The Law to Regulate Financial Technology Institutions, better known as the Fintech Law, continues to cause a strong stir among members of Mexico’s cryptoasset ecosystem. In fact, Financial Technology Institutions (IFA) have gained momentum in recent years due to the problems and obstacles that have been overcome through the application of disruptive technologies, the development of more customer-oriented products and services, and the implementation of more efficient, cost-effective, and appealing procedures within the industry. That is why the Fintech Law is, in some way, revolutionary.
What is the purpose of the Fintech Law?
This law will enable a legal system that governs the financial services provided by crowdfunding companies and electronic payment fund institutions, collectively referred to as ITF (Financial Technology Institutions), as well as their operations, functioning, and organization.
This implies that nine other laws, including the Law for the Prevention and Identification of Operations with Illicit Resources (known as the Anti-Money Laundering Law, AML), will need to be amended so that their application and harmonization are coherent. It will allow for the establishment of a “level playing field” with other entities that have already been regulated by these laws, and administrative and criminal penalties will be imposed on anyone who violates legal rules or provisions.
The National Banking and Securities Commission (CNBV) will have six months to issue the first secondary regulations of the Fintech Law and will be in charge of approving the operation of new FTTs. Meanwhile, the Bank of Mexico will be responsible for authorizing virtual assets, that is, representations of monetary value that can be used as means of payment through their platforms.
According to the Ministry of Finance and Public Credit, ITFs in Mexico—currently numbering 160—have already conducted credit operations exceeding one billion pesos and have nearly 540,000 users. Therefore, regulating them was necessary and urgent for their healthy development. Nearly sixty percent of the population has no access to banking products, and Mexico ranks fourth in financial inclusion in Latin America, according to World Bank records.
However, from 2013 to 2017, the highest growth rate in internet users occurred among the low-income population, with an annual average of 37%, increasing from 3.6 million to 12.7 million users.
The protection that the law will offer users will allow the new generation of financial services to provide better opportunities to manage their resources, strengthen their personal finances, and grow their assets through greater knowledge and accessibility via mobile phones and the internet.
One of the main and most important pillars of the secondary regulation published in the Official Gazette of the Federation (DOF) is to reduce the risk of fraud and cyberattacks that affect user information, ensure greater transparency and disclosure of information by ITFs, strengthen platform security, and help institutions implement anti-money laundering policies and business continuity plans. Users will have greater security, confidence, and peace of mind when acquiring financial products and services from companies operating under a legal framework.
Moreover, it will enable the identification and stimulation of forgotten industries or population segments, as well as real estate crowdfunding platforms, which have gradually consolidated the sector by promoting real estate entrepreneurship through collective financing.
Previously, participating as a real estate investor required large sums of money and experience. Now, a larger segment of the population can access these platforms, receive advice, and invest more affordable amounts—earning returns of up to 20% annually from investments as low as 50,000 Mexican pesos. Before these platforms were added to the ITF framework, such access was difficult to imagine.
The Fintech Law in Mexico is setting standards not only in national legal matters but also across the region. This was evident at the latest Pacific Alliance Summit, where the countries involved (Mexico, Peru, Colombia, Chile) agreed to use the best practices from the implementation of Mexico’s Fintech Law as a guide to begin formalizing FTTs in the region.