Amid the rise of fintech startups and mixed forecasts about the future of cryptocurrencies, Mexico has moved to regulate its digital finance space in a bid to promote inclusion and competition in the sector.
Mexico’s legislature approved the country’s first ‘Fintech Law’ in early March, roughly a year after the measure was first proposed, according to a statement by the Mexican government.
This imposes a new regulatory framework to the previously unregulated activities of crowdfunding, electronic payments and crypto transactions, imposing fines to firms operating without the required permits.
‘The regulation that comes out of this new law will be based on principles aiming to protect and defend consumers using these services, to foster financial inclusion and innovation, and to promote competition in this sector,’ according to statement.
The law established a framework for companies to register as ‘Financial Technology Institutions’ (ITFs, for their Spanish acronym) with the country’s banking and securities regulator.
ITFs will only be permitted to trade digital currencies approved by Mexico’s central bank, according to the statement. Moreover, the firms have to always be in a position that would allow clients to redeem their investments.
The law also requires that ITFs disclose that digital assets such as cryptos aren’t an official currency and aren’t backed by Mexico’s central bank. In addition, the firms have to warn about the volatility of digital currencies, as well as the possibility of technology failure and fraud risk.
Firms that breach the requirements would face fines ranging from about $20,000 to $600,000, depending on the infraction, said the statement.
‘This law increases judicial certainty for investors and users of fintech institutions to guarantee the stability of the overall financial system,’ said José Teodoro Barraza López, a member of Mexico’s Chamber of Deputies.
Countries around the world have been scrambling to better understand and regulate crypto assets and the technologies behind them. Latin America's biggest economy, Brazil, prohibited local investment funds from buying cryptocurrencies earlier this year ruling that they are not financial assets.