Can Spain still become a fintech haven?
On May 30, the Spanish Congress unanimously supported draft legislation that would favorably regulate blockchain technology and cryptocurrencies in the country. While the move marks pro-crypto tendencies among local politicians, there are complications that the reform might stumble upon, namely EU compliance laws and the very recent overthrow of prime minister Mariano Rajoy.
The “sandbox” concept
Currently, there is no regulatory framework for cryptocurrencies in Spain. Bitcoin is thus not considered legal currency in the country. According to the Library of Congress, however, it may be viewed as a “digital good” and can therefore comply with the rules of barter in Spain’s civil code.
Due to the absence of a supervisory framework, the draft calls for a review of regulations pertaining to Bitcoin and altcoins, as well as to blockchain, proposing to introduce the technology to the Spanish market through “controlled testing environments,” commonly referred to as “regulatory sandboxes.”
The sandboxes will allegedly help to foster fintech startups, which was one of the main areas discussed by Congress last Wednesday. “A company cannot wait years for the law to regulate its new activity, but at the same time it has to be sure that it will not be sanctioned for innovating even if its developments are unknown at the moment”, explains Marta Plana, the president of Foro Fintech, a local organisation that defends the needs of innovative companies in the financial sector.
Spain seems to be drawing its inspiration from the UK’s success with fintech-oriented testing grounds. In March, Britain’s Financial Conduct Authority (FCA) announced the launch of a global fintech regulatory sandbox, after the successful 2016 release of a UK sandbox. Over three years, the UK has approved around 80 new licenses, while more than 250 companies have tested their businesses in the fintech-boosting zone. Recently, Belarus has shown similar tendencies by creating the so-called High-Tech Park (HTP), which offers a number of benefits to attract fintech professionals from around the world.
Rodrigo García de la Cruz, president of the Spanish Fintech and Insurtech Association, confirmed that they were inspired by international practices in a comment for La Vanguardia:
"It is an experience that is giving very positive results and that has led many countries to study its implementation. If we hurry up here in Spain, we could become a pole of attraction for financial innovation."
As a result of the hearing, Congress has also agreed to promote blockchain as a cost-efficient and disintermediated system for payments and transfers, which is no surprise given recent pro-blockchain leanings in the country. A week ago, Barcelona revealed it would launch a specialized blockchain space in the city’s tech hub to foster growth and innovation in the local digital ecosystem, while in April, Spanish Banco Bilbao Vizcaya Argentaria (BBVA) became the first global bank to issue a loan using blockchain. Moreover, in March, even the governor of the Bank of Spain came out in favor of the possibilities of blockchain, albeit noting that “the technology is not yet mature”.
Further, the draft legislation raises the need for ‘proportionate mechanisms’ to ensure that all parties involved in crypto will comply with information disclosure obligations to the Spanish Treasury and duly file their tax returns. It also highlights potential pitfalls associated with “high-risk” financial assets, arguing that “adequate dissemination of information” is important to protect investors from bad actors.
To this end, the draft thus proposes that the government cooperate with the National Securities Market Commission (CNMV) and the Bank of Spain to coordinate a common regulatory position regarding crypto in the broader European context.
However, while uniting around blockchain as well, the EU regulatory mood towards cryptocurrencies has so far been more guarded. On May 14, the European Union approved new anti-money laundering (AML) legislation in part targeting anonymity in cryptocurrency market.
Once it comes into effect, players such as crypto exchanges will have to comply with AML guidelines, which will likely include full customer verification, according to the content of the package passed in April. The new rules will reportedly be published in the Official Journal of the EU and the member states will have 18 months to transfer them into their national legislation. It is worth noting that European authorities are specifically targeting anonymity in the use of cryptocurrencies.
News about innovation-aimed crypto regulations in Spain have been outshadowed by the ousting of the current PM Mariano Rajoy. On June 1, Rajoy was set to be voted out of office and replaced by Socialist chief Pedro Sanchez, in a no-confidence motion triggered by an extensive corruption case involving members of his party, the center-right People’s Party.
As CNBC points out, Rajoy's departure could trigger another political crisis in southern Europe, “further unnerving financial markets already wrongfooted by failed attempts to form a government in Italy three months after a national election”.
Moreover, La Vanguardia mentions that the no-confidence vote initiated by Pedro Sanchez can delay the pro-crypto reform. According to the local media, the draft was open to public consultation until June 7, while the final text would be reviewed around July 7. However, now that Rajoy has been voted out, there might be a call for new elections if Sanchez fails to form a government.
A call for elections, in turn, can potentially delay the project “for more than half a year”, causing interested European countries to move for other options, such as the UK version. La Vanguardia argues that the “sandbox” project “has already suffered a major hit” with the departure of one of its main innovators Luis de Guindos, who left on March 8.
Meanwhile, Malta may intercept Spain’s ambitions, as on March 28, the Malta Gaming Authority (MGA) published a consultation document which “provided guidance on the use of Distributed Ledger Technology and on the acceptance of Virtual Currencies through the implementation of a Sandbox Environment”. Although the proposal refers to the gaming industry, if proven effective, the initiative can spread further to the fintech area, as Jaime Bofill, partner at Hogan Lovells, a firm that advises Fintech companies around the world, explained:
"[Reportedly, in Malta] the approval of laws is not delayed as much as in Spain. [Therefore], they could take advantage and get the businesses that are pending to come to Spain".