Translation Of Statement From The Financial Superintendence of Colombia: Risk Of The Operations Made With “Virtual Currencies”

March 26, 2014

This is a translation of the statement made by the Financial Superintendence of Colombia, translation provided by our Spanish Editor Adrián Calvo.  His Spanish language article on the subject can be found here.  Make sure to check out our Spanish coverage of Bitcoin news and other Cryptocoins news at Noticias Sobre Bitcoin.

The key point in this Bitcoin warning is in the last few sentences:

Finally, this Superintendency notes that supervised entities are not authorized to guard, invest or mediate with virtual currencies. Additionally, people are responsible to know and accept the risks inherent in their operations with “virtual currencies”.

This is a list of supervised entities under the Financial Superintendence of Colombia that are officially unable to guard, invest, or mediate with Bitcoin and other virtual currencies.

The original Spanish document can be found at this link.

Risk Of The Operations Made With “Virtual Currencies”

Dear Sirs:

The Financial Superintendence of Colombia, given the rise of “virtual currencies” and the recent problems with their exchanges, in particular, with Bitcoin, considers that supervised entities and the general public need to know and understand the risks they are exposed when acquiring and trading them. Virtual currencies are not regulated or supported by any monetary authority or physical assets, and their acceptance is very limited.

The use of “virtual currencies,” such as Bitcoin, exposes the public to the following risks:

  • In accordance with the Banco de la República, Law 31 of 1992, Colombia has established that “el peso” is the only means of payment that is considered legal tender and accepted everywhere, by obligation. Consequently, Bitcoin “is not an asset that has an equivalence to legal tender in Colombia since it is not recognized as currency in the country”. It also notes that “it is not an asset that can be considered a currency, according to the criteria of the International Monetary Fund, because it is not backed by central banks in other countries and therefore it has no legal tender status allowing it to be used in the fulfillment of debts. In accordance with the above mentioned, “the exchange regulation does not provide rules in relation to Bitcoin and therefore can not be used in the transactions contained in the Resolución Externa No 8 of 2000 of the Board of the Directors of Banco de la República.”

  • “Virtual currencies” are not backed by physical assets, by a central bank or by their assets or reserves, so the exchange value of the same could be drastically reduced or even reach zero. In accordance with the above mentioned, people are exposed to high volatility in the price, given the wide speculation that remains.

  • None of the exchange platforms or markets of the “virtual currencies” like Bitcoin are regulated by Colombian law. Nor are they subject to the control, supervision, or inspection of this Superintendency. By the above, such platforms may not have standards or surety and risk mitigation processes, so they regularly have faults that cause losses to their users.An example of the aforementioned, is evident with MT. Gox, one of the most known virtual currency exchanges that recently closed, causing major losses to their users.

  • The exchanges are registered in multiple jurisdictions, so their regulation and oversight are also beyond the scope of Colombian law. Also, the counterparties of the transactions may not be subject to the national jurisdiction.
  • Transactions are anonymous, so the use of “virtual currencies” can take part in further illegal or fraudulent activities, including unauthorized deposits of resources, money laundering and terrorist financing. According to public information published in the media, some exchange and online sales administrators that are selling merchandise using “virtual currencies” as means of payment, have been accused for conduct related to the use of it.

  • Buyers and sellers of “virtual currencies” are exposed to operational risks, mainly that digital wallets are stolen (hacked), as has already happened. Also, incorrect or unauthorized transactions can not be reversed.

  • People who trade with “virtual currencies” are not covered by any private or government guarantee, nor are their operations subject to coverage by deposit insurance.

  • People who accepts “virtual currencies” in their operations should note that acceptance could end at any time, because people are not legally forced to trade or to recognize them as payment.

  • There are no mechanisms to force the compliance of transactions with “virtual currencies”, which significantly increases the possibility of noncompliance risk.

Finally, this Superintendency notes that supervised entities are not authorized to guard, invest or mediate with virtual currencies. Additionally, people are responsible to know and accept the risks inherent in their operations with “virtual currencies”.


Financial Superintendent of Colombia

Last modified (UTC): April 10, 2014 01:43

Caleb Chen @bitxbitxbitcoin

Caleb is a graduate of the University of Virginia where he studied Economics, East Asian Studies, and Mathematics. He is currently pursuing his MSc in Digital Currency at the University of Nicosia.