Paraguay -- Custody Regulations Regulatory Overview

Paraguay's regulatory framework for cryptocurrencies and digital assets, particularly concerning custody services, is still evolving and is not as comprehensive or granular as in some other jurisdictions. The primary piece of legislation is focused more on mining and general commercial activities of crypto assets rather than specific financial services like custody.

Here's a breakdown based on current information:

Paraguay Cryptocurrency/Digital Asset Custody Regulations

1. Key Legislation

The most significant legislation related to crypto assets in Paraguay is:

• Law No. 6995/2022: Ley que crea el marco regulatorio para la explotación comercial de la minería, comercialización y la industrialización de activos digitales criptoactivos (Law creating the regulatory framework for the commercial exploitation of mining, commercialization, and industrialization of crypto digital assets).
  • Regulatory Reference: Ley N° 6995/2022, promulgated in December 2022.
  • Official Link (to the law's promulgation and text): Gaceta Oficial de Paraguay (Search for Ley N° 6995)

This law primarily focuses on the energy consumption and environmental impact of crypto mining, and establishes licensing requirements for companies engaged in mining, commercialization, and industrialization of crypto assets. It broadly defines "crypto assets" and "virtual asset service providers" (VASP), but does not delve into detailed financial custody requirements.

2. Regulatory Bodies

• Ministry of Industry and Commerce (MIC): This is the primary regulatory body designated by Law 6995/2022 for issuing operating licenses and overseeing the activities related to the commercial exploitation, mining, commercialization, and industrialization of crypto assets.
• National Electricity Administration (ANDE): Involved in regulating electricity supply for mining operations.
• Banco Central del Paraguay (BCP): The BCP has historically maintained a cautious stance. They have issued statements emphasizing that cryptocurrencies are not legal tender in Paraguay and do not fall under their direct regulation as financial instruments or currencies. They typically do not issue licenses for crypto-related financial services.
  • BCP Stance Example: Comunicado del BCP sobre criptomonedas (2021) (While older, it reflects their general position of non-recognition as legal tender/financial instrument under their direct oversight).

3. Custodial License Requirements

• General Operating License: Law 6995/2022 mandates that any company engaged in the "commercial exploitation, mining, commercialization and industrialization of crypto assets" must obtain an operating license from the Ministry of Industry and Commerce (MIC).
  • While the law defines "commercialization" broadly, it is not explicitly detailed whether a pure third-party custody service (i.e., not involved in mining or general trading platform operation) falls squarely under this definition, or if a separate, specific "custody license" is required.
  • The framework is more general for VASP-like activities rather than specialized financial custody.
• There is no specific "crypto custody license" distinct from the general operating license for crypto businesses established by Law 6995/2022, nor is there a dedicated financial regulator (like the BCP) overseeing crypto custody in the same way they do for traditional financial institutions.

4. Segregation of Client Assets Rules

• No Explicit Rules: Law 6995/2022 does not contain explicit provisions or mandates regarding the segregation of client digital assets from the custodian's own assets.
• General commercial and consumer protection laws would apply, but there are no specific crypto-focused requirements for asset segregation.

5. Insurance/Bonding Requirements

• No Explicit Requirements: The current legislation does not explicitly mandate insurance coverage or bonding requirements specifically for crypto asset custodians.
• Companies operating under Law 6995/2022 would be subject to general corporate liabilities and potential requirements for operational permits, but dedicated crypto custody insurance is not specified.

6. Cold Storage Mandates

• No Explicit Mandates: There are no explicit regulatory mandates in Paraguay for the use of cold storage (offline storage) for digital assets under custody. The law does not prescribe specific technical security measures for asset storage.

7. Qualified Custodian Definitions

• No Specific Definition: Paraguay's existing legislation does not provide a specific definition for a "qualified custodian" in the context of digital assets, similar to those found in U.S. or European financial regulations.
• The general operating license under the MIC would allow an entity to conduct activities, which might include custody, but without a specific definition of "qualified" in terms of financial robustness, capital, or specific operational standards for custody.

8. Pending Custody Legislation

• As of late 2023/early 2024, the focus has been on the implementation and operationalization of Law No. 6995/2022, which was itself a result of a lengthy legislative process that included a presidential veto of a previous version.
• There are no widely reported or publicly known specific "pending custody legislation" that would introduce detailed, dedicated rules for digital asset custody, separate from the general framework of Law 6995/2022.
• Future regulatory developments might include secondary regulations or decrees from the MIC to further detail the requirements for licensed crypto businesses, which could eventually touch upon more specific aspects of custody. However, this is speculative.

Summary

Paraguay has established a foundational legal framework for crypto assets, primarily driven by concerns around energy consumption from mining. While it requires a general operating license for businesses involved in "commercialization" of crypto assets, it largely lacks specific, granular regulations for key aspects of digital asset custody, such as client asset segregation, insurance, cold storage mandates, or detailed definitions of qualified custodians. The Banco Central del Paraguay maintains a stance of non-regulation for crypto assets as financial instruments.

Therefore, entities considering offering or using custody services in Paraguay must primarily adhere to the general operating license requirements under the MIC, and ensure they comply with broader commercial, anti-money laundering (AML), and consumer protection laws, as specific crypto custody regulations are absent. It is highly advisable to consult with local legal counsel specializing in Paraguayan law for the most current and accurate interpretation of regulations.