Colombia: Fintech regulatory framework and challenges
Recently, the financial services industry in Colombia has undergone substantial changes driven by technology, which have greatly reduced operational costs, provided higher quality, increased efficiency and expanded access and inclusion for credit and financial services.
Considering the local economic context, Colombia ranks as the third most important country in Latin America, only surpassed by Brazil and Mexico. It has an approximate flow of capital for investment in financial technology of $10 million per year and has achieved an exponential gross growth of 45% in the last year and half. This includes investments in a wide range of innovative business models, applications, processes and products, mainly related to clearing and settlement services and credit, deposit and capital-raising products.
This continuing trend has clearly demonstrated the potential positive impact of the fintech industry in financial services and the broader economy. Accordingly, the Colombian government and the Superintendence of Finance – the banking regulator – have recognised the necessity of addressing the evolving characteristics of the financial ecosystem and the need to promote its growth through responsible innovation.
Even though the Colombian regulator and supervisor have not yet committed to establishing a comprehensive regulatory framework for the fintech industry, rules are being designed slowly, but effectively, and meaningful steps have been taken to facilitate and promote the application of innovation and technology.
As such, Colombian policymakers enacted Law 1734 of 2014, which facilitated the creation of specialised electronic deposit and payment companies (SEDPEs) to promote a more robust digital transaction environment. Moreover, the issuance of Decree 661 of 2018 further encouraged the use of new technology-based tools in the securities market.
To the same extent, as an attempt to promote innovation, competition and productivity growth in the industry, in 2018, through the enactment of Decree 1357, crowdfunding platforms were finally regulated, and Decree 2443 now allows traditional financial institutions to directly invest in innovation start-up businesses and operate as joint partners or via other structures.
Recently, the Superintendence of Finance has put in place initiatives to test and understand new technologies and innovations to properly assess risks and opportunities associated with fintech and the banking sector. As such, it has launched a regulatory sandbox (InnovaSFC programme) as an initiative to encourage innovation in the financial sector, where firms and start-ups can participate in and conduct tests on their products and services with targeted regulatory assistance. Examples of the most promising projects include data analytics, artificial intelligence and payment systems.
In view of the above, the Colombian government, through the publication of the National Development Plan for 2018 to 2022, announced key upgrades to the regulatory system, especially regarding rules and challenges related to risk management procedures and core infrastructure arising from the use of fintech.