As mentioned above, the Fintech Law provides the legal framework for financial entities to operate with virtual assets. A money transmitter is a business entity that provides money transfer services or payment instruments, such as Western Union.The original purpose of state level money transmissions laws was to prevent money laundering and other illegal acts. Moreover, the operation with virtual assets by non-financial entities is allowed in accordance with the terms listed on the Federal Law for the Prevention and Identification of Operations with Resources of Illegal Proceeds (also known as the Anti-money Laundering Law) (see below for more details). Providing services involving virtual assets is an activity classified as vulnerable to money laundering. [2] It also provides that Mexico’s legal currency may not, under any circumstance, be considered a virtual asset. Regulation is minimal, but new laws are on the way. [9]  Furthermore, providers of such services will have a number of additional duties, including, Regulations further detailing pertinent requirements for financial companies are to be published by August 2018. In this regard, the following comments are made to clarify the scope of the law: Having said that, with the enactment of the Fintech Law, Mexican financial authorities took a first step to recognising the use of virtual assets within the Mexican financial system. Nevertheless, as of September 2020, Banxico has not determined any virtual assets that can be used under these conditions within the Mexican financial system. For more information, please refer to Valderrama, Carlos, 2020, “Regulatory Sandbox: The cornerstone for the fintech disruptive innovation’s explosion in Mexico”, at Rocio Haydee Robles Peiro, Fintech Law, context, content and implications, Mexico City, Mexico, Tirant lo blanch. The law regulates both lending and equity activities. Notwithstanding the foregoing, the same law sets forth that in no case shall virtual assets be understood as currency of legal tender on national territory, foreign currency or any other asset denominated in legal tender or in foreign currency. In Mexico, there are no official categorisations other than the definition of virtual assets as a “representation of value electronically recorded and used among the public as a payment method for any kind of legal acts and whose transfer can only be carried out through electronic means” set forth in the Fintech Law. Inspector General | This law provides that non-financial entities must inform the Ministry of Finance when the amount of a trading transaction performed by a client is equal to or greater than 645 Update and Measurement Units (MXN 56,037.60 for 2020 – approximately USD 2,536.78). This bill which addresses both cryptocurrency regulations and crowdfunding issues shall put Mexico in the small list of countries who are trying hard to usher in legislation in cryptocurrency sphere. In November 2020, the Securities and Commodities Authority published “The Chairman of the Authority's Board of Directors' Decision No. However, in Mexico, a general principle applies: whatever is not prohibited by law is permitted for non-regulated people or businesses. In contrast to other Latin American countries, Mexico does, to an extent, regulate cryptocurrency exchanges through the Law to Regulate Financial Technology Companies. (23/Chairman) of 2020 Concerning Crypto Assets Activities Regulation." Innovative Models (also known as Regulatory Sandboxes): these authorisations allow both financial and non-financial entities to carry out regulated activities using innovative technological tools or means with different modalities from those currently existing in the Mexican market and with a lower regulatory burden (see below for more details). imposing fines due to unauthorized transactions using virtual assets. The law extends Mexican AML regulations to cryptocurrency services providers by imposing a … In order to specify a legal treatment, we have to establish the legal nature of a virtual asset, being an intangible asset or good in which the owner has a property right. Then CNBC came out in favor of the law, which simplified and updated regulation around online financial services including crowdfunding services and cryptocurrency trading platforms. Official blog from the Law Library of Congress, Back to Index of Regulation of Cryptocurrency. In the case of residents abroad without an establishment in Mexico, the tax is generally paid by means of a withholding. Several established exchanges and businesses have moved from abraod to … Mexico’s central bank, known as Banxico, has issued a series of proposed fintech regulations that could have an impact on the country’s burgeoning cryptocurrency and blockchain technology sectors. Finally, as of the date of preparation for this chapter, there