Fintech Law approved in Ecuador and awaits presidential approval

With 74 votes in favor, the National Assembly Plenary approved the draft Law for the Development, Regulation, and Control of Technological Financial Services (Fintech Law) on Sunday, October 30.

It aims to provide legal certainty to financial technology organizations operating in the country and foreign companies seeking to establish and invest in Ecuador.

The Assembly reported it aims to provide users with secure access to these services that certify their data protection.

Elina Narváez, an Assembly member and rapporteur, explained that the approval of this legal initiative “will open an important space for financial inclusion and innovation in Ecuador”.

According to Narváez, relevant issues have been added, such as the restriction for financial institutions to invest capital in Fintech organizations “to avoid market monopolization”.

In addition, it is established that sensitive, reserved and confidential information will be housed in servers within Ecuadorian territory. The regulation will also regulate the neobank.

THE DRAFT

The initiative defines fintech activities as the development, provision, use, or offer of payment centered on technology, technological-financial services, specialized electronic deposits and payments companies, technological services of the securities market, and insurance.

The regulation, which consists of 21 articles, establishes the principles and requirements for the exercise of fintech activities.

It also proposes reforms to the Law of Entrepreneurship and Innovation, the Monetary and Financial Code, and the Social Economy of Knowledge Code, which will be sent to the Executive Function for the respective sanction or objection.

FINTECH IN ECUADOR

According to the IMF, financial inclusion by fintechs through the use of cell phones can boost a country’s annual economic growth by up to 2.2 percentage points.

But they are also strategic allies of traditional banking to offer financial services (as a whole), especially for the vulnerable population.

In the region, Brazil, Uruguay, Mexico, and Colombia lead the market of companies offering financial services focused on technology or with a high technological component.

According to a study by the Central Bank of Ecuador, of the 12 existing segments, the main services in which fintech companies are engaged in Latin America are digital payments (28%), loans (21%), and corporate finance management (16%).

And although Ecuador has not been indifferent to this process, it is still a nascent market.

By 2021, according to BuenTrip Hub’s Tech Startup Radar 13.0, there were 55 fintechs in the country, up 77% from 2017, but relatively few compared to the countries mentioned above.

Most are focused on business financial management services (38%), digital payments (15%), and crowdfunding or collaborative fund (11%).

With information from Bloomberg

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