Published legislation and draft legislation - Mexico

Law regulating Financial Technology Institutions

Decree

The Decree enacting the Law regulating Financial Technology Institutions was published on 9th March and several provisions of the Credit Institutions Act, the Securities Market Act, the General Credit Organisations and Auxiliary Activities Act, the Financial Services Transparency and Planning Act, the law that regulates Credit Rating Agencies, the Financial Services User Defence and Protection Act, the law regulating Financial Groups, the National Banking and Securities Commission Act, and the Federal Anti-Money Laundering law were amended and added to.

This is aimed at providing certainty that the new tech players comply with existing standards in traditional banking. It offers greater security and transparency in deals and transactions with financial products that are closely related to technology. And, in turn, it opens up possibilities for traditional banks to also harness innovation and technology so they can offer their customers better solutions.

​The Fintech Act provides protection but it also requires Fintechs and financial institutions to always ensure a record of all transactions they carry out, regardless of where they take place, online or offline.

The decree covers several key aspects in the definition of content. The most innovative include regulating Cryptocurrencies and Crowdfunding transactions and the possibility of offering Open Platforms and using Sandboxes.

Cryptocurrencies are digital currencies that use encryption techniques to regulate the generation of new monetary units and to verify the transfer of funds, operating independently from a central bank. This independence from central banks has set alarm bells ringing with respect to regulatory and consumer protection issues. ​In reality, the Fintech law regulates all institutions that trade in cryptocurrencies, rather than directly regulating the cryptocurrencies themselves.

​When we talk about Crowdfunding, we are talking about innovative companies that need funding to take off, which need to be matched to investors who proactively decide to provide seed money for a project. They can do this online, using platforms, but they may not know the other players taking part. Thus, this form of funding has to be based on mutual trust established in the digital media. The Fintech Act tries to ensure that this trust is generated under the protection of the law. This is vital in the resolution of disputes (if any) and at the same time helps to generate confidence in using crowdfunding to encourage greater investment in innovative projects and in the development of the country. Regular Crowdfunding is undoubtedly great news for new Fintechs, highly focused on providing value for users.

​The decree also includes what are known as Open Platforms, which try to produce value over time, rather than providing an occasional “service” to a customer, or only as long as the relations with the provider last. To such end, they use information available and user-behavior patterns to facilitate interaction and decision-making when faced with a product or service. Nowadays, the information or trace that a user leaves is fragmented among different players. (For example, my airline knows that I always travel with my son and my bank knows that, once my savings exceed a certain threshold, I like to take a family trip with my son).

With the authorisation of the user, open platforms allow both players to share information in a controlled and regulated manner, to offer the customer a better experience. From a technical standpoint, this transfer of information is made via what we call "APIs" (Application Platform Interfaces).

Innovation starts with the user (through a real need) and finalises when a valuable contribution is made to that user. Innovating means testing, iterating, seeing what works best in order to find where the value of that contribution may lie. Sandboxes give us a space to test new things in a controlled and parametrized environment that allows us to evolve new ideas in tangible concepts. What would happen if I wanted to test a new wallet that uses voice recognition and makes payments in accordance with my orders? Before the Fintech Act, this project would very probably never see the light of day. Apart from the technical developments, we would have to resort to regulators, auditors and other competent authorities to get their endorsement to deploy this solution an a massive scale in the market. The sandbox is the direct expression of what innovation really means: testing with a limited number of customers, receiving feedback and seeing if the user uses it and how they use it. The sandbox provides a testing customer base and sample data that can be combined with ours to be used in tests.

Just as we anticipated in Progreso 13, the Mexican Fintech legislation was enacted to regulate the financial services provided by the Financial Technology Institutions and financial services covered by special legislation offered or transacted by truly innovative means.

The Decree is no great change from the bill, although it does make some slight modifications, such as adding technological neutrality as a principle* on which the law is based, and the division of the Chapter devoted to Crimes into four sections that classify and regulate their respective penalties.

* Art. 2 Decree Bill. Law based on the principles of financial inclusion and innovation, promoting competition, consumer protection, conserving financial stability and preventing illegal operations.