Mexican Fintech Law

Since 2018 Mexico has a complete legal framework in financial technology. Crowdfunding, intermediation of virtual assets, and disruptive financial services, among others, can be carried out under a series of rules and requirements that will provide legal certainty and, well administered by the authorities and with appropriate public policies, put our country up to date in terms of financial inclusion and use of digital means in financial services. In this regard, below you will find a brief guide for the purpose of exposing the main points that we consider of interest in this Fintech Law.

Scope. The Fintech Law regulates (i) the financial services provided by financial technology institutions (“FTIs”) that are collective financing institutions or crowdfunders (“CFI”) and electronic payment fund institutions (“EPFI”) as well as (ii) the organization, operation and functioning of these same services that are presented through a “Innovative Model”.

Authorities. The authorities in charge of implementing the Fintech Law are the National Banking and Securities Commission (“CNBV”) and the Bank of Mexico (“Banxico”), mainly, although the SHCP and other Commissions also have some role, these latter mainly in respect to companies that operate with Innovative Models.

Virtual Assets. One of the most relevant issues is the regulation of operations with “virtual assets” that are known colloquially as “cryptocurrencies” (e.g. bitcoin, ether, etc.) that can be handled through electronic payment funds and financial entities and that the Fintech Law specifically separates from the common loyalty or reward programs that are already known in Mexico. FTIs can only operate with assets that are determined by Banxico, with its prior authorization.

Virtual Assets and Banks. According to this new law, credit institutions, with the prior authorization of Banxico, may carry out operations with the virtual assets that said authority determines and in accordance with the provisions issued in this regard.

FTIs. An authorization from CNBV is required to organize and operate as an FTI

Money Laundering Prevention. FTIs are subject to regulation to prevent money laundering that CNBV may issue in their case.

Capital of FTIs. FTIs must have net capital expressed as an index in relation to operational risk and others incurred in their operation, which cannot be lower than the amount resulting from adding the capital requirements for each type of risk. In the case of EPFIs, the capital requirements are more specific. Note that, in any case, the legal capital does not equal to the amount needed by each financial project to make the FTIs a viable business.

Internal Policies of FTIs. The authorization to operate as an FTI requires the presentation of certain legal information, as well as policies to be implemented in terms of segregation of accounts, disclosure of risks and operations, operational risk control and security, confidentiality, operational and customer identification control processes, conflict of interest resolution, and prevention of fraud and operations with illicitly sourced resources.

Legal Form of FTIs. FTIs must be constituted as stock capital companies and must adjust their bylaws to the requirements of the Fintech Law, among which is to set a minimum capital necessary to carry out their activities according to the secondary regulation that CNBV will issue, which may be differentiated according to the type of activities to be carried out.

Differences with banks and other entities. The Federal Government or its entities will not guarantee the resources of FTI customers.

Periodic Reports. FTIs must report to Banxico, CNBV and the National Commission for the Protection and Defense of Financial Services Users (“CONDUSEF”) information related to their operations with the frequency established in secondary provisions.

Crowdfunding Entities. These are entities whose purpose is to bring the general public into contact in order to grant financing among them (as investors and applicants) through certain operations, as long as this is done habitually and professionally through computer applications, interfaces, websites or any other electronic or digital communication means.

Collective Financing Operations. Collective financing operations consist in the following: (i) collective debt financing: investors grant credits, mutuals or other financing that cause a direct or contingent liability to applicants, (ii) collective capital financing: its purpose is for investors to acquire representative titles of the social capital of legal entities applicants, (iii) collective co-ownership or royalties financing: its object is for investors and applicants to enter into partnerships or any agreement that allows the investor to acquire an aliquot part or participation in a future asset or in income, profits, royalties or losses derived from the applicant’s projects and (iv) sale of operation titles: CFIs may carry out acts that facilitate the sale or acquisition of rights or titles related to collective financing operations.

Operations must be in legal tender, with the possibility of using foreign currencies or virtual assets subject to what Banxico determines in general provisions.

Prohibition of Crowdfunders. CFIs may not (i) insure returns or yields on investments or guarantee the success of an investment (except for certain non-monetary benefits approved by Banxico), (ii) act as applicants on their own platforms (unless their object is to share risks with investors) and (iii) assign rights over the operations celebrated on their platforms to related persons or persons with command power.

Electronic Payment Fund Institutions (EPFI). Services performed habitually and professionally with the public consisting of the issuance, administration, redemption and transmission of electronic payment funds, through computer applications, interfaces, websites or any other electronic or digital communication means by means of certain acts may only be provided by EPFIs authorized by CNBV.

Electronic Payment Fund. It refers to funds accounted for in an electronic record of transactional accounts that meet certain characteristics.

Activities of EPFIs. For the purpose of operating electronic payment funds, EPFIs may only carry out the following activities: (i) issue, commercialize or administer instruments to dispose of electronic payment funds, (ii) provide money transmission services, (iii) provide services related to the networks of means of disposition, (iv) process payment service information, (v) grant loans related to the accounts they manage (under certain limitations), (v) operate virtual assets, (vi) issue securities, and (vii) bring third parties into contact to buy and sell virtual assets, among others.

Prohibition of EPFI. EPFIs may not pay yields or interests or give monetary benefits to their clients for the balances of their accounts, although Banxico may establish exceptions in the secondary provisions for non-monetary benefits.

Standardized Interfaces (Open banking). Financial entities, money transmitters, credit information societies, clearinghouses, FTIs and societies authorized to operate with Innovative Models will be required to establish standardized computer application programming interfaces that enable the connectivity and access of other interfaces developed or managed by them and third parties specializing in information technologies, in order to share certain data and information.

Entities Authorized to Operate with Innovative Models. Legal entities that are not Financial Technology Institutions (FTIs), financial entities, or other subjects supervised by any supervisory commission or by Banxico, must obtain authorization to carry out any activity requiring authorization, registration, or concession under the Financial Technology Law or any other financial law through Innovative Models. The authorization is temporary and will have a duration according to the services to be provided, and will be granted by the competent financial authority according to the type of Innovative Model.

These temporary authorizations may be extended for one year in the event that the society is in the process of obtaining the corresponding final authorization.

Criteria for Authorizing Innovative Models. The authorities must consider the following to grant authorization to use an Innovative Model: (i) it falls within the definition of such model, (ii) the reserved activity to be carried out represents a benefit to the customer compared to what exists in the market, (iii) it is tested with a limited number of customers, and (iv) its start of operations is immediate.

Obligations under Temporary Authorizations. Those with authorization to operate an Innovative Model must prepare reports (with the periodicity determined by the financial authorities) containing the number of operations carried out, number of customers or users, and risk situations that have arisen, as well as a final report thirty days after the expiration of the authorization with the total figures of the aforementioned elements.

Financial Innovation Group. The Financial Technology Law creates a consultation, advisory, and coordination body to exchange opinions, ideas, and knowledge between the public and private sectors to learn about innovations in financial technology and plan orderly regulation.

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