In February 2021, the CNMV and the Bank of Spain issued a joint statement on the risk of cryptocurrencies as an investment in which they stated that cryptocurrencies are not a means of payment equivalent to cash, and recalled that “there is no obligation to accept bitcoins or any other cryptoactive as a means of payment of debts or other obligations ”.
Without going into academic matters, there is no doubt that cryptocurrencies are not conceptually equivalent to cash, but it is also not debatable that they are an instrument that in practice works as a means of payment and as an interesting asset for investors (it is enough to remember that according to CoinMarketCap, the value of all bitcoins in the world exceeded $ 1.03 trillion as of November 26, 2021). It is also evident that no one can be forced to accept cryptocurrencies in payment of a debt, and it is no less so than when the parties involved in a transaction agree to do so under the principle of autonomy of the will, nothing should prevent cryptocurrencies from being used –as in reality– as a means of payment or debt settlement.
In fact, this is confirmed by the European Banking Authority (EBA), which in section 19 of the opinion on virtual currencies (EBA / O p / 2014/08, of July 4), states: “Cryptocurrencies constitute a digital representation of value not issued by a central bank or by a public authority, nor necessarily associated with a fiat currency, but accepted by natural or legal persons as a means of payment and that can be transferred, stored or negotiated electronically, and are not considered legal currency or money ”. And that is how companies such as Tesla, Starbucks, Amazon, Expedia and many others that accept, or have announced that they will accept bitcoins as a means of payment for the goods or services they offer, understand it.
With the nuances that are then indicated, within the framework of our private law, nothing opposes that – if the interested parties validly agree to it – a payment obligation is settled through the delivery of cryptocurrencies. In principle, this general statement does not have to be subject to any conditions due to the nature of the product or service that is the object of payment, and insurance cannot be excluded among those services that can be paid through cryptocurrencies.
Starting from the premise that there is a valid agreement (and therefore reached through informed consent, deliberate and free from impositions or tacit assumptions), no objection can be made to the possibility of paying the insurance premium. by delivering to the insurer a certain sum of cryptocurrencies.
It is more difficult to answer the mirror question: would it be possible to agree that, in the event of a claim, the insurer can or should pay the compensation due to the insured in cryptocurrencies? And to the subsequent question: is it feasible for an insurance company to accept operations in cryptocurrencies not only in an isolated or sporadic way, but in a generalized way, turning the flows in that asset class into common practice? It is really difficult to intuit how the accounting record of the transactions of an entity that operates in this way could fit, and how it could comply with the minimum solvency requirements and reporting obligations. It is true that the Accounting and Auditing Institute (ICAC) has cleared, to a large extent, the doubts regarding the accounting of investments in cryptocurrencies or their acquisition to make payments, but it is not the same to indicate in which account in In particular, the movements related to a specific asset must be counted in order to conceive a complete chart of accounts adapted to an entity that registers and maintains cryptocurrencies on its balance sheet and accepts and delivers them in a generalized way in the ordinary course of the insurance business.
On the other hand, the regulations on data protection, solvency, prevention of money laundering of criminal origin, protection of the rights of consumers (especially of the insured when it comes to investment products based on insurance), etc., They add a good deal of complexity to the matter. However, a pioneering European insurer in this matter (Axa Switzerland) has understood that, within the framework of the applicable legal system and, apart from life insurance, there are no regulatory barriers that prevent it from accepting the payment of premiums in cryptocurrencies. As this entity announced a few months ago, its clients will be able to pay the premiums of any non-life insurance through bitcoins. However, as is prominently indicated on its website, Axa Switzerland will not keep bitcoins on its balance: the cryptocurrencies will be managed by Bitcoin Suisse, an entity that will be in charge of converting them into Swiss francs without transferring to the insured any risk associated with the process of change.
In short, there is no doubt that it would be legally feasible for the payment obligations derived from an insurance operation to be settled through the use of cryptocurrencies and that there are no insurmountable operational obstacles to acting in this way if the premium income is converted from instantly in legal tender, or if the amount of compensation that the insured wishes to receive in cryptocurrencies is transformed into this type of asset at the time of payment. Through this operation, cryptocurrencies are either temporarily registered to be immediately converted into legal tender when it is the insured who pays, or to convert the amount of compensation into cryptocurrencies when the insurer is obliged to pay, or , never get recorded on the insurer’s balance sheet (this is the way Axa Switzerland apparently operates, and certainly the least exposed from a regulatory point of view).
This nuance is especially relevant, since under this perspective, the General Directorate of Insurance and Pension Funds has required insurance entities to provide information on their direct or indirect positions in cryptocurrencies and justify compliance with the investment regulations established in regulation, supervision and solvency legislation. In practical terms, this must be interpreted as a warning to insurers so that their investment decisions comply with the strict criteria of prudence established by said regulations, so that assets exposed to extreme volatility or whose rating is more uncertain for any other reason, they are either discarded or kept at very moderate levels even when the investment decision is based on the greatest margin of flexibility admissible for investments in excess of those intended to cover solvency capital or representative of technical reserves .
Claudio Ramos is ‘Consultant’ of the insurance area of Herbert Smith Freehills