The Law that Regulates Financial Technology Institutions Fintech Law was published today 9 March 2018 in the Federal Official Gazette.
Purpose of Fintech Law
Fintech Law is a general regulatory framework for financial services to be rendered through new technologies and/or IT platforms. These new technologies and/or IT platforms are expected to facilitate access to collective investment and financing, as well as the issuance, management, transfer and redemption of electronic payment funds or e-money, and the use of authorized cryptocurrencies as an alternate form of payment for financial transactions.
Fintech Law regulates the authorization, organization and operation of financial technology institutions or FTIs, defined as crowdfunding entities and e-money entities, and the implementation of regulatory sandboxes that will allow companies with innovative technology business models, to provide their financial products and services to a reduced number of clients, in a certain geographical area and during a limited time (up to 2 years).
Regulation of Crowdfunding Entities
Crowdfunding entities will be engaged in bringing together investment seekers and potential investors from the general public, through electronic applications, interfaces, websites or any other electronic or digital means of communication, for the applicants and potential investors to carry out financing and investment activities among themselves.
Fintech Law regulates 3 types of crowdfunding: (i) debt financing, where the investors will provide financing with direct or contingent liabilities for the applicants, (ii) equity investments, where the investors will own instruments representing equity of the applicants, and (iii) profit sharing or royalties, which allow investors to participate under joint venture structures in projects developed by the applicants. All crowdfunding activities must be carried out in Mexican pesos, or alternatively in authorized cryptocurrencies. Donation and gift-based crowdfunding activities are not regulated under Fintech law and do not require regulatory authorization.
Regulation of E-money Entities
E-money entities will issue, manage, transfer and redeem e-money through electronic applications, interfaces, websites or any other electronic or digital means of communication.
E-money entities will be allowed to (i) open and maintain e-money accounts for their clients, (ii) transfer e-money between their client's accounts, (iii) transfer Mexican pesos, foreign currency or cryptocurrencies between their client’s accounts or accounts from other e-money entities, Mexican financial entities or foreign financial institutions that carry out similar activities, and (iv) redeem the monetary or cryptocurrency equivalent of e-money deposited in a client’s account.
Cryptocurrencies in Mexico
Fintech Law allows FTIs to carry out transactions with cryptocurrencies previously approved by the Bank of Mexico (Banxico), although no guidance is provided as to the approval process or the minimum operational and security requirements of the cryptocurrencies in such law. Banxico is expected to determine the extent of its supervising role, the requirements for the approval of cryptocurrencies and/or the period for Banxico to issue a list of authorized and forbidden cryptocurrencies in Mexico, through secondary regulations.
Regulatory Authorization for FTIs
With the prior approval of the new Interinstitutional Committee , FTIs must obtain an authorization from the National Banking and Securities Commission ("CNBV") in order to operate in Mexico. FTIs must provide the following information to CNBV as part of their authorization process: (i) draft by-laws; (ii) business plan; (iii) corporate governance rules; (iv) account segregation policies; (v) risk disclosure policies; and (vi) anti money laundering procedures, among other requirements.
Fintech Law provides for regulation of a mechanism based on the UK regulatory sandboxes, that grants a trial period for innovative companies to operate and provide new technology financial services to a limited number of clients, within a certain geographic area and subject to the prior approval of the government authority whose rules will be affected by the innovative model (i.e. CNBV for the banking industry rules). During this period, which is limited to an initial term of up to 2 years and may be renewed for an additional year, innovative companies will be able to implement their business models and innovations, with the understanding that they will also be preparing to meet all the necessary requirements to obtain a permanent authorization to operate.
Transitory Regime and Next Steps
Entities that are currently providing financial technology services reserved to FTIs, will be allowed to operate without the relevant regulatory authorization for up to 12 months, following the date of issuance by CNBV of the first secondary regulation of Fintech Law (which is expected within the next 6 months).
The transitory provisions of Fintech Law establish that within the next 6 to 24 months, several regulators will issue secondary rules in connection with Fintech services for the banking, money transmitter, insurance and pension fund industries, robo-advisory services, agency services by FTIs, as well as anti-money laundering, information security, corporate governance and other requirements for the operation of FTIs.
 Formed by 2 members of CNBV, 2 members of Banxico, and 2 members of Ministry of Finance and Public Credit (SHCP).