Argentine financial institution or bank; and

• at the express request of the PSP’s customer, the funds credited to payment accounts can be applied to investments in ‘mutual funds’ (fondos comunes de inversion or FCIs) in Argentina. Such investment must be immediately shown as a debit in the relevant payment account and at all times the amounts invested in the FCIs must be reported separately from the balance of the payment account.

Registration, reporting obligations and surveillance system

To enhance the Central Bank’s surveillance authority over PSPs, the new regulation provides that PSPs must: (1) register themselves with the payment service providers registry held by the Central Bank; and (2) comply with the PSP reporting obligations to be established by the Central Bank.

Also, the regulation specifically provides that PSPs must give access to their facilities and documentation to Central Bank personnel and provide the Central Bank with the necessary tools for real-time consultations and reporting, under terms to be defined by the Central Bank for each type of PSP and according to their operation volume.

Marketing activities

With respect to PSPs’ promotional advertising and marketing activities, all advertising campaigns, no matter the media used, and any documentation issued by PSPs must include a clear and express statement that:

• PSPs are limited to offering payment services and are not authorised to operate as banks or financial institutions by the Central Bank; and

• funds deposited in payment accounts are not bank deposits and are not covered by any of the guarantees that bank deposits have pursuant to the applicable laws and regulations.

Penalties

In the event of a breach of the provisions of Communiqué ‘A’ 6859, PSPs and members of their governing, administrative and supervisory bodies will be liable for  any one, or a combination, of the following sanctions: (1) notice of infringement; (2) warning; (3) fine; (4) temporary or permanent disqualification to use bank accounts; (5) temporary or permanent disqualification to act as promoters, founders, directors, administrators, members of supervisory boards, liquidators, managers, auditors, partners or shareholders of banks or financial institutions; and (6) revocation of authorisation to operate.

Exclusions

In addition, the new regulation provides that the following legal entities shall not be able to operate as PSPs in Argentina:

• legal entities not incorporated in Argentina or that, being private legal entities incorporated abroad, have not complied with the requirements of the Argentine Company Law (Ley General de Sociedades) to conduct in Argentina the business contemplated in their corporate purpose. This means that payment service providers that used to operate in Argentina from abroad will no longer be able to do so if they have not set up a legal permanent establishment in Argentina;  

• legal entities expressly recognised by the Argentine Securities and Exchange Commission as markets, clearing houses or agents^[5]of any kind; and

• legal entities whose capital, voting rights, managing or supervisory bodies are formed by persons who: (1) are affected by the inabilities and incompatibilities established by section 264 of the Argentine Company Law;^[6](2) are disqualified from holding public office; (3) are delinquent bank debtors; (4) are disqualified from holding checking bank accounts, up to three years after such inability has ceased; (5) are disqualified to act as promoters, founders, directors, administrators, members of supervisory boards, liquidators, managers, auditors, partners or shareholders of banks or financial institutions; and (6) by decision of a competent authority, have been found liable for irregularities in the government and administration of financial institutions and banks, and those who have been convicted for fraudulent crimes against property, the public administration, the economic and financial order or the public faith, for violation of secrets and privacy, unlawful association, or for operating as an exchange house without licence.[^7]

Conclusion

The recently passed regulation on PSPs is clearly a significant step taken by the Central Bank to start regulating Fintechs in Argentina. As has happened in many countries around the world, the Central Bank will face a great challenge in regulating the Fintech industry without discouraging innovation and the use of new technologies for financial inclusion. This requires special consideration in Argentina, where more than 50 per cent of the economy uses cash as the principal payment method.^[8]

Back to Banking Law Committee publications