Due to the importance of the information, we wish to share with our clients the following summary and analysis of Opinion No. 5, dated August 24, 2023, in which SMV provides insights on cryptocurrencies within the Panamanian jurisdiction.
Some Context: It’s essential to define “Opinion” by the provisions of Decree-Law No. 1 of 1999, as amended. This decree defines “Opinion” as the administrative position adopted by the SMV.
This SMV’s opinion responds to an inquiry made by the inquirer, seeking clarity on the following:
Subject: The SMV has been requested to issue a formal Administrative Opinion regarding a Panamanian corporation’s obligation to obtain a license for conducting certain activities related to cryptocurrencies and cryptocurrency derivatives.
In summary, the inquirer asserts that a Panamanian corporation engaged in the operation of virtual assets, specifically cryptocurrencies or their derivatives, is not obligated to obtain a license from the SMV.
It’s well known that the corporation’s activities are limited to virtual assets and do not involve traditional securities or financial instruments.
The inquirer bases this argument on previous SMV opinions related to cryptocurrencies and virtual assets, which establish that these are not considered securities or financial instruments and that their offering and trading are not subject to regulation and supervision by the SMV.
Before stating its administrative position, the SMV deems it appropriate to cite some relevant norms for the posed inquiry:
SMV’s Opinion 7-2018, dated November 15, 2018, clarifies that the concept of “securities” per the Securities Market Law does not encompass digital or virtual currencies. Thus, Bitcoin cannot be considered a security.
Additionally, the SMV must possess the legal authority to regulate or supervise technological platforms related to cryptocurrencies.
SMV’s Opinion 1-2023, issued on March 23, 2023, also states that there is no regulation in Panama for the usage of cryptocurrencies in the securities market, and securities firms cannot hold digital assets since custody is limited to securities as per the legal definition.
The SMV references the Financial Action Task Force (FATF) and its definitions of “virtual assets” and “virtual asset service providers” to focus its stance on distinguishing between virtual assets and traditional financial assets that can be held and traded by brokerage firms.
In summary, the SMV’s position is that corporations exclusively engaged in virtual assets such as cryptocurrencies or their derivatives are not required to obtain a license from the SMV as these activities do not fall within the regulated scope of the Securities Market Law in Panama.
SMV’s position refers to the prior opinions issued by the SMV and the absence of specific cryptocurrency regulations in the country.
The SMV stance can be summarized as follows:
- The SMV clarifies that cryptocurrencies are not considered securities or financial assets according to its Unified Text, which regulates the activities of investment advisors and securities firms in Panama. In other words, cryptocurrencies do not fall under its jurisdiction, as its legal framework focuses on regulating traditional investments and securities.
- Additionally, it notes that the current law does not grant the SMV the authority to legislate on cryptocurrencies. Only if a new law is enacted will the SMV be given the authority to regulate cryptocurrencies as virtual assets, which aligns with the definition in its Unified Text.
- Regarding previous attempts by the Legislative body to regulate cryptocurrencies, it mentions that the executive branch declared the last bill in this regard entirely unenforceable and confirmed by the Supreme Court of Justice in June 2023.
In conclusion, the SMV states it has no jurisdiction over cryptocurrencies based on its current regulatory framework, and securities firms cannot engage in cryptocurrency buying and selling operations. Its regulatory capacity in this field depends on changes in existing legislation.
By: Lic. Rosa Mari Molino Paz
Expert in Corporate Law, Banking and Securities Law, Civil Law, and Tax Law.