The FinTech Bridge: Navigating Risk in the US-LatAm Corridor

The Risk: The De-Peg or Drain Scenario

With innovation comes risk, and this is certainly true for fintech. Decentralization has enabled global financial interconnectivity, but novel currencies can be volatile.

Let’s say a contractor in Latin America hired by a US company doesn’t get paid, whether it’s a solopreneur in Argentina or a business in Mexico City. From previous experience, we know this situation could well be triggered by a de-pegging or cybersecurity event.

In the case of de-pegging, an example as recent as the 2022 Bitcoin Terra (UST) rapid collapse demonstrates how fragile a seemingly stable system can be, and how fast an entire operation can collapse when investors lose confidence. The same can be said of the Silicon Valley Bank incident, which snowballed into the de-pegging of the USD and left many startups without capital.

On the cybersecurity front, funds could be intercepted en route to Latin America by a phishing attack on a hot wallet. Hot wallets are convenient for those using digital coins on the daily, but their digital infrastructure leaves them vulnerable to cyberattacks that could drain their assets with just a few lines of code.

Compromising the US Entity Before the Latin America Business

The Latin American contractor who wasn’t paid thanks to a de-pegging or cybersecurity incident is unlikely to sue the Latin American entity. If the company is cash-poor, a lawsuit probably won’t be worth their while. Instead, they might look to major, more lucrative markets, like a U.S. parent entity with higher liquidity. This would trigger professional liability (errors and omissions) and cyber liability claims for the American leg of the company.

For fintechs, the right insurance architecture protects against this trigger, starting with a review of policy exclusions. Does the policy exclude digital assets? Does the territorial scope clause limit coverage to claims brought only in US/Canada courts?

The Solution: The DIC/DIL Safety Net for Business Expansion

Insurance is constantly adapting to offer protection against new risks, especially in the rapidly evolving tech space. In fintech, difference in conditions (DIC) and difference in limits (DIL) clauses are the most effective solutions to cross-border risks. These aren’t just nice-to-haves—they make all the difference for companies present in the US-Latin America corridor.

First, DIC fills the breadth gaps in insurance coverage. If a Latin American local policy excludes a specific peril included in the US policy—such as a certain type of cyberattack or a regulatory fine included in the US policy—a DIC clause means US coverage kicks in to cover the local entity. In other words, DIC acts as an umbrella, providing coverage beyond the US entity’s jurisdiction, supported by local providers.

Second, DIL fills the depth gaps. For example, if a Colombian court awards a $5 million claim, but the local policy is capped at $1 million, the DIL clause means the US master policy covers the remaining $4 million. On the surface, this might seem like a benefit primarily for the Latin American business. In reality, it spares the American leg from further litigation if the Latin American insurance policy falls short.

The Advantages of a CMP for Business in Latin America

Both DIC and DIL clauses are supported under a global master program, often known as a Controlled Master Program (CMP). A CMP links a company’s home-based master policy into other policies in the jurisdictions where it operates, backed by local insurers.

This is one of the best risk management steps a cross-border company can take to protect its assets. For a CFO facing audits or Series B due diligence, relying solely on unconnected policies in multiple locations can cause potential strategic partnerships to fizzle—investors just don’t want to deal with the risk. A CMP is a strategic way to sidestep reliance on a patchwork of local policies that leave many gaps unfilled.

Moreover, for a fintech startup moving USDC to independent contractors, DIC and DIL isn’t just an extra coverage feature. It’s the first line of defense against a US-based class action or investor lawsuit.

The Jurisdictional Gap: MSAs vs. Policy Language

Conducting overseas business brings challenges. Founders working internationally frequently navigate differing customs, language barriers, and unfamiliar legal systems. Smooth contract navigation with overseas partners comes down to effective prevention, including checking the fine print and tailoring insurance policies with terms that actually meet the fintech where it is.

For instance, insurance policy language can differ from language in the market service agreement (MSA). Suppose the insurance policy says “Only US law applies”, but the founder’s contractor agreement or MSA says local law applies, whether that’s Argentina, Mexico, or Brazil. These kinds of conflicts create problematic gaps and claim denials—not to mention headaches.

If an insurance policy isn’t properly aligned with the contract, the insurer might simply flat-out refuse to hire a lawyer for a foreign claim. This leaves both founders and possibly the local entity to their own devices.

On top of this, some countries require companies to acquire local policies regardless of the insurance support provided by the foreign entity—this is where Admitted and Non-Admitted insurance come into play. Some countries insist on state-backed insurance (admitted insurance). In this case, the DIC/DIL wrapper is essential to link local insurance back to the US, since the mandatory local policy usually has narrower limits and conditions than a US market would expect.

The Strategic Edge for Business Growth

The intricacies of entering the US-Latin America corridor as a fintech company can’t be underestimated. Founders are often faced with global supply chain issues, operational differences, cultural barriers, or insurance discrepancies. Nevertheless, fintech is a thriving industry with enormous growth potential. Building a policy that offers the right protection means connecting with experts who can review, tweak, and improve coverage. This includes carefully looking for gaps that need closing before they leak.

In the same vein, it pays to find the right insurer. As the ceiling grows for fintechs, so do the stakes. Working with the right insurance brokers can be the difference between a new business stalling out on the road to scalability or growing and expanding to reach its full potential. At The Baldwin Group, we help companies find the gaps between their contractor agreements and insurance policy definitions with robust audits from our industry experts.

So, if you’re operating a US-Latin America bridge, don’t let a jurisdictional gap sink your next funding round. Let’s talk about bridging your coverage.

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