Senate approval brings Mexico closer to fintech law

Mexico's senate approved a long-awaited fintech regulation law Tuesday, establishing a wide range of provisions meant to foster innovation with the burgeoning industry, while protecting consumers and promoting financial inclusion.

The measure, which now heads to the lower house, also includes civil and criminal penalties for a variety of infractions, including fines of up to US$580,000 for carrying out cryptocurrency transactions without central bank authorization.

As approved, the law creates an inter-institutional committee to provide industry oversight, give fintech companies authorization to operate and apply penalties when necessary. The committee's membership would comprise of representatives from the finance ministry and the central bank.

The measure designates fintechs as financial technology institutions, or ITFs, and allows for their use of an advanced electronic signature in carrying out transactions over devices, such as personal computers, mobile phones and tables.

It also defines virtual assets "such as cryptocurrencies or Bitcoins" as representations of a verifiable digital value that have no legal tender but generate units for their exchange."

Any fines for infractions under the law are set using Mexico's federally adjusted reference unit (UMA), which was set at 73 pesos (US$3.90) in 2017.

The senate press release announcing the bill offered examples of fines that might be incurred under the legislation.

These include a fine of 30,000 to 150,000 UMA's (US$116,000-US$580,000) for carrying out transactions using cryptocurrencies without having prior authorization to operate as an ITF from the central bank.

It also establishes a fine at the same level for disseminating false or misleading information through the ITF, and it levies a fine of 5,000 to 150,000 UMA's and 3-5 years imprisonment for illegitimate or unauthorized access of an ITF's electronic, optical, computer or other technological equipment.

During the debate, senator Maria de los Dolores Padierna Luna of the Labor Party said there are 703 ITFs recognized by the Inter-American Development Bank, of which Mexico has 180 (26% of the total), Brazil has 230, Colombia 84 and the rest divided into other countries, such as Argentina and Chile.

Senator Juan Carlos Romero Hicks, of the National Action Party (PAN), said that in drafting the bill legislators faced two risks - that of "the current, unhappy anarchy and the anarchy of over-regulation."

Once approved in the lower house and signed into law, the legislation would add to the body of emerging laws and official comments in the region addressing the fintech industry and the booming interest in cryptocurrencies.

These vary widely. In Bolivia, Bitcoin owners face arrest. In contrast, Venezuela's government has announced plans to launch a cryptocurrency, dubbed the 'Petro', backed by the nation's mineral wealth. Brazil's central bank, like others in the region, has issued warnings about the use of cryptocurrencies given the lack of regulation and non-fiat status.

Crypto-based ATMs are also popping up across the region, despite opposition, as is the case in Costa Rica where the central bank and professional organizations warned against their use.

Nevertheless, the potential for blockchain technology and innovative fintechs have generated enthusiastic support from the region's financial and insurance industries with major firms investing heavily to develop ways to advance their businesses utilizing the platform.