Colombia -- Securities Classification Regulatory Overview

Colombia classifies cryptocurrency tokens as securities primarily by applying its existing securities market legislation and principles to the unique characteristics of crypto assets. There isn't a dedicated "crypto securities law," so the Superintendencia Financiera de Colombia (SFC), the main financial regulator, interprets tokens under the broad definition of "securities" and "investment contracts" found in the general legal framework.

Legal Test Used (Howey Test Equivalent)

While Colombia does not explicitly use the U.S. Howey Test, its approach aligns with its underlying principles. The SFC determines whether a token constitutes a security by examining its substance over form, analyzing several key factors derived from Ley 964 de 2005 (Securities Market Law) and various interpretative concept notes and circulars. The core questions revolve around:

1. Investment Expectation: Is there an expectation of profit, return, or benefit (e.g., appreciation, dividends, interest) for the token holder?
2. Collective Investment Scheme: Is the token part of a collective investment or a common enterprise where funds are pooled?
3. Efforts of Others: Does the expected profit or return primarily derive from the managerial or entrepreneurial efforts of the issuer or a third party (not the token holder themselves)?
4. Public Offering Characteristics: Is the token offered or promoted to the general public, suggesting a need for investor protection?
5. Standardization and Negotiability: Is the token standardized and capable of being traded on a secondary market?

The SFC's general guidance emphasizes that an instrument will be deemed a security if it represents an investment contract or a participation in a collective investment scheme that promises a return based on the efforts of others, irrespective of the underlying technology (blockchain, DLT, etc.).

Which Tokens Are Considered Securities

Based on the above criteria, the following types of tokens are most likely to be classified as securities in Colombia:

• Investment Tokens/Security Tokens: Tokens explicitly marketed or designed to represent an ownership interest, a share in profits, debt, or other financial claims in an entity or project. This includes tokens that grant voting rights, profit-sharing, or liquidation rights.
• Tokens from Initial Coin Offerings (ICOs) or Security Token Offerings (STOs): If an ICO or STO involves the sale of tokens that promise a return on investment based on the development and efforts of the issuer, it will likely be treated as a public offering of securities.
• Utility Tokens with Investment Characteristics: Even if initially presented as utility tokens (for accessing a service or product), if they are promoted primarily as an investment opportunity with an expectation of future appreciation driven by the issuer's efforts, they can be reclassified as securities. The SFC looks at how they are marketed, sold, and the reasonable expectation of purchasers.
• Tokens Linked to Collective Investment Schemes: Tokens that represent participation in a fund or a pooled investment managed by a third party, where the token holder expects returns from that management.

Conversely, tokens less likely to be considered securities (though still subject to other regulations like consumer protection or anti-money laundering) include:

• "Pure" Utility Tokens: Tokens that exclusively grant access to a specific product or service and are primarily used for that purpose, with no significant investment expectation.
• Cryptocurrencies (like Bitcoin or Ethereum): Generally, widely decentralized cryptocurrencies are not currently viewed as securities by the SFC, but rather as "virtual assets" or "digital assets" that can function as a medium of exchange or store of value, with associated risks.
• Certain NFTs: NFTs primarily intended as unique digital collectibles, art, or access passes, without an explicit investment scheme or expectation of profit derived from a common enterprise. However, NFTs that fractionize ownership of real estate, art, or represent shares in a profit-generating venture could be deemed securities.

Registration/Exemption Requirements for Token Issuers

If a cryptocurrency token is deemed a security by the SFC, its issuance and offering must comply with Ley 964 de 2005 (Securities Market Law) and related regulations. This entails significant requirements:

1. Registration with the SFC: The issuer must register the token as a security with the SFC and include it in the Registro Nacional de Valores y Emisores (RNVE), the National Securities and Issuers Registry.
2. Disclosure Requirements: Comprehensive disclosure of financial information, business plans, risks, and governance structures, similar to traditional public offerings.
3. Prospectus: Preparation and approval of a detailed prospectus.
4. Corporate Governance: Compliance with corporate governance standards for publicly traded entities.
5. Ongoing Reporting: Continuous reporting obligations to the SFC and the public.

Exemptions:

• Colombia's securities law has limited exemptions. Private placements (offers to a small, qualified group of investors) might have lighter registration requirements but are still regulated.
• Regulatory Sandbox (La Arenera): The closest mechanism for innovation is the SFC's La Arenera, a regulatory sandbox established under Circular Externa 021 de 2023. This allows financial entities (and in certain cases, non-supervised entities in partnership with supervised ones) to test innovative financial services, including those involving crypto assets, under a controlled environment with temporary waivers or specific authorizations. However, participating in La Arenera does not exempt a token from being classified as a security; rather, it allows for a structured dialogue and potential adaptation of regulations if a security token is being tested.