are no virtual assets supported by either the Mexican Government or by Banxico. According to a June 2019 report by the World Bank, crypto-based cross-border transaction is currently ranked as the most affordable means for remittance transactions. In Mexico, inheritance is the succession of all property of the deceased and in all his rights and obligations that are not extinguished by death. [13] Â, Prepared by Gustavo Guerra It is a well-known fact that this money helps … For more information, please refer to the “Reporting requirements” section below. keeping records pertaining to transactions and clients. technological, cybernetic, and fraud risks are inherent in virtual assets. a virtual asset is not a legal currency and is not backed by the federal government nor by Mexico’s Central Bank;Â. once executed, transactions with virtual assets may be irreversible; the value of virtual assets is volatile; and. Experts in Mexico and abroad have warned that the central bank’s proposed new crypto regulations could potentially derail progress for the country’s burgeoning cryptocurrency sector. [11] Ley para Regular las Instituciones de Tecnología Financiera art. The [1] Ley para Regular las Instituciones de Tecnología Financiera [Law to Regulate Financial Technology Companies] arts. Mexico seems to be the next country to hit the headlines with regards to cryptocurrency regulation, not so far behind Venezuela who have also been in the news of late. There are several federal contributions that must be taken into account when making an investment in our country, among which are income tax and value-added tax. The published circular provided details of the Cryptocurrency related provisions for the Financial Technology Institutions (FTIs) regulation. In general terms, all persons in Mexico – whether individuals or companies – are obliged to contribute to public expenses, in accordance with the respective laws. Mexico Central Bank Proposed Crypto Regulations Could Suffocate the Economy Reading Time: 2 minutes by Tom Nyarunda on March 24, 2019 Business , Exchange , Finance , News , Regulation The proposed law requires cryptocurrency exchanges to acquire a license to qualify as regulated financial institutions. First of all, there are no specific rules applicable to estate planning and testamentary succession for cryptocurrencies; however, the general principles may apply. Cryptocurrency exchanges are currently operating under Mexico’s SAPI de CV laws (link to Spanish site), which stands for Sociedad Anónima Promotora de Inversiones de Capital Variable (Mexican investments). Income tax is a direct contribution levied on income received by residents in Mexico and residents abroad with or without a permanent establishment in the country. However, there are no specific provisions regarding a custodial exchange to specify a beneficiary of the virtual assets in case of death, but as good practice, there are some custodial exchanges that grant that benefit to the heirs. New regulation would effectively ban crypto exchanges in Mexico Bucking international trends, the Mexican central bank would deny exchanges a sensible path to regulation and deny Mexicans safe access to financial technologies. Opposed to the above, the Mexican Regulatory Sandbox is configured in such a way that it can even provide an ad hoc legal framework. Several established exchanges and businesses have moved from abraod to … Finally, regarding banks and fintechs, the Fintech Law established that in the event of the customer’s death, the fintech will deliver the amount corresponding to the electronic payment funds to which the customer himself has designated as beneficiaries, expressly and in writing, in the percentage stipulated for each of them, and the electronic payment funds could be also referred to virtual assets with the corresponding authorisation of the Mexican Central Bank. Now, with respect to non-custodial exchanges, there are no specific obligations. For more information, please refer to the “Reporting requirements” section below. In early March, the Central Bank published a circular prohibiting fintech companies from operating with cryptocurrencies Mexican Crypto Industry Trapped In "Catch-22." Legal | Since cryptocurrency is not controlled by any central authority, it’s hard to bring it under a predetermined set of rules and regulations. Recently, the fintech sector in Mexico has seen official regulation. On January 1, 2020, Germany joined a small but growing number of countries with a specific regulatory regime for crypto assets. The lawmakers in Mexico have today advanced the proposed cryptocurrency bill drafted to control fintech as well as cryptocurrencies in the nation. When talking about the “know-your-customer” (KYC) and AML legal framework applicable to transactions in digital assets, it is important to