What the Fintech Law in Mexico means for cryptocurrencies

These are the keys to understanding how the Fintech Law, through defining a virtual asset, will regulate the use of cryptocurrencies in the country.

Mexico is the first country to launch an Act to Regulate Financial Technology Institutions ( Fintech ). After being published on March 9 in the Official Gazette of the Federation , what follows is the development of the secondary laws that will accompany and detail it. But in what way will it regulate the world of cryptocurrencies ? Here we will explain it in detail.

The Fintech Law does not deal directly with cryptocurrencies, but with those institutions that operate them . At a general level, it deals with four areas of the country's financial system: virtual assets (such as digital currencies), financial advice, crowdfunding and electronic payments. In digital finance, it has introduced new elements as a definition of a virtual asset and who can manage them.

In Article 30, the Mexican Fintech Law defines a virtual asset as:

(...) the representation of value registered electronically and used by the public as a means of payment for all types of legal acts and whose transfer can only be carried out through electronic means is considered virtual asset.

Eduardo Guraieb, general director of Fintech Mexico, a civil association that brings together the most important companies in the Fintech sector in the country, stressed in an interview with Hipertextual that "it only regulates the use of virtual assets by the Financial Technology Institutions, which are the Fintech , and the credit institutions , which are the banks ", that is, it does not regulate the use of cryptoactives between individuals .

Only regulates the performance of the Fintech in terms of cryptocurrencies, not their use between individuals

On the other hand, the Bank of Mexico (Banxico) is the one that has been established in the Fintech Law as the tutelary body of the cryptoactive exchange houses , who will have to request a license to operate as such, and who authorizes the cryptocurrency in your list of virtual assets . The virtual exchange houses, for purposes of the law, are Financial Technology Institutions , explained Guraieb, who holds a law degree from the Instituto Tecnológico Autónomo de México (ITAM).

The exchange houses are obliged to provide information to their customers about the risks involved in the operations, the volatility of the value of the assets and the technological, cybernetic and inherent fraud risks .

In addition, they must be able to deliver "to the client , when requested, the amount of virtual assets that he owns, or , the amount in national currency corresponding to the payment received from the alienation of the corresponding virtual assets" .

Regarding infractions, article 124 of the Fintech Act states that activities with virtual assets not authorized by Banxico or without the corresponding license may be punished with a prison term of seven and up to 15 years and a fine of 5,000 to 150,000. UMA (Unit of Measurement and Update). In 2018, the daily UMA is equivalent to 80.60 pesos, that is, the fine could go from 403,000 to 12,090,000 pesos.

"People do not think of Bitcoin"

That Mexico has the first Fintech Law in the world does not mean that tomorrow everyone in the country will leave their homes and use cryptocurrencies to buy anything like a coffee on the street. On the contrary, there is a long way to go before reaching that point. To begin with, it is the same reason why most digital currencies will not fulfill a fundamental requirement: to be used as a means of payment .

Most digital currencies will not meet the requirement to be used as a means of payment

As Jorge Ortiz, managing partner of The Fintech Hub, pointed out, in an interview with Hipertextual , cryptocurrencies are being contemplated within the law, however, they are not being given currency recognition, but rather as an asset .

Among the characteristics of a currency, in addition to serving as a unit of value , is that they are used as a value reserve or vehicle of value , explained Ortiz, who was a partner and first president of the Mexican Association of Fintech Companies. Additionally, although all currencies have some volatility, the UDLAP Accountant and Finance graduate highlighted, cryptocurrencies are among the most volatile assets.

Interestingly, people are not using Bitcoin as a currency, as a vehicle of value, as a unit of value. He is using it to speculate and they want to get rich overnight. That is the problem, they are not giving usability or usability that should give you like any currency.

And that's because most "people do not think of Bitcoin," said Ortiz, who has the theory that deep down people do not want to pay in Bitcoin, and it's because they do not see it as a means of payment yet. like the euro, the peso or the dollar, but as a valuable vehicle to speculate with the hope of winning. For this reason, he considers it a wise decision that the authorities at this stage have not recognized cryptocurrencies as currency.

Later, the secondary laws will detail the characteristics that Banxico will take into account as the usability of a cryptocurrency , its cryptography or acceptance internationally to consider it within its list of digital assets.

Secondary laws

The Fintech Law passed is very general . For this reason, the Ministry of Finance and Public Credit, the Bank of Mexico, the National Banking and Securities Commission and the National Commission for the Protection and Defense of Users of Financial Services must work on the design of secondary laws where specify what the operation, monitoring and performance of the financial technology companies will be.

Both Guraieb and Ortiz agree that all those involved in the sector in the process of developing the Fintech Law were looking for it to be quite general, since, as both point out, it is always easier to modify a regulation than a law .

Secondary laws will establish the characteristics that a virtual asset must fulfill, as well as what will happen in the case of a fork

Among the details that secondary laws will establish are the characteristics that virtual assets must meet to be endorsed by Banxico on its list. Also what will happen in the case of a bifurcation that results in two different virtual assets, that is, how will be the revision of the new and the old cryptocurrency or asset.

Also, other issues that are going to be discussed are security , how the manual of operational risks is defined within the companies, as well as the prevention of money laundering and fraud , Ortíz said. However, at the same time they must take care that the barrier they establish is not high enough to "inhibit innovation or the entry of new players," said the specialist in finance.

What was the big step for cryptocurrencies in Mexico?

Although in other places like the United Kingdom there is a regulation regarding Fintech issues, there is no other law like the Mexican one. "And it has innovative concepts that are not in jurisdictions that are more advanced in economic terms,"

Guraieb said.

" Although it is indirect, it regulates virtual assets when determining which currency exchange houses can operate, that is, to which individuals have access in exchange for pesos," explained the legal specialist, adding:

What you want to do is enter in a certain way and recognize that there are virtual currencies or virtual assets with a very serious technical background and with a very sustainable product or, at the same time, that maybe there are still some projects that are very incipient or that are not they have such safe uses.

On the other hand, for Ortiz it has been very important the opening that the authorities have had to listen to the sector during the development of the law . In fact, he stressed, the senators approved it unanimously and among the deputies there were only three votes against. "That tells you what the appreciation of this law was like."

Given that the Fintech Law provides legal certainty, it is expected that it will attract talent and greater investment to this sector in the country.

In addition, the economist believes that having a vanguardist regulation like this will attract talent from other parts of Latin America. Both specialists agree on the reason: the Fintech Law is innovative because it allows entrepreneurs to give legal certainty . In the end, it is hoped that this will also lead to greater investment towards the Fintech in the country and, in the best of cases, that Mexico become the Latin American Fintech capital , Ortiz concluded.