On March 9, 2018, the Law to Regulate Financial Technology Institutions ("Fintech Law") was published in the Official Journal of the Federation.
Objective of the FINTECH LAW
The main purpose of the Fintech Law is to regulate Financial Technology Institutions ("ITF"), as well as transactions with virtual assets (cryptocurrencies) previously approved by Banco de México ("Banxico").
Financial Technology Institutions
The Fintech Law regulates two types of FTTs: (i) crowdfunding institutions, and (ii) electronic wallets.
(i) Crowdfunding Institutions: Institutions whose purpose is to put applicants and investors in contact, through computer applications, interfaces, internet pages, or any other electronic or digital means of communication, so that the investors grant financing to the applicants according to the following schemes:
- Debt Crowdfunding: Investors grant loans, credits, mutuals, or any other financing causing a direct or contingent liability to the applicants, which must be repaid, generally with interest;
- Equity crowdfunding: Investors purchase or acquire representative securities from the applicants;
- Co-Ownership or Royalty Collective Financing: The investors and applicants will enter into joint venture agreements or any other type of agreement whereby the investor acquires an aliquot share or participation in a present or future asset, or in the income, royalties or losses obtained from the performance of one or more activities or projects of the applicant.
(ii) Electronic wallet institutions: Institutions whose purpose is the issuance, administration, redemption and transmission of electronic payment funds, including national currency, foreign currency or virtual assets (cryptocurrencies), through computer applications, interfaces, internet pages, or any other means of electronic or digital communication. The main activities to comply with its object include, among others:
- Open and maintain one or more electronic payment fund accounts for each customer;
- Make transfers of electronic payment funds, amounts of money in local or foreign currency, or virtual assets (cryptocurrencies) approved by Banxico between its customers, and customers of other Electronic Payment Fund Institutions, or credit institutions (banks); and
- Deliver an amount of money or virtual assets (cryptocurrencies) equivalent to the same amount of electronic payment funds in an electronic payment funds account, by means of the respective debit in such account.
Virtual Assets (Cryptocurrencies)
The Fintech Law defines virtual assets (cryptocurrencies) as a representation of value recorded electronically and used among the public as a means of payment for all types of legal acts and whose transfer can only be carried out through electronic means.
Banxico must authorize virtual assets prior to their use by FTTs and other financial entities. For the determination of virtual assets, Banxico will take into account, among other aspects, the use that the public gives to digital units as a means of exchange, the treatment that other countries give to particular digital units as virtual assets, as well as the agreements, mechanisms, rules or protocols that allow the generation, identification, fractionation and control of the replication of such units.
In addition, Banxico will define the characteristics of virtual assets, as well as the terms and conditions and restrictions on transactions and other acts that may be carried out with them, through secondary provisions.
Finally, FTTs operating with virtual assets must disclose to their clients the inherent risks of virtual assets, including that the virtual asset is not legal tender and is not backed by the federal government or Banxico.
The Fintech Law defines Novel Models as those that use technological tools or means for the provision of financial services with modalities different from those existing in the market at the time the temporary authorization is granted.
In order to implement activities through Novel Models that require an authorization, registration or concession, Mexican corporations, other than FTTs, financial entities and other supervised or regulated entities, must obtain a temporary authorization.
Such temporary authorization must have a duration in accordance with the services to be rendered and may not exceed two years, with the possibility of being renewed for up to one additional year.
Supervision and Surveillance
The IFTs will be supervised and monitored by Banxico, the National Banking and Securities Commission ("CNBV"), and an Interinstitutional Committee, comprised of public servants from Banxico, the Ministry of Finance and Public Credit ("SHCP"), and the CNBV.
The different authorities that supervise and regulate FTTs must issue within the next two years the secondary provisions in accordance with the following:
i. Six months: General provisions regarding the characteristics of the operations of the Electronic Payment Fund Institutions, as well as the limits of funds that they may maintain on behalf of their clients, or that their clients may dispose of through such ITFs.
ii. Twelve months: General provisions regarding the characteristics of the virtual assets that may be used, as well as the measures for the custody and control thereof, and rules for new models that are regulated by Banxico.
iii. Twenty-four months: General provisions regarding the information that may be exchanged by FTTs and financial institutions.
i. Six months: General provisions regarding the prevention of transactions with illicit resources;
ii. Twelve months: Rules for new models that are regulated by SHCP.
i. Six months: Bases for the selection of applicant clients of the Collective Financing Institutions, minimum capital of the FTTs, bases for the authorization of the FTTs.
ii. Twelve months: Bases to be followed by the Collective Financing Institutions regarding the behavior of applicants; general provisions regarding the services that the FTTs may contract from third parties, rules regarding the reports to be submitted by the IFTs to the CNBV, rules for self-correction programs, and rules for new models to be regulated by the CNBV.
iii. Twenty-four months: General provisions regarding the net capital to be maintained by the FTTs.
(d) Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros ("CONDUSEF"): Twelve months for rules regarding reports to be submitted by IFTs to CONDUSEF, and rules for Novel Models to be regulated by CONDUSEF.
(e) Comisión Nacional del Sistema de Ahorro para el Retiro ("CONSAR"): Twelve months for rules regarding the reports to be submitted by the IFTs to CONSAR.
(f) National Insurance and Bonding Commission ("CNSF"): Twelve Months for rules regarding reports to be submitted by IFTs to CNSF.
Finally, entities that are currently operating as FTTs will have a period of twelve months to adapt to the provisions of the Fintech Law and obtain the necessary authorizations to operate.