distinguish who is the entity making those transactions: (i) fintech and banking institutions; or (ii) other entities or natural persons. As reported by our Mexico cryptocurrency regulation research, crypto-related action in this country has a 7.2/10 safety rank. On Friday, March 10, the Bank of Mexico (colloquially known as ‘Banxico’) published a circular in the Official Gazette of the Federation with new details on cryptocurrency regulations. Tagged: Agustin Carstens, Banco de Mexico, cryptocurrencies, cryptocurrency, Cryptocurrency Regulation, Enrique Pena Nieto, Mexico, securities commission With: 0 Comments Politicians in Mexico have now advanced a bill that was drafted to regulate cryptocurrencies in … This tax is caused by the person who disposes of goods, provides services or grants the temporary use or enjoyment of goods, and must transfer it and collect it from the person who acquires the good or service, or the lease, as the case may be. This will give rise to the model known as “open finance”, as opposed to the traditional model of “open banking”. The Uniform Regulation of Virtual-Currency Businesses Act (URVCBA) is a template that state governments can use to integrate cryptocurrency companies into the regulatory system. The cryptocurrency owner must transfer the private keys to the heir for a cold or hot wallet. Recently, the government of the United Mexican States, has given the information that approved a new law of regulation of cryptocurrencies, which has been called the FINTECH law that is aimed at regulating financial technology institutions. [12] Dainzú Patiño, Se abre camino para cobrar impuestos a bitcoins, Expansion.mx (Mar.14, 2018), https://expansion.mx/economia/2018/03/14/se-abre-camino-para-cobrar-impuestos-a-bitcoins, archived at https://perma.cc/K9NF-ALYK.Â, About | In this regard, if the cryptoasset is not considered a virtual asset under the Fintech Law, it could be considered a security with which the Investment Advisor or the Fund Manager could operate. [12] These experts also indicated that pertinent regulations on virtual assets must be enacted in order to determine the specific tax rules applicable to such assets. Jobs | It is also relevant to note that one of the most important attributes for both taxes is the residence of the active subjects, as it links them to the jurisdiction of the State that exercises its taxing power. Mexico’s central bank has recently proposed new regulations to a recently enacted fintech law that could “effusively ban cryptocurrency exchanges in the country” if they manage to move forward. Each authority has examined various aspects of the crypto-world and have come up with modalities of regulating it. The most commonly asked question about cryptocurrency trading by a user is whether it is legal in my country or not. Finally, on March 8 th, 2019, Banxico published in the Mexican Official Federal Gazette the secondary regulation known as “Circular 4/2019” whose main purpose is to determine the characteristics that virtual assets must fulfil in order to be used between financial entities (ITFs and banks) and their customers. In this context, the Regulatory Sandbox will be an important tool to foster the emergence of those (for example, blockchain technology). In addition, inheritance is defended by the will of the testator or by provision of the law. The regulation in question implies a change in the regulatory paradigm in Mexico, as our financial law has its origin in civil and Roman law, a system of codified laws that attempts to cover in an exhaustive way each area of application for the law that can generate legal consequences. Please see our terms and conditions page for further details. Reports issued by banks (currently in force but inoperative, see “Cryptocurrency regulation” above for more details). Nevertheless, as of September 2020, Banxico has not determined any virtual assets that … [6] At a minimum, these companies must inform their clients, in a clear and accessible manner on their respective websites or through the means that they utilize to provide services, that, Providing services involving virtual assets is an activity classified as vulnerable to money laundering. The Fintech Law only provides the legal framework for financial entities (ITFs and banks) to perform operations with virtual assets (see below for more details). Mexico’s bill to regulate cryptocurrency exchanges has been approved by the country’s lower house of Congress and is now awaiting the signature of President Enrique Pena Nieto to become law. The Sandbox Challenge was organised by the UK Embassy and executed by Dai Mexico under the umbrella of the Financial Service programme, where Legal Paradox® acted as a sponsor, hand in hand with giants like Google, MassChallenge, ALLVP, among others. [5] Id. The Mexican Central Bank (Banxico) is legