I. Introduction
On September 10th, 2024, the Uruguayan parliament passed the Act No. 20,345, the Virtual Assets Law (“VAL”). This law was originated from a draft bill sent by the Uruguayan Central Bank (“CBU”) to the Ministry of Economy and Finance (“MEF”) on May 4, 2022.
The purpose of this law is to make strictly necessary adjustments to recognize virtual assets, bringing them into regulatory alignment with book-entry securities, and to introduce a new category of entity under the supervision of the CBU: Virtual Asset Service Providers (“VASPs”).
II. Origin and Preliminary Considerations of the VAL
The foundation of the VAL is rooted in the report published in December 2021 by the virtual assets working group from the CBU’s innovation office, titled “Conceptual Framework for the Regulatory Treatment of Virtual Assets in Uruguay” (hereinafter, the “Conceptual Framework”).
The Conceptual Framework aimed to provide clarity on the phenomenon of virtual assets and its regulatory considerations, acknowledging the rapid development and growing operations of these instruments known as "virtual assets" both globally and domestically. In this context, the CBU, in line with its mission of protecting investors, consumers and ensure that the market functions correctly, sought to offer a comprehensive understanding and categorization of the various virtual assets instruments and their operations.
The VAL introduced the strictly necessary modifications to the existing regulations, without creating an entirely independent legal framework. Specifically, Sections 37 and 38 of Act 16,696 (Central Bank of Uruguay Charter) and Section 14 of Act 18.627 (Securities Market Law) were amended.
The law has made the minimum essential legal modifications to allow the CBU to develop appropriate regulations for virtual assets.
III. Definition of Virtual Asset
The explanatory statement of the VAL defines virtual assets as a “digital representation of value or contractual rights that can be stored, transferred, and traded electronically through distributed ledger technology (DLT) or similar technologies.”
A virtual asset is considered a representation of a thing, a value, a good, or electronic money, whose nature must be considered when analyzing the applicable legal framework. Additionally, if the activity involving these assets constitutes financial intermediation or financial activity, it will be subject to regulation and control by the CBU.
IV. Virtual Asset Service Providers
In Section 1 of the VAL, in addition to the entities listed in Section 37 of the CBU’s Charter, a new entity is included; the VASPs.
The explanatory statement of the LAV defines VASPs as entities that habitually and professionally provide one or more virtual asset services to third parties.
The term “Virtual Asset Services,” according to the explanatory statement, encompasses services or activities related to any virtual asset, including the exchange of virtual assets for fiat money, exchange of virtual assets for other virtual assets, transfer of virtual assets, custody and administration of virtual assets, or the means to access control of these assets on behalf of third parties (custody, administration, custodial wallets, virtual asset management services according to user instructions), participation, and provision of financial services related to the offer and/or sale of a virtual asset by an issuer.
It is important to note that merely creating a software to issue a virtual asset would not automatically make the programmer a VASP, unless that person also performs the functions outlined in the definition of a VASP.
Virtual asset providers defined as financial entities, through their addition to Section 37 of the CBU’s Charter, become a new category of companies integrated into the financial system, and are therefore subject to authorization, regulation, oversight, and sanction by the Financial Services Superintendency of the CBU.
V. Amendments to the Securities Market Law
In Article 3, the VAL modifies the wording of Section 14 of the Securities Market Law (hereinafter “SML”), adding virtual asset securities as a category within book-entry securities with decentralized registration, where virtual asset securities lack a registering entity. As such, the SML would apply to them where appropriate.
As a result, following this amendment, a distinction will be made between book-entry securities with centralized registration (which are the traditional securities) and those with decentralized registration. In the former, entries are made by a registering entity in a book-entry securities register, which may be maintained electronically or otherwise, under the conditions established by regulation. In the latter, book-entry securities with decentralized registration are represented by account entries, issued, stored, transferred, and traded electronically using distributed ledger technology.