On September 18, 2017, the Ministry of Finance and Public Credit (SHCP) submitted to the Mexican Federal Commission for Regulatory Efficiency (Comisión Federal de Mejora Regulatoria, COFEMER) the draft bill of the Law Regulating the Financial Technology Institutions (also known as, the "FinTech Law"), which was published on the Commission's website.
The Fintech Law is meant to create a regulatory framework applicable to persons that, through IT platforms or tools, facilitate the execution of financial transactions and services related to access to financing and investment, issuance services, administration, redemption and transfer of electronic payment funds, and the use of virtual assets in these transactions, whether through fintech institutions ("FTEs"), entities authorized to operate with novel models or financial entities.
The Fintech Law bill defines an FTE as (i) crowdfunding entities, and (ii) e-money companies. If approved within the terms submitted to COFEMER, the Fintech Law will govern the requirements for the incorporation of FTEs and the transactions conducted by them (financial activities or payments, respectively), recognizing that such activities may be entered into by FTEs, between FTEs and their clients, or even simply by their clients directly (through the relevant platforms).
An entity must obtain an authorization from the National Banking and Securities Commission ("CNBV") to operate as an FTE. The entity must have prior consent from the Inter-institutional Committee created by the Fintech Law. The consent may only be granted to Mexican corporations (sociedades anónimas), domiciled in Mexico which comply with the minimum capital requirements determined by the CNBV through enabling regulation. Financial institutions will require a special authorization from their relevant regulator to participate in the capital stock of FTEs and, in any case, must use personnel and marketing channels different than those used for their own activities. It should be noted that transactions by or through FTEs will not have any guaranty from governmental institutions, such as the Bank Savings’ Protection Institute (IPAB).
The Fintech Law describes three different types of crowdfunding: (a) debt, (b) capital and (c) co-ownership or royalties. In no scenario can a return on investments be assured to clients.
Additionally, e-money companies will be those that customarily and professionally perform the issuance, administration, redemption and transfer of funds for electronic payment through IT applications, interfaces, websites or other electronic or digital means.
The Fintech Law bill also governs, for the first time, transactions performed through virtual assets. These are typically known as "crypto-currencies", which are defined in the bill as the representation of value recorded electronically and transferred electronically, used among the public as a payment mechanism for all types of legal transactions. The Fintech Law bill clarifies that legal currency in Mexico, foreign exchange or other assets denominated in Mexican currency or foreign exchange shall not be deemed a crypto-currency. FTEs may only operate with virtual assets specified by the Mexican Central Bank (Banco de México) through secondary enabling regulations. Any of the FTEs may operate with virtual assets, subject to certain requirements.
The Fintech Law bill provides a list of the requirements to obtain the relevant authorizations to be incorporated and operate as an FTE. However, the CNBV maintains the discretional authority to grant this FTE status and applicants must meet additional requirements that may be imposed through enabling regulation.
Finally, the Fintech Law bill includes an option for entities to obtain a special authorization to offer financial services using technological tools or media through other than existing mechanisms ("novel models"). This concept, typically known as a regulatory sandbox, has promoted the development of technological platforms in other jurisdictions. The bill also creates the Financial Innovation Group (Grupo de Innovación Financiera), a consultancy and advice forum to discuss ideas and share innovations in the financial arena between the private and public sectors to achieve better planning and development. This group is to be comprised of representatives from both sectors, assuring participation of FTEs and financial entities.
The Fintech Law bill states that it will become effective on the day following its publication in the Federal Official Gazette. However, its transitory articles provide six-, twelve- and twenty four-month periods for the different financial authorities to publish the respective enabling regulation referred to in the bill.
In order for the Fintech Law to become effective, it must follow the applicable legislative process, pursuant to which (i) the Executive Branch submits the bill to Congress; (ii) the bill must be approved by both the House of Representatives and the Senate; (iii) the bill approved by both Houses is enacted by the Mexican President; and (iv) the enacting decree shall be published in the Federal Official Gazette.
We will follow-up on the continuing discussion, approval and, if applicable, publication and effectiveness stages of the Fintech Law.