Consequently, financial systems have increasingly adopted automated or digital transactions, securities, and platforms, aimed at facilitating financial interactions among their participants in Mexico, whether users, clients, financial intermediaries, or governmental regulators.
Mexico has enacted legislation to regulate so-called 'fintech' entities. On March 9, 2018, the Law to Regulate Financial Technology Institutions (the Fintech Act) was published in the Official Federal Gazette. (Law to Regulate Financial Technology Institutions, 9 March 2018) Under this Act, these institutions are legal entities authorized by the National Banking and Securities Commission (the Commission or CNBV, for its acronym in Spanish) to carry out fintech activities. The Fintech Act identifies two primary types of financial technology institutions:
- Collective Financing Institutions (crowdfunding), which facilitate connections between the general public to provide financing through debt, equity, co-ownership, or royalty financing transactions conducted via computer applications, interfaces, web pages, or any other electronic or digital communication methods; and
- Electronic Payment Fund Institutions, which regularly and professionally offer services involving the issuance, administration, redemption, and transmission of electronic payment funds.
The legislative intent behind the Fintech Act reflects a significant shift in perspective and objectives, aligning with a more current and precise understanding of the role and operations of financial technology companies, commonly known as fintech companies. The law emphasizes the importance of establishing a regulatory framework that enables fintech companies to continue innovating, evolving, and promoting financial inclusion, while also enhancing competition within the Mexican financial system.
A key terminological shift introduced in the law is the renaming of companies developing new and innovative financial models. Initially referred to as Innovative Companies, they are now classified as Novel Models (Modelos Novedosos). This classification includes a regulatory framework that allows these businesses to obtain temporary authorizations to test their business models within a controlled environment.
Furthermore, as seen in earlier drafts of the law, financial authorities have formulated and disseminated a regulatory policy based on fundamental guiding principles that Fintech companies must adhere to. These principles include: (i) Financial inclusion and innovation; (ii) Consumer protection; (iii) Preservation of financial stability; (iv) Promotion of competition; (v) Prevention of money laundering and terrorism financing and (vi) Technological neutrality.
This structured approach ensures that the Fintech sector operates within a regulatory framework that fosters innovation while maintaining financial security, transparency, and competitiveness.
On September 10, 2018, Circular 12/2018, addressed to Electronic Payment Fund Institutions, was published in the Official Federal Gazette. This Circular outlines the general provisions applicable to transactions performed by Electronic Payment Fund Institutions, specifying the characteristics and requirements of such transactions.
Additionally, on the same date, general provisions pursuant to Article 58 of the Fintech Act were published, aimed at preventing money laundering and terrorism financing. Furthermore, general provisions applicable to financial technology institutions were issued, establishing the regulatory framework governing these entities.
Six months following the issuance of the above-mentioned provisions, on March 8, 2019, Circular 4/2019 related to Virtual Assets was published in the Official Federal Gazette, along with Circular 5/2019 concerning new operational models, and Circular 6/2019 addressing collective financing institutions.
Lastly, on May 20, 2019, Circular 8/2019 was published in the Official Federal Gazette, amending Circular 14/2017 regarding the Rules of the Interbank Electronic Payment System.
Virtual Assets
The global evolution in technology has significantly influenced the evolution of payment methods. This was evident with the introduction of debit and credit cards; not too long ago, it was challenging to envision using a piece of plastic to pay for goods or services. Today, we face a new challenge, virtual assets, as defined under the Fintech Act:
“A virtual asset is defined as a representation of value registered electronically and used by the public as a means of payment for various legal acts, with transfers conducted exclusively through electronic means. Virtual assets explicitly exclude legal tender within national territory, foreign currencies, or any asset denominated in legal tender or currency.”
Virtual assets have the following characteristics:
- They exist electronically.
- They serve as payment methods used by individuals.
- Transactions involving them must be executed electronically.
- They explicitly exclude national currency, foreign currencies, and any asset denominated in legal tender.
- They are subject to value volatility, often influenced by market speculation and regulatory evolution.
Virtual assets represent one of the most significant revolutions experienced by the financial sector in recent years in Mexico, generating considerable interest among financial institutions, users, and customers. This growing interest has led to increased market demand, alongside a rise in their value and volatility. Virtual assets have emerged as an innovative payment method that minimizes the need for third-party involvement.
The Bank of Mexico and its Position
Banxico is an autonomous constitutional entity responsible for issuing currency, formulating economic policies to safeguard the purchasing power of the Mexican peso, promoting the stability of the national financial system, and ensuring the effective operation of payment systems.
In this context, Banxico has issued clear opinions and regulations regarding virtual assets, implementing certain limitations. According to Banxico, virtual assets present several issues when considered as substitutes for the Mexican currency, primarily because they lack fundamental monetary characteristics such as store of value, medium of exchange, and unit of account.
Consequently, in Circular 4/2019, Banxico explicitly identifies information asymmetry concerns arising from two primary factors (Circular 4/2019 addressed to Credit Institutions and Financial Technology Institutions concerning General Provisions Applicable to Credit Institutions and Financial Technology Institutions in Transactions with Virtual Assets, 2019):
The difficulty in comprehending the intricate factors influencing virtual asset pricing, including uncertainty about elements determining supply and demand, and the absence of reliable price-reference benchmarks.
Additionally, Banxico highlights significant risks related to virtual assets, particularly concerning anti-money laundering (AML) and counter-terrorism financing (CTF). These risks are exacerbated by the ease and speed of transferring virtual assets across borders, combined with a lack of unified global regulatory oversight and protection measures.
In response, Banxico seeks to maintain a clear separation between virtual assets and the formal financial system. Nonetheless, Banxico recognizes the potential benefits of adopting innovative technologies within the regulated operational frameworks of financial technology institutions and credit institutions. Such adoption should not increase operational and financial risks, thus prioritizing consumer protection.
Thank you to Miguel Gallardo Guerra for contributing to the production of this article.
If you have queries on any of the topics discovered in this article, please do get in touch.
