March 10 this year saw Mexico’s lower house of Congress passing a groundbreaking Fintech law, with the purpose of regulating the country’s rapidly expanding financial technology sector. According to Reuters, the approved bill includes fintech aspects such as crowdfunding and cryptocurrency firms – placing Mexico amongst a small group of countries to establish regulations for the industry.
Mexico’s National Banking and Securities Commission and the Central Bank will be responsible for supervision of the law, which additionally aims to promote financial stability, protect consumers and prevent money laundering.
Areas covered by the Fintech Law
The new Fintech Law is fairly comprehensive in its regulatory coverage of different aspects of the fintech ecosystem. Whitecase.com reports that the regulatory framework applies to firms using IT platforms or tools which facilitate “the execution of financial transactions and services related to access to financing and investment, issuance services, administration, the redemption and transfer of electronic payment funds, and the use of virtual assets in these transactions, whether through fintech institutions (“FTI”), entities authorized to operate through regulatory sandbox models, or any authorized Mexican financial entities (“Financial Entities”).”
On March 10, 2018, the Law regulating Financial Technology Institutions (“Fintech Law”) became effective along with certain reforms to other financial laws.
What are the Fintech Institutions?
- Crowdfunding entities enable the fintech company to engage in raising money through public investors over the internet and other electronic or digital means of communications. This could be in the form of debt, capital, and co-ownership or royalty schemes investments.
- E-money entities engaged in the issuance, administration, redemption and transfer of electronic payment funds through electronic or digital means of communication.
- Virtual Asset Management Institutions involved in contacting third parties to order, buy, sell or dispose of either their own or a third party’s virtual assets and receive virtual assets to make a transfer or payments to a person. Virtual assets present a currency in certain environments.
Who can operate as an FTI?
According to the new law, companies already established in Mexico will have to be incorporated as a Mexican corporation or a limited liability company together with authorization from the CNBV ( National Banking and Securities Commission) in order to be able to continue providing their services, together with complying with minimum capital requirements determined by the enabling regulations. A description of permissions granted by the CNBV will appear on the CNBV’s website.
Transactions performed through FTIs will not be secured by any guaranty from or be subject to any obligation by governmental agencies.
President of the association Fintech Mexico, Francisco Mere said:
“Open banking recognizes that the information in the hands of the financial institutions is the property of the user, not the institution’s, and that it can be brought to other financial intermediaries.”
Under the law, small and medium-sized banks as well as startups would be able to use information from clients of large banks through APIs (Application Programming Interfaces), provided that users give authorization.
In addition, Mere said: “Open banking recognizes that the information in the hands of the financial institutions is the property of the user, not the institution’s, and that it can be brought to other financial intermediaries.
Law backers see financial services improving in order to compete in the industry with services offered by FTIs.
“This will allow better services, better costs and more inclusion,” Mere said, allowing fintechs to compete with traditional banks with more gusto.