Financial services regulation: disrupting markets

Since December, Panama’s Ministry of Economy & Finance has been study possibly regulations for the financial services market. The particular focus of the proposed law is Fintech (finance & technology) products. In particular, this introduces and regulates:

  • crypto-currencies
  • block chain technologies
  • crowd-funding
  • sandboxes and their incentives
  • family offices
  • protected cell companies
  • segregated portfolio companeis
  • holding companies
  • limited partnerships

Panama last innovated in its financial services sector ine 1995, when it introduced the Private Interest Foundation.  It relies heavily on the corporation (Law 32 of 1925), which has been under attack from the OECD. While it updated the LLC legisltation in 2009, it repealed the section regarding LLCs being “flow through entities”. This took place about a week after adopting the new legislation. In a legislative slight of hand, it reduced the opportunities for using an LLC in the local market with any tax advantage over the corporation.  So, it will be interesting to note how these companies and matters are actually regulated once introduced.  The legislative project is ambitiously titled “Modernization of Panama’s International Financial System“.

Financial Services

Of particular interest with the financial services regulations are the so-called “EFE”s – “Entidades Financieras Especializadas”. This translates as Specialized Financial Entities – SFEs.  These are entities that offer

“opening and management of payment accounts, transfers, money transfers, and issuance of digital money, etc.”

Once adopted, this legislation appoints the Ministry of Economy & Finance as the watchdog, responsible for introducing the regulations and policies regarding SFEs.  After three years, it is anticipated that the Banking Superintendence will become the watchdog. Included in SFEs are the providers of internet and hosting  companies for such digital currency, as well as any custodians of digital currencies or blockchain wallets.  This also includes companies which permit the purchase of gold, silver or antiqueties (whether in coins or bars. Additionally, it includes FOREX traders.

It is interesting to note the following about this draft legislation:

  1. The minimum paid in capital of an SFE will be US$30,000.00, rather than the typical $10,000 capital for a Panamanian company.  However, up to 50% of the capital may be paid in “in kind”, such as technology, trademarks, know-how and the such like.
  2. However, if the company will include international transfers, the minimum paid in capital will be US$60,000.00, and payment “in kind” will not be permitted.
  3. If the SFE will issue digital currency, of any kind, the capital required is US$150,000.00.
  4. For FOREX trades, a capital of US$60,000.00 is required. If you act as an agent, the minimum paid in capital is US$1 million.

Also note that the “financieras” or small finance companies and the remittance companies (such as Western Union) will  be transferred to the Banking Superintendance. They are currently supervised by the Ministry of Commerce.

Financial services watchdog

At the moment, there are 3 or more financial services watchdogs in Panama. We have:

  1. Banking Superintendent
  2. Securities Commission
  3. Insurance Superintendent
  4. Ministry of Commerce for some financial entities

This project introduces a single watchdog for financial services, which will envelope all of these areas under a single regulator.

Crowd-funding & incubators

The second area of focus of this legislative project is “Centros de Financiamiento Colectivos” (CEFICO). We know this as crowd-funding. As circulated, the project indicates that no participant may fund more than 2% of a project under US$1 million, or 1% of any project over US$1 million.  This would even apply in those cases where a second round of funding is requested. There were also discussions that the net worth of a participant in crowd-funding should be greater than US$125,000.00 or an annual income greater than US$50,000.00. However, all of this is very preliminary information. It is anticipated that this will eventually fall under the supervision of the Banking Superintendence.

This project also introduces the “sandbox” for innovation projects in the City of Knowledge.  Although the City of Knowledge is already supposed to work as an incubator for technology companies, the idea behind this project is that the companies be specifically fintech, rather than only technology.

Corporate Entities

At the same time, this legislation introduces numerous new entities, such as the Family Office and Protected Cell Companies.

The Family Office regulations are anticipated to copy that of the Multinational Companies legislation, with the difference that a minimum capital of US$30,000,000 will be required, instead of the US$200 million required for a Multinational Company.  The purpose of this legislation is to attract to Panama the holding companies of Latin America, making Panama the financial hub for the Americas.


This is a very preliminary view of the proposed legislation, which is only now being presented to the Legislature. It now has to undergo public debate in the three rounds of debates at the legislature. Only then will we see the final version passed into law. After that, we wait for regulations.