The Argentine Central Bank Regulated Financial Mediation through Electronic Platforms

The Central Bank of Argentina (the “BCRA,” after its acronym in Spanish), issued Communique “A” 7406 (“Communique 7406”), which regulates the activity of “electronic platforms that provide credit service between individuals” (the “PSCPP,” after its acronym in Spanish) and creates a PSCPP Registry.

 

To understand the context of PSCPP regulation, it is important to consider: (a) the difference between financial mediation and financial intermediation; and (b) the difference in the regulations that apply to each of these activities. 

 

1.  Difference between Financial Intermediation and Financial Mediation

 

Financial Institutions Law No. 21,526, as amended (the “FIL,” after its acronym in Spanish), applies to all persons that “regularly carry out intermediation activities between the supply and demand for financial resources.” However, no BCRA regulation or Argentine law define the elements of financial resources intermediation activity.

This activity involves the execution of at least two types of transactions: on the one side, collecting funds from investors which are acquired for and on its own behalf by the intermediary; and, on the other side, lending those financial resources to the borrowers demanding said resources, also on the intermediary’s own behalf. Thus, the interposition between money supply and demand is a necessary element, meaning that the intermediary has to take the funds for and on its own behalf and to lend them also on its own name and behalf.

This is different from the activity through which a person merely connects two parties so that they can carry out financing operations between themselves, an activity that is considered a mere financial mediation.

Communique 7406 follows the distinction made between both activities, allowing PSCPPs to provide this brokerage service, contacting one or more investors with one or more borrowers, to establish lending operations in pesos between them (a typical example of financial mediation) but prohibiting certain acts that would bring PSCPPs closer to the definition of financial intermediation, for example, conducting operations on their own behalf through their own platform, acting as a credit investor or borrower.   

 

 

2. Regulation Applicable to Financial Intermediation and Financial Mediation

Section 1 of the FIL provides that the FIL and banking regulation applies to persons that regularly intermediate between the supply and demand of financial resources. A person who carries out financial intermediation necessarily requires an appropriate BCRA license and will be subject to its regulations. Carrying out financial intermediation without the corresponding license constitutes a breach of the FIL and can even result in criminal sanctions. Section 310 of the Argentine Penal Code sanctions persons who either directly or indirectly, on their own behalf or through a third party, carry out any form of financial intermediation activities without proper authorization issued by the competent authority.

Conversely, financial mediation is not an activity within the scope of the FIL. Therefore a BCRA license isn’t required. However, Communique 7406 is sanctioned under the BCRA’s powers as conferred in Section 3 of the FIL, which states that FIL provisions may apply to persons not carrying out financial intermediation, if the BCRA deems so appropriate in light of the volume of its operations and other monetary and credit policy reasons. 

  

Consequently, the following considerations apply to Communique 7406: (a) financial mediation activities carried out by PSCPPs are subject to regulation by the BCRA as of the effective date of Communique 7406, without retroactive effects; (b) PSCPPs must only comply with the norms that the BCRA expressly defines as applicable, and only while these norms remain in force, since they are subject to regulation only to the extent provided expressly by the BCRA; (c) any other financial mediation activity not included in the definition of PSCPPs continues to be excluded from BCRA regulation (unless subject to another BCRA regulation); and (d) the failure to register a PSCPP could be a breach of the FIL but should not be a criminal offense, given that the activity of a PSCPP is not considered financial intermediation, and thus would not be the activity defined in Section 310 of the Argentine Penal Code. 

 

 

3.  PSCPP Definition and FIL Application

 

PSCPPs are defined as legal entities that offer, as their main or secondary activity, the service of connecting and contacting one or more borrowers with one or more credit investors, to establish lending operations in pesos between them. PSCPPs cannot be credit borrowers or investors within the platforms they administer.

 

The BCRA has the authority to extend the application of FIL provisions to persons who carry out PSCPP activities. 

 

              4. BCRA Registration

 

PSCPPs must register in the corresponding “Registry of credit service providers to individuals through electronic platforms,” enabled by the BCRA’s Superintendence of Financial and Exchange Institutions (the “SEFyC,” after its acronym in Spanish ). Active PSCPPs must register within 30 calendar days once the Registry is effectively created.   

 

              5. Operational Aspects

 

PSCPPs must develop their operative structure, in accordance with, amongst others, the following conditions:

 

1. They must not assume the credit risk of the operations carried out between borrowers and investors, or guarantee–either directly or indirectly–the obligations assumed between the parties through the platform. The investor assumes the credit risk of the operation.
2. They cannot assure investors the repayment of the credits or acquire or buy the credits from the lending operations executed through their platform.
3. Prior to the granting of a loan, they must gather and provide necessary information, allowing investors to identify the loan applicant or recipients of their investment. They must also indicate the procedures required to execute the supporting loan documentation. Once the operation is convened, they must offer the necessary documentation and information that would allow the parties to ultimately exercise their rights without the PSCPP’s participation.
4. The allocation of funds–carried out by the PSCPPs and their clients–must be executed through deposit accounts in pesos held in financial institutions and/or through payment accounts provided for by Payment Service Providers within the country. Accounts used by PSCPPs for the administration of credits must be different from the ones used in the transactions executed in their own name (i.e., payment of salaries, suppliers, etc.).
5. Obligations towards investors and credits granted to borrowers must be legally separated from the PSCPP’s assets (g., by way of a trust fund). In this sense, the PSCPP’s operative systems must identify and individualize each investor, borrower and the movement of funds to and by each loan operation.
6. They must provide–at all times–the choice for an investor to i) assign the credit through the platform to another investor; or ii) withdraw the credit’s supporting documentation for the investor to be able to manage it outside the platform.
7. They must have a Manual that allows the investor to clearly appreciate the loan’s processes and methodologies, stating the existing controls and regulations (monitoring, application and information technology controls).

 

  

           6. Borrower Information Disclosed to the BCRA

 

The PSCPPs must provide information on the credits they administer, which will be published in BCRA’s Central Registry of Debtors of the Financial System (the “CENDEU,” after its acronym in Spanish).