Fintechs are business entities that have implemented a new business model based on the use of new technologies to provide financial services, such as payments, loans, financing and even insurance. Its name comes from the English language, after a mixture of the terms finance and technology, and it serves several purposes. It gives your users or customers greater control over the management of their finances, security in every movement within the application, flexibility and time savings. While Fintechs save operating costs, staffing and other common expenses in a financial institution.
These financial platforms offer a range of services that transform how people access their financial resources. Fintechs promote inclusion in this sector, as they connect with segments of the population that have been historically excluded by traditional financial services. But this industry also involves several risks for the user’s assets, since these resources could be used for illicit activities such as money laundering. Regulation from this activity poses a great challenge to mitigate risks and promote competition and financial innovation.
Ecuador has positioned itself as one of the first countries to promote a Fintech Law in Latin America, which it has called the Organic Law for the Development, Regulation and Control of Financial and Technological Services, was approved by the National Assembly and published in the Official Gazette in 2022. It presents three chapters; the first one deals with preliminary provisions, the second one sets out the activities of Fintech and the third one outlines reforms to several legal bodies.
The Fintech Law encourages participation and regulates activities carried out in the financial system, payment methods, the securities market and private insurance. This is provided for in its Preliminary Provisions.
Oficina de Información Científica y Tecnológica para el Congreso de la Unión de México, "FinTech: Tecnología Financiera", NOTA-INCyTU No. 006, (2017) , transparent and lawful, both providers and users must prevent money laundering, terrorist financing or other activities of the same type.
Regarding financial information and personal data accessed in the context of Fintech activities, they must be safeguarded under international standards and domestic regulations, especially in compliance with the provisions of the Organic Law on Personal Data Protection, ensuring respect for the constitutional rights to a good name, honor and non-discrimination.
Chapter II - On activities in general.
In order to carry out fintech activities, it is necessary to incorporate a commercial company, i.e. a company under the provisions of the subject matter. If it is a foreign company, it must be regularized in Ecuador. As a requirement, they must have, as appropriate, the authorization of the Superintendency of Banks, the Superintendency of Popular and Solidarity Economy, the Superintendency of Companies, Securities and Insurance or the Central Bank of Ecuador. It should be noted that fintech companies are regulated by the Monetary Policy and Regulation Board or Financial Policy and Regulation Board.
Chapter III - Amendments to several legal bodies.
This chapter provides for reforms to different laws in order to introduce and adapt the figure of fintech to the legal system. In this regard, several articles of the Organic Monetary and Financial Code (COMF) are amended. Electronic wallets, electronic means of payment or electronic banks are recognized as effective means of payment under Ecuadorian law. At the same time, a brief description is made of technological financial services, which are digital credit granting, neobanks, personal finance, financial advisory and others determined by the Financial Regulation and Policy Board.
Through the Fintech Law, the category of securities market ancillary services related to Fintech is introduced in the COMF. It describes ancillary transaction systems, which are virtual platforms for the promotion and trading of securities, crowdfunding, which is the collective financing based on capital; loans, donations or sale and purchase of goods and services. In addition, reference is made to Blockchain, but as digital solutions for the securities market.
Private insurance is a form of fintech, which is why the Law establishes a section on insurance technology services, including alternative transaction systems, which are basically virtual platforms for the promotion and marketing of insurance. It also adds infrastructure for the insurance market that has to do with customer assessment, risk profiling, fraud prevention, big data, cybersecurity and electronic contracting.
Finally, the Fintech Law also amends the Organic Code of the Social Economy of Knowledge, emphasizing that when public sector entities contract technological services to third parties, suppliers must guarantee data protection, taking into account the following classification:
Restricted: data where unauthorized disclosure could cause serious harm, including death to persons identified in the information, or significantly impair the ability of the government to carry out its lawful authority.
Confidential: Data protected against disclosure and which are highly sensitive or are legally, regulatory or contractually restricted from disclosure to other public bodies.
Open: Unrestricted data, available to the public on websites. It is the set of open public data.
Conclusion.
In short, fintech activities represent a revolution in the access and delivery of financial services, offering users greater control, security and efficiency in their transactions. However, along with these benefits come significant risks, such as the potential misuse of funds for illicit activities. It is important that regulation, such as the Fintech Law in Ecuador, not only encourages innovation and competition, but also establishes solid measures to mitigate these risks and protect users' assets. In this regard, although Ecuadorian legislation has set a milestone in Latin America by providing a comprehensive legal framework, it must be improved and adapted to the new challenges presented by the fintech industry.
