Mind The Gap – Cryptocurrency And Its Relationship With The Mexican Financial System - Finance and Banking - Mondaq Mexico - Mondaq Business Briefing - Blogs - VLEX 840984926

Mind The Gap – Cryptocurrency And Its Relationship With The Mexican Financial System

Author:Mr René Arce Lozano and Luis Dávalos
Profession:Hogan Lovells

The financial technology industry in Mexico has been thriving over the last few years, and the regulation that has followed seeks to continue this innovative trend, while protecting the financial system and its users from any potential risks associated with these new technologies.

The Mexican Financial Technology Institutions Law (Fintech Law) was published on March 9 2018, in order to build a regulatory framework around the development of innovative financial services and the operation of virtual assets (such as cryptocurrency). The Fintech Law was intended to increase the level of competition and financial inclusion, as well as protecting the wellbeing of innovative financial services consumers, in order to put Mexico at the forefront of the industry.

The provisions written into the Fintech Law mainly focus on regulating the organization, operation, functioning and authorization of companies that offer alternative means of access to finance and investment, the issuance and management of electronic payment funds and the exchange of virtual assets (Financial Technology Institutions or FTIs), as well as those providing innovative financial services through a regulatory sandbox. A regulatory sandbox is a special status whereby conventional regulation is not applied in order to test new business models.

The Fintech Law nevertheless provided for secondary regulation to be published by several Mexican government agencies. One of the most anticipated was the piece of regulation regarding virtual assets with which FTIs would be able to operate, as well as the operations they would be able carry out with such assets, including the information that would need to report to financial authorities.

The regulation was required to be released within 12 months of the publication of the Fintech Law. Accordingly, on March 8 2019, the Bank of Mexico (Banxico) published a directive containing the "General Provisions applicable to Credit Institutions and Financial Technology Institutions regarding Transactions carried out with Virtual Assets" (Directive 4/2019).

The foreword to Directive 4/2019 states that the use of virtual assets in financial services offered to the public can be problematic for its users due to their complexity as well as the difficulty in understanding the factors that determine their price. Moreover, if established financial institutions begin to offer virtual-asset-related financial products to their clients, it may generate a false sense...

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