Secondary Trading Rules

If a token is classified as a security, its secondary trading must comply with the rules for securities trading in Colombia:

• Regulated Exchanges: Trading must occur on authorized and supervised exchanges, primarily the Bolsa de Valores de Colombia (BVC) or other SFC-licensed trading systems.
• Market Intermediaries: Trades must generally be executed through SFC-licensed brokers or market intermediaries.
• Investor Protection: Rules regarding market manipulation, insider trading, transparency, and best execution would apply, similar to traditional securities.

Most cryptocurrency exchanges operating in Colombia do not hold licenses to trade securities and thus generally avoid listing tokens that could be classified as such, focusing on widely recognized cryptocurrencies like BTC or ETH.

Enforcement Examples

Colombia has not seen numerous direct enforcement actions specifically classifying a cryptocurrency token as a security under Ley 964 de 2005 and prosecuting its issuer for non-compliance. However, the SFC's regulatory posture and actions indicate its stance:

1. Warnings and Alerts: The SFC frequently issues public warnings and press releases cautioning investors about the high risks associated with cryptocurrency investments, emphasizing that they are generally not regulated financial products or securities in Colombia and therefore lack the associated investor protections. These warnings serve as a de facto enforcement mechanism to inform the public and deter non-compliant offerings.

   • Example: Constant reiteration that virtual assets are not considered legal tender or securities and that institutions under SFC supervision are not authorized to custody, invest, or intermediate operations with them (outside of the sandbox).

2. Prohibition on Supervised Entities: The SFC has consistently prohibited financial institutions under its supervision (banks, brokers, funds) from directly engaging in activities involving crypto assets (e.g., holding, investing, offering services related to them) outside of the controlled environment of the regulatory sandbox. This is a strong indirect enforcement measure that limits the institutional market for potentially unregulated tokens.

3. Actions Against Pyramid Schemes and Fraud: While not directly securities law enforcement, Colombian authorities (including the SFC, Fiscalía General de la Nación, and Superintendencia de Sociedades) have taken action against crypto-related pyramid schemes and Ponzi schemes. These cases are typically prosecuted under general fraud laws, consumer protection laws, or illicit fundraising laws, rather than securities laws, because the fraudulent nature is more overt than a mere regulatory classification issue.

   • Example: Crackdowns on entities like Daily Cop or Omegapro, which operated with promises of high returns through crypto investments, leading to investigations and arrests for illicit fundraising and fraud, though not always explicitly under securities market regulations.

4. Regulatory Sandbox (La Arenera) as a Pathway: While not an enforcement action, the implementation of La Arenera is a regulatory tool. If an innovative financial service involving a crypto token is tested in the sandbox and is determined to be a security, the SFC would then provide guidance on how it must be regulated, potentially leading to a formal registration requirement upon exiting the sandbox. This proactive approach aims to guide innovation rather than simply punish it after the fact.

Specific Legislation and Regulatory Guidance URLs

• Ley 964 de 2005 (Securities Market Law): Defines securities and sets out the framework for public offerings and secondary trading.
  • Ley 964 de 2005 - Secretaria Senado
• Circular Externa 021 de 2023 (SFC - Regulatory Sandbox Framework - La Arenera): Establishes the framework for testing financial innovations.
  • Circular Externa 021 de 2023 - SFC
• Conceptos Jurídicos de la SFC: The SFC issues various interpretative concept notes. While direct, stable links to specific crypto concepts can be challenging to find as they are often deep in archives, you can access their general legal concepts section:
  • Conceptos Jurídicos - SFC
  • Example of a relevant concept: While not specifically classifying a token as a security, Concepto 2022137682-001 (SFC) discusses NFTs and applies principles that are indicative of their general approach to digital assets, differentiating based on characteristics (utility, investment expectation, etc.). This demonstrates the substance over form approach. (You would need to search for this specific number on the SFC site).
• SFC Press Releases and Warnings: These are regularly updated on the SFC's main website.
  • Noticias y Comunicados de Prensa - SFC

Colombia's regulatory stance on crypto tokens as securities is conservative and based on existing law, emphasizing investor protection and financial stability. The lack of a specific crypto securities law means a high degree of reliance on the SFC's interpretation of traditional securities definitions applied to novel digital assets, often leading to a cautious approach for issuers.