Last week President Enrique Peña Nieto enacted the Decree whereby the Financial Technology Law (Ley Para Regular Las Instituciones de Tecnología Financiera the “Fintech Law”) was issued. The Decree was published in the Official Gazette of the Federation on March 9, 2018, and entered into force the day following the publication.
The term “Fintech” qualifies the manner in which financial services are provided. Implementation of technology in the provision of financial services has been evolving as rapidly as we can see e-commerce transactions and in Mexico was lacking a proper legal framework. These services are carried out more quickly and economically, unlike traditional financial services. Services provided by Fintechs range from payments and remittances, crowdfunding and crowdsourcing, to virtual asset management (cryptocurrencies).
The Fintech Law introduces governing principles for consumer protection, financial stability preservation, competition and promotion, as well as money laundering prevention, within the scope of digital platforms or web applications offering and providing financial products and services.
As a result of the new Fintech Law existing non-financial entities or newly incorporated entities that have as a corporate purpose to provide fintech services, shall apply for authorization to provide these services and may only conduct activities expressly authorized by the regulator. Such authorization will be directly issued by the National Banking and Securities Commission (CNBV for its initials in Spanish).
The authorization requests shall include, among other conditions, the following:
- Business plan and policies for risks and IT infrastructure;
- Client and proprietary account separation policies;
- Privacy policies for use of personal data, management and risk disclosure;
- Security measures that will apply to information management;
- Processes and criteria for client Identification;
- Anti-Fraud and anti-money laundering prevention policies;
- Adherence Agreement templates for the general public to be filed before the National Commission for the Protection and Defense of the Users of Financial Services (CONDUSEF for its initials in Spanish); and
- Information related to the interface, digital platform, URL, web page or electronic, digital or social media used, through which financial services will be provided.
Furthermore, the CNBV will also be the authority in charge to determine, through general resolutions and provisions, which Fintechs will required to have a Board of Directors, a Managing Director and with an Audit Committee, depending on the type of the company to be created or currently existing as a Fintech, based on the current General Corporations Law and the Securities Market Law.
While we anticipate that the regulations will increase for Fintechs in Mexico, with the new Fintech Law currently in effect, our preliminary recommendations include adopting a corporate vehicle with limited liability, preferably an which is stock corporation (S.A. for its initials in Spanish) or an investment promotion stock corporation (SAPI for its initials in Spanish), depending on the size and activity, as these vehicles provide greater transparency and corporate governance principles which adapt better to the processes, business models, asset types and portfolios, as well as other elements relevant to the business models of Fintechs wordlwide.
Notwithstanding the foregoing, it is important to consider the legal vehicle and regulations applicable to consumer protection, personal data protection and privacy, and financial operations.
Finally, it is necessary to mention the Law will result in several amendments to different laws, i.e. the Law on Credit Institutions, the Securities Market Law, the Law of Transparency and Financial Services Order, the Law of Protection and Defense of the Users of Financial Services, and the Federal Law for the Prevention and Identification of Transactions with Funds from Illegal Sources, thus placing Mexico as one of the few leading countries in the world with regard to Fintechs.