01 Jul Fintech Law: A New Challenge for Mexican Regulation
On March 9, 2018, the Fintech Law in Mexico was published, which seeks to regulate the organization, its operation and functioning within the Mexican financial system by delimiting the types of operations in accordance with the figure that has decided to adopt the Fintech in the approval process (Collective Financing Institution and/or Electronic Payment Funds Institution).
As part of the development and globalization of economies, Banking and its services are in a process of migration from Traditional Banking to digital services, resulting in the appearance of companies called Fintech, Financial Technology Institutions (FTI), which provides financial services through the web network, meaning they do not have branches and any treatment with customers is through Digital Banking.
According to Finnovista’s Fintech Radar, as of March 26, 2020, Mexico has 441 Fintech, which places it slightly ahead of Brazil, being the largest Fintech cradle in Latin America. Given this, Mexico becomes a pioneer in Latin America in the implementation of norms that regulate these institutions.
The Fintech Law highlights the following in terms of general provisions:
As part of the implementations derived from the Fintech Law, and in a first step to regularize their operations, Bank of Mexico issued regulations related to operations with virtual assets, operations with foreign currency and operations of electronic payments from fund institutions (Circular 4/2019, Circular 6/2019 and Circular 12/2018, respectively), while the CNBV established general provisions for the operation of FTIs in matters of internal control and risk management.
Within this framework, deadline was established for all Fintech companies to submit their registration to the CNBV. 85 authorization requests were received, of which 60 requested authorization to operate as an Electronic Payment Funds Institution and 25 as a Collective Financing Institution. As of May 2020, authorization was only granted to 1 of them. It is worth mentioning that the authorization process has been reduced by the contingency of the COVID-19 pandemic in which, despite the circumstances, we have further observed the growing tendency to manage and operate financial services through Digital Banking.
The Fintech Law brings with it new challenges:
- Define the regulatory scope of the existing rules for these entities.
- Establish a regulatory framework for the operations carried out by these figures.
- Design an information flow scheme (regulatory reports) from the entity to regulators based on the powers granted to regulators in article 57 of the Fintech Law, which establishes that FTIs must report related information with its activities and operations to the CNBV, CONDUSEF and Bank of Mexico.
- The CNBV, CONDUSEF and Banco de México currently have a universe of regulatory reports applicable to financial entities so the permeability of reports to FTIs will be related to the type of operations to which the entities have been authorized, and in its case to the development by regulators of new regulatory reports.
In an environment in which Digital Banking makes more sense and boom, regulators face the challenge of adopting new technologies to improve the efficiency and effectiveness of supervision, as well as guaranteeing the traceability and consistency of the information that these institutions report with the clear objective of establishing adequate communication and supervision of the activities of the Fintech companies without impeding their innovation.
Hence, the great challenge of defining norms and reports that help regulate these entities without this being a brake on their growth. For now, in adherence to existing norms, regulators are expected to define the communication and reporting channel with this new figure in the financial system.
However, beyond the regulatory implications that Fintech companies must meet, the challenge will be to identify and guarantee the possibility of growth and inclusion of a network of institutions accessible to all and be prepared to comply with an auditable risk management framework, which must guarantee the reliability and destination of the resources of clients and investors.
If you want to know more information about the Fintech Law in Mexico and the solutions that AxiomSL offers to promote this wave of changes coherently and uninterruptedly in data management and regulatory compliance requirements, contact us here.