FINTECH: Mexico’s Trends & Challenges
As a response to the unrelenting trajectory that technological advance has taken worldwide, the Mexican Congress enacted, back on March 9, 2018, the Financial Technology Institutions Law (“Fintech Law”) in order to regulate the rendering of financial services through innovating technology—such as those used by crowdfunding and electronic payment institutions and the use of cryptocurrencies as well—becoming one of the first jurisdictions in the international arena and the first in Latin America to issue formal legislation to address exclusively the financial technology industry.
Despite the fact that the Fintech Law has brought a basic level of legal certainty and has defined new, broader horizons for collective financing and electronic payment institutions (hereinafter collectively as “Financial Technology Institutions” or “FTI”), new challenges lie ahead for such companies from a regulatory standpoint.
The novel approach to regulate the Fintech sector in Mexico has also led to a series of intricate steps to which FTIs have had to adapt in order to correctly observe and implement the relevant legislation—specifically, regarding the obligation to obtain an authorization granted by the National Banking and Securities Commission (“CNBV”, per its acronym in Spanish) to carry out the activities inherent to their business model.
The CNBV oversees such authorizations with the approval of the Interinstitutional Committee. This Committee is embodied by the President of the CNBV, two members of the Ministry of Finance and Public Credit, two members of Mexico’s Central Bank and two more members that are part of the CNBV.
FTIs that are looking for authorization to conduct operations in Mexico must carefully observe the steps involved in this process of approval, since it is not only mandatory to obtain a simple majority vote cast by the Interinstitutional Committee, but also a series of requirements that need to be taken into consideration when it comes to their own internal operation.
These requirements are, among others, to:
• Include in their corporate purpose the specific activities to be carried out by the FTI.
• Expressly set forth that the FTI will abide by the Fintech Law and other applicable secondary regulations.
• Provide an address in Mexican territory.
• Have the minimum capital contribution established by the Law in an FTI.
The activities to be included in the corporate bylaws and purpose of the FTI looking for authorization need to be strategically evaluated, since FTIs seeking to eventually conduct a broader range of activities than those originally authorized will need to file for a new approval.
As part of this process, it is important to bear in mind that the requirements for filing an authorization petition are meticulous and utterly descriptive. Business plans, projects, powers-of-attorney, operational measures and client ID control processes, supplier agreements lists, shareholders’ and administrative officers’ information, source of income used as capital contributions to the FTI, proof of address, are only some of the necessary documents that need to be exhibited along with the petition.
Furthermore, FTIs that obtain the corresponding authorization shall also have to demonstrate before the CNBV that they have complied with the following requirements, thirty days prior to the start of commercial operations:
• The legal entity must be duly incorporated (Public Registry of Commerce data must be provided).
• Minimum capital paid-up and subscribed.
• Counsels’ and directors’ due compliance with the requisites set forth in the Fintech Law and secondary regulations.
• Technological infrastructure, internal controls, policies, procedures, and necessary manuals to carry out their activities.
Naturally, additional requirements need to be met for authorization purposes, depending on the relevant business model. The Fintech Law even sets forth interim measures for approval that address innovative models (known as a regulatory sandbox), which will be subject to certain controlled tests to obtain full authorization.
As the reader will probably notice, the process that FTIs need to follow for obtaining an authorization from the CNBV, albeit not very complex from a technical standpoint, involves a certain degree of intricacy when it comes to the documentation and information that needs to be shared with the Interinstitutional Committee, among other regulatory authorities.
These authorization procedures that FTIs must comply with, in order to operate in Mexico, must be carried out in parallel, taking experiences in similar authorizations into account (since, as previously mentioned, measures may change and controlled tests may have to be performed depending on certain models), so as to avoid setbacks that would further delay this process. Moreover, it is important to bear in mind that an authorization from the CNBV shall also be required in the event of direct or indirect acquisitions, above certain thresholds, of the capital stock of an authorized FTI.
Mexico presents one of the best options in Latin America to create or expand Fintech startups. With a population of almost 130 million people, the Fintech sector in Mexico has grown at a fifty to sixty percent rate in the past years, slightly ahead of Brazil.
Evidently, it is not only the size of the economy that has helped this boom to continue flourishing, but also the fact that substantial legal certainty has been given to investors in Mexico because of the vanguard legislation enacted for Fintech purposes.
Therefore, as with any new horizon, it is important to bear in mind that potential hurdles and difficulties may lie ahead for Fintech start-ups when dealing with the implementation of this relatively new piece of legislation—such as issues that may arise when registering and filing for authorization to operate in Mexico—the legislation currently in force is constantly adapting to the innovative elements that the Fintech ecosystem brings, especially among companies focused on electronic payments and crowdfunding.
Both Ana Sofía Ríos and Valentín Ibarra are Partners with Chevez, Ruiz, Zamarripa y Cía. Jorge Ramón Galland is a Senior Associate in the Firm.