The Mexican Fintech draft decree addresses the regulation of financial services provided by financial technology institutions and those financial services subject to special regulation that are marketed by or carried out by “innovative” means. The regulation includes several temporary provisions adding to, amending and repealing certain articles in laws affected by the new regulation. These include: the Credit Institutions Law, the Securities Market Law, the General Law on Credit Organizations and Ancillary Activities, the Law for the Transparency and Ordering of Financial Services, the Law regulating Credit Information Companies, the Law for the Protection and Defense of Financial Services Users, the Law regulating Financial Groups, the National Banking Commission Law and the Federal Law for the Prevention and Identification of Transactions involving illegally-sourced funds.

The draft decree refers in the first place to the principles underpinning the regulation, among them financial inclusion and innovation, encouraging competition, consumer protection, conservation of financial stability and the prevention of illegal transactions.

The most important figures and definitions developed throughout the document are these:

• Virtual assets. The so-called crypto-currencies. They represent the value of a transaction recorded electronically and are determined by the Bank of Mexico. They can be used as a form of payment for all sorts of legal acts and may only be transferred electronically. The regulation makes clear that they do not represent legal tender and are not underwritten either by the Federal Government or by the Bank of Mexico.

• Fintech institutions (FTI). These are legal persons requiring the relevant authorization from the National Banking & Securities Commission (CNBV) to operate in the market and whose representing securities are freely subscribed. FTIs will have to adopt measures to prevent the dissemination of false or misleading information, provide their clients with information that enables them to identify transactional risks, as well as publicizing widely the fact that they are authorized, regulated and supervised by the relevant Financial Authorities.

The law distinguishes between two types of Financial Technology Institution: Crowdfunding platforms and electronic fund payment entities.

Crowdfunding entities connect people so that between them they get financing through collective financing transactions, or crowdfunding. These transactions can be carried out in the local currency, foreign currency or through virtual assets, which have three forms: debt, capital and co-ownership or royalties.

Crowdfunding entities must publish the investment applications they receive, together with the projects of those applying for funds, and provide investors with information about these projects. They will have to report on the criteria for selecting applicants and projects to receive funding, disclose the risk associated with the project to be funded, and are required to obtain confirmation, in electronic format, from potential investors that they are aware of these risks.

These FTIs can act as their clients’ trustees or commission agents and will be liable for the damages suffered by clients in the event they not meet their legal obligations.

Electronic funds payment institutions, as with crowdfunding platforms, must be authorized by the CNBV to issue, administer and transfer payments of funds using any electronic or digital media. The regulation states they are to be booked in an electronic record of transactional accounts with a monetary value equivalent to a specific sum of money in local or foreign currency, or to a particular number of units of a virtual asset determined by the Bank of Mexico corresponding to a debenture charged to the issuer.

These FTIs are responsible for opening and managing clients’ electronic fund payment accounts -transferring local and foreign currency or virtual assets- and for putting third parties in contact to facilitate the purchase or sale of these kinds of assets.

• Innovative model. The draft decree defines the “innovative model” as one that uses technology instruments or methods that are different from others on the market at the time of being granted the temporary authorization to provide financial services. The law uses this “innovative model” figure to create provisions for companies that do not fit in either the virtual currency or crowdfunding models to develop in the future.

In addition, the draft decree regulates matters relating to obtaining, suspending and limiting the authorizations given by the CNBV. It allows FTIs to form trade associations and permits the creation of the Financial Innovation Group, as a forum for consultation, advice and coordination. The draft decree also specifies penalties for non-compliance with its stipulations or deriving from the regulations.