Panama -- Custody Regulations Regulatory Overview

Panama currently lacks a dedicated, comprehensive regulatory framework specifically for cryptocurrency and digital asset custody. The closest it came was a detailed bill that passed parliament but was subsequently vetoed by the President.

Here's a breakdown of the situation:

Overview of Current Regulatory Status

As of late 2023 / early 2024, Panama does not have specific laws or regulations governing:

• Custodial license requirements for digital assets.
• Segregation of client assets rules for digital assets.
• Insurance or bonding requirements for digital asset custodians.
• Cold storage mandates for digital asset custodians.
• A formal definition of "qualified custodian" for digital assets.

This means that entities offering crypto custody services in Panama operate in a regulatory grey area concerning these specific points. However, general financial regulations, especially those related to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), may still apply.

Existing Regulatory Frameworks (Indirect Application)

While there are no specific crypto custody regulations, some general laws and regulatory bodies may still touch upon digital asset activities:

1. Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Laws:

   • Panama has a robust AML/CFT framework, primarily driven by international standards from the Financial Action Task Force (FATF).
   • Law 23 of 2015 (Ley 23 de 2015): This law adopts measures to prevent money laundering, terrorist financing, and the proliferation of weapons of mass destruction. While it doesn't explicitly mention "digital asset custody," financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) are subject to its requirements. If a crypto business falls under the scope of a DNFBP (e.g., as a money remitter, trust provider, or even a general financial service provider handling significant value transfers), it would need to comply with KYC (Know Your Customer), transaction monitoring, and suspicious activity reporting requirements.
   • Unidad de Análisis Financiero (UAF - Financial Analysis Unit): This is Panama's Financial Intelligence Unit (FIU) responsible for receiving, analyzing, and disseminating suspicious transaction reports. Any crypto entity engaging in activities that might be considered financial services or value transfers could fall under UAF scrutiny for AML/CFT purposes.
   • Reference:
     • Ley 23 de 2015: https://www.gacetaoficial.gob.pa/pdfTemp/27763_A/53916.pdf (Official Gazette link, in Spanish)
     • UAF Panama: https://uaf.gob.pa/

2. Superintendency of Banks of Panama (SBP) and Superintendency of Securities Market (SMVP):

   • These traditional financial regulators have primarily issued warnings and advisories regarding the risks associated with cryptocurrencies. They have generally clarified that cryptocurrencies are not recognized as legal tender, do not fall under the existing banking or securities laws, and entities dealing with them are not regulated by these bodies unless they offer traditional financial services with crypto as an underlying asset.
   • They have advised regulated entities to exercise extreme caution and assess risks, including AML/CFT, cybersecurity, and operational risks, if engaging with crypto.
   • Reference:
     • SBP warnings (example, may require navigating their site for current advisories): https://www.superbancos.gob.pa/
     • SMVP warnings (example, may require navigating their site for current advisories): https://www.smv.gob.pa/

Pending Custody Legislation (The Vetoed Bill)

The most significant legislative attempt to regulate digital assets, including custody, was Bill 697, which later became Law 173.

• Bill 697 / Law 173 (Proyecto de Ley No. 697 / Ley 173): This bill aimed to regulate the commercialization, use, and issuance of digital assets and create a framework for their recognition, custody, and tokenization. It specifically included provisions for:

  • Licensing: Establishing a licensing regime for virtual asset service providers (VASPs), which would likely include custodians.
  • Operational Requirements: Laying out rules for operational security, consumer protection, and potentially aspects like asset segregation.
  • AML/CFT Integration: Explicitly integrating digital asset businesses into the existing AML/CFT framework.
  • Regulatory Oversight: Designating regulatory bodies for different aspects of digital assets.

• Status: Partially Vetoed: The bill passed the National Assembly in April 2022. However, President Laurentino Cortizo partially vetoed it in June 2022.

  • Reasons for Veto: The President cited concerns about the bill's lack of alignment with FATF recommendations regarding AML/CFT, potential risks to the financial system, and the need for more robust regulatory oversight and technical clarity. He argued that it did not sufficiently protect the national financial system and investors from money laundering and other illicit activities.
  • Current Status: The bill was returned to the National Assembly for reconsideration of the vetoed articles. As of now, it remains in legislative limbo, meaning the comprehensive framework it proposed, including specific custody regulations, is not currently in force.

• Reference:

  • Information about the bill's passage (news articles and parliamentary records often cite "Proyecto de Ley No. 697" or "Law 173"): You would typically find records on the National Assembly of Panama's website. For example, searching their archives for "Proyecto de Ley 697": https://www.asamblea.gob.pa/
  • News articles from reputable financial news outlets (e.g., Reuters, CoinDesk, Bloomberg) from April-June 2022 would detail the bill's passage and subsequent veto.

Conclusion

In summary, Panama currently does not have a specific regulatory framework for digital asset custody licenses, asset segregation, insurance, cold storage, or qualified custodian definitions. While the vetoed Law 173 represented a significant attempt to establish such a framework, it is not active. Businesses engaging in crypto custody in Panama must primarily focus on complying with general AML/CFT laws and be aware of the ongoing legislative uncertainty and the warnings issued by traditional financial regulators.

It is crucial for any entity involved in digital asset custody in Panama to consult with local legal counsel specializing in financial and technology law to understand potential general legal obligations and remain updated on any legislative developments.