Colombia Updates Controls Against Money Laundering, How Does It Affect Cryptocurrencies?

• The impact is certain on the ecosystem, especially in the area of fiat-cryptocurrency exchanges.
• The control tools of the SFC do not constitute a prohibition on the use of cryptocurrencies.

The Superintendencia Financiera de Colombia (SFC) has implemented an update to its supervision tools for the Risk Management System for Money Laundering and Terrorism Financing (SARLAFT). The agency introduced automated guidelines aimed at traditional banking institutions that will directly impact the operation of the cryptocurrency market in the country.

The measure will increase the rigidity in fiat money transfers related to the buying and selling of bitcoin (BTC) and other crypto assets.

The main trigger for this update is aligned with growing international pressures and the need to adopt the global recommendations of the Financial Action Task Force (FATF). The international body requires nations to have strict control over the movement of assets in the digital environment, which forces Colombian banks to strengthen their surveillance processes over the sector.

As noted by the SFC, these updates are directed at supervised entities, especially compliance officers and officials responsible for risk management, as well as other areas of the entities supervised by the SFC.

This situation intensifies after the completion of the pilot tests of the regulatory sandbox in July 2024, where the traditional financial sector interacted for the first time in a controlled manner with authorized digital asset exchange platforms.

The most immediate impact for users and companies in the sector will be reflected in greater rigidity within the entry and exit ramps of fiat money to the cryptocurrency ecosystem.

Traditional banks, under the new indicators from the SFC, will monitor bank transfers directed to or from bitcoin exchanges. This could potentially lead to an increase in preventive account blocks and fund freezes if individuals or legal entities do not fully justify the origin and destination of their capital.

This is important considering that Colombia ranks 29th in the Global Digital Asset Adoption Ranking compiled by Chainalysis, as well as being the fifth largest crypto asset market in Latin America, as reported by CriptoNoticias. This demonstrates that the cryptocurrency ecosystem in the coffee-producing country is active and growing.

On the other hand, the international pressure from FATF forces the adoption of the so-called Travel Rule. Therefore, exchange platforms seeking to operate formally or maintain alliances with traditional banking entities will be required to collect mandatory data from the senders and beneficiaries of each digital asset transaction.

Additionally, companies will be obliged to implement advanced auditing tools to track the traceability of their clients' financial operations, considering that in Colombia more than 100 businesses accept BTC as a means of payment.

Although the new control tools from the SFC do not constitute a direct prohibition on the use of cryptocurrencies, they do create a friction scenario for market participants.

Peer-to-peer (P2P) trading and arbitrage without strict identity verification processes will see a much more restrictive landscape for operating through the local financial system, as banks will have the authority to classify these transactions as high-risk operations.

In the long term, investments in compliance departments could consolidate a barrier to entry for new fintech competitors in the country, limiting the formal market to a few financially capable actors.

Despite all this, the regulations from the superintendence set a precedent that could be considered a preliminary step towards the discussion of a comprehensive law in the Colombian Congress, whose ultimate goal would be for the digital currency ecosystem to operate symmetrically under the same oversight parameters applied to the traditional financial system.

In fact, the pressure to establish rules for the use of bitcoin in Colombia is increasing, as nearly 6 million people in the country already operate with platforms linked to cryptocurrencies, according to data from the Colombian Chamber of Electronic Commerce.

With its new tools, the SFC establishes a more comprehensive financial control that, even indirectly, impacts the cryptocurrency ecosystem in Colombia. From there to a more formal regulation, there is still a way to go. But everything seems to be heading towards accelerating legislation and regulations that will ultimately unleash a sector that has come to stay in the coffee-producing nation.

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