Please give us an overview of the current legal market in Mexico and how any recent developments have impacted your practice?
The Mexican legal market has rapidly evolved during the last 10 years, mainly attributable to:
- the rapid expansion and establishment of Mexican offices of several international law firms, as well as the ‘re-integration’ of traditional legal practices within the Big 4 firms; and
- the enactment of several legal and regulatory reforms during the 2012-2018 presidential term, which led to the liberalisation of several markets (such as telecoms, power, and oil and gas), as well as the reshaping of the regulators in charge of basic economic aspects (e.g. COFECE, IFETEL), market regulation (e.g. CNH, CRE, CENACE, etc.) and environmental and safety policing (e.g. ASEA), among other aspects.
With regards to the fintech market, this has rapidly grown in Mexico since 2013, following the creation of the National Entrepreneurship Institute (INADEM), a public institution specialised in providing attention and solutions to the needs of entrepreneurs and MSMEs, with an emphasis on developing technological, financial and OTT services in Mexico. However, it was until March 2018, with the recent enactment of the Financial Technology Institutions Law (the ‘fintech law’), that the fintech market was deployed. Such event also resulted in the amendment and restatement of several provisions of other financial laws and regulations.
It is now obvious for practitioners, that fintech institutions will be of the utmost importance in the development of the financial and transactional markets in Mexico, and will have an impact not only on the financial regulation, but also on several topics such as privacy, competition, antitrust and consumer protection laws in the near future.
What are the current trends in the fintech market?
On September 2018, the first package of general (secondary) provisions applicable to the fintech law were published. In specific, the Mexican fintech regulatory framework has been recently enacted with: (a) provisions applicable to crowdfunding institutions; (b) general provisions applicable to the operation of e-money institutions; and (c) anti-money laundering and countering the financing of terrorism for fintech institutions.
From the operating point-of-view, fintech institutions have begun to apply for authorisation to operate from the Mexican National Banking and Securities Commission (CNBV), and it is expected that during the following year, at least 50 of the 73 companies that participated in the consultation prior to the enactment of the fintech law, will be authorised as Mexican fintech companies.
Acting as local counsel, we have been involved in regional projects, such as advising a Chilean fund entering the Mexican entrepreneur market, and worked together with our Canadian affiliate regarding crypto-mining and electric power regulation in Mexico.
What are the three biggest challenges to practising fintech in Mexico?
- The lack of regulation for application programming interfaces, sandbox models and privacy rules for fintech institutions.
- Compliance with the corporate governance rules set forth in the general provisions, as such can become a burdensome process for several companies, especially the small ventures commencing operations.
- The political moment in Mexico, as the landslide victory of the opposition candidate in the presidential election on 1 July, will impact the administrative structure of several financial regulators, such as the CNBV and the Bank of Mexico.
How does fintech fit into the firm as a whole? Is it easy to collaborate with other teams?
In our firm, fintech is considered as part of the banking and finance practice and it has become a key topic for our financial services industry as a whole. Our legal practitioners have teamed up with our corporate governance, AML, cybersecurity and risk management teams for the review, elaboration, and finalisation of several papers within our firm, mainly aimed to advice our clients as a truly diversifed ‘one-stop shop’, as well as with the development of fintech labs with the mutual participation of private and public actors.
In Deloitte Legal Mexico, we have been able to advised a roboadvisory company together with our risk management team, and have prepared a preliminary opinion to a crypto-mining company to establish and commence operation in Mexico, together with our transfer pricing and BPS teams.
What advice would you give to the next generation of fintech lawyers?
There is a need of highly specialised services in the fintech market, and now is actually a good moment to begin with the study and discussion of these topics. As the regulation continues to evolve, only those able to understand the market will be capable of advising both public and private clients in complex transactions.
What are your predictions for Mexico’s fintech over the next five years?
The Mexican fintech market will expand during the following two years as authorisations and licences will be granted to several companies during the following months.
From a regulatory point-of-view, an adequate regulation of the application programming interfaces and other
software communication protocols will be essential for the operation and market entrance of new competitors. Also, we predict that further legislation will be enacted to incentivise fintech in Mexico, specifically regarding tax incentives.
We consider that the Mexican fintech market will be in a maturity process during the following five years; however, this evolution will also be important for traditional banking institutions, as they will also apply for crowdfunding and e-money authorisations, and will begin processing crypto-currency payments during the following years.
Finally, sandbox models will become relevant from a legal point-of-view, as an ex ante regulation for this type of projects is impossible, an optimal ex post regulation together with the appropriate supervision and risk analysis will be the key factor for incentivising innovation while developing a more accurate regulatory framework.