DLT and cryptocurrencies
FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.
Attitude of the country towards financial services using crypto currencies
Mexico’s approach to regulating crypto currencies can be both highly technical and still lack clear-cut answers to relevant aspects of digital technologies.
Blockchain, as a technology, is not regulated in any manner. There are no references to decentralised ledgers or other characteristics of the technology itself. Instead, the regulatory focus has been placed on “virtual assets”, a rather limited concept, defined as “a representation of value that is recorded electronically and used among the public as a payment method for any kind of legal transaction and which can be transferred exclusively through electronic means”. As such description is clearly based on the characteristics of crypto currencies in general, it currently fails to encompass more modern application of blockchain technology, most notably, NFTs.
Regulation on virtual assets has been assigned to the Central Bank. Although the FinTech Law introduced several models to allow an institutional approach to virtual assets, the Central Bank, as of 30 September 2020, issued restrictive regulations limiting all virtual assets activities by financial entities to internal activities that require prior approval. This approach has been, for the most part, aimed at allowing the use of virtual assets by the general public, but limiting institutional adoption thereof.
Obligations and requirements to provide financial services using crypto currencies described above
In order to be able to participate in the sale, reception or any other transaction regarding crypto currencies and any other digital assets, a company must first obtain the rights to operate as an IFPE, then must apply for a permit with the Central Bank to trade with said digital assets although the current regulation is highly restrictive.
The requirements and process for an IFPE are equal to those of an IFC as described above.
Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
A particular aspect where the current legal framework has been mute is the use of virtual assets as securities. Initially, securities in Mexico are regulated by the Securities Market Law which defines a security as “the shares, obligations, bonds, optional titles, certificates, promissory notes, letters of exchange and other named or unnamed negotiable instruments, whether recorded or not in a registry, susceptible to circulation in securities markets, issued in series or in mass and that represent the stock of a company, a part of an asset or the participation in a collective credit or any individual right, in terms of applicable local or foreign laws”. While this would give the impression that virtual assets could, in some cases, serve as securities, the Central Bank holds the (non-binding) opinion that any virtual asset representative of an underlying asset (be it shares, bonds etc.) is not really a virtual asset (without clarifying what such digital value representation would be). While such definition is different to the one provided by the FinTech Law, it sheds light on the opinion Mexican regulators hold on the use of virtual assets as tradeable securities.
Financial entities (other than IFPEs) have strict restrictions to transact with digital assets. Current rules issued by Banxico only permit the use of digital assets by financial entities (other than IFPEs) for the processing of internal transactions, and only if expressly approved by the Central Bank.
Market size for financial services using crypto currencies and biggest companies in this business area
The local market leader is Bitso, a crypto currency unicorn authorized in Mexico to operate as an IFPE.
Additional comments regarding the economic situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
Future changes to the current regulation could vastly impact the reach and scope of the current market, expanding transactions and adoption of said sector. Changes to applicable legislation is expected in the near future.