Fintech Law - Mexico

Last week Mexican Financial Regulators: the Commission for the Protection and Defense of Financial Services Users (CONDUSEF), the National Commission System for Retirement Savings (CONSAR)  published the draft Bill to Regulate the Institutions of Financial Technology, better known as the “Fintech Law”.

The Fintech Law will regulate the creation and operation of the Financial Technology Institutions (ITF).

Under the Fintech Law, all the new ITFs will carry out activities and operations where technology is fundamental by easing and making money-related transactions more straightforward, beyond creating the platform to exchange products and services by means of virtual assets.

Under the preliminary Fintech Law draft bill, there are three types of ITFs:

a) Crowdfunding Institutions, which will provide access to sources of financing to markets that are not served by the financial ecosystem, thus generating greater financial inclusion at reasonable costs;

b) Institutions of Electronic Payment Funds, which will help to make efficient the exchange of products and services, strengthening the economy of the country. In both cases the possibility exists that the operations carried out are carried out in national currency, foreign currency or in virtual assets; always following the guidelines set by the Mexican Central Bank (Banxico) and other financial regulators, including all the relevant requirements under AML rules; and

c) Virtual Asset Management Institutions: These contact third parties through digital means in order to buy, sell or dispose of their own or third party’s virtual assets, and receive virtual assets to make transfers or payments to any person, including another Virtual Asset Management Institution. Under the Fintech Law, virtual assets are those digital units that have similar uses to those of the Mexican peso, as determined by Banxico under certain criteria it will take into consideration.

Furthermore, another Fintech Law’s highlight is its contribution towards the possibility of carrying out operations under new business models, such as big data, crowdfunding, cryptocurrency, e-money, regulatory sandboxes, robo-advisory and application programming interface (API).

If the Law comes into force as under the draft’s form, ITFs will have to be incorporated as a Mexican corporation (sociedad anónima de capital variable) or limited liability company (sociedad de responsabilidad limitada de capital variable) in order to render services in Mexico. This means, for foreign financial services providers, the need to incorporate a subsidiary in Mexico versus rendering services from a branch or any other type permanent establishment.

All ITFs will have to obtain prior authorization from the Securities Commission (CNBV), together with an opinion from the Committee on Financial Technology Institutions (as proposed by the Fintech Law).

Those ITFs which are already providing services in Mexico will have to obtain the CNBV’s authorization in order to continue operating as such.

In this sense, in order to be authorized as ITFs, companies must certify to the CNBV that:

• ·    the transactions they wish to carry out are expressly foreseen within their bylaws;
• ·   they have the appropriate governing bodies and corporate structure to carry out their operations; and
• ·  they have the necessary infrastructure and internal controls such as operating, accounting and security systems, offices, as well as the respective manuals.

The CNBV will publish the authorizations it grants on a public registry and on the CNBV’s website.

The next steps are that the finance and banking community should provide its feedback on the initiative; then the draft bill will be revised introduced to Congress whom, will make any adjustments and if passed, the bill will be enacted.