Ecuador’s Central Bank Issues First Fintech Regulations Amid Digital Payment Push

The Central Bank of Ecuador (BCE) has issued its first set of regulations governing the country’s fintech industry, following the passage of the Fintech Law at the end of 2022. The new rules aim to establish a framework for companies operating in the digital payments space.

Key Provisions

• Firms that hold an account with the central bank and act as fintech service providers are required to set up a local company in Ecuador and obtain authorization from the BCE before commencing operations.
• The central bank has the authority to revoke licenses in cases of non-compliance or misconduct.
• Payment companies must disclose their fees to customers, provide clear information on payment execution deadlines, and obtain prior consent for irrevocable payments.
• Firms specializing in electronic deposits and payments must ensure 24/7 availability of funds and keep customer accounts separate from operational resources.

Interoperability and Regulatory Sandbox

• The rules require fintech platforms to be interoperable with existing payment systems and comply with technical standards laid out by the BCE.
• The central bank has established a regulatory sandbox for new market entrants, allowing them to test their services for up to 24 months.

Ecuador’s Financial Inclusion Challenges

Ecuador lags behind the Latin American average in terms of its banked population and penetration of credit cards, internet, and smartphones. According to payments infrastructure firm PPRO:

• There were 183 million interbank payments worth $176 billion in 2022.
• 70.6 million were real-time payments valued at $20.34 billion.
• Cash remains the most common payment method in Ecuador, accounting for 71% of transactions.

Encouraging Digital Payments

To encourage digital payments, Ecuador has abolished a previous fee for receiving interbank transfers and mandated that public services use electronic channels for payments above $76.

Fintech Law and Regulations

The Fintech Law aims to establish a regulatory framework for various fintech services, including payments, securities, and private insurance. The law also allows fintech firms to attract investments via new mechanisms such as venture capital, angel investment, or seed funding.

The BCE was tasked with issuing rules defining operations, governance, risk control, and financial requirements for fintech firms and ensuring compliance with these regulations. The Fintech Law was published in December last year and gives eight years for participants in the financial system to bring bank accounts into line with the IBAN standard. The law also orders the central bank to lay the groundwork for open banking and publish APIs for information sharing to facilitate interoperability with fintech companies.

Conclusion

Ecuador’s first fintech regulations aim to establish a framework for companies operating in the digital payments space, promoting financial inclusion and encouraging the adoption of electronic payment methods. The new rules require fintech firms to be interoperable with existing payment systems, disclose fees, and ensure 24/7 availability of funds. The regulatory sandbox will allow new market entrants to test their services for up to 24 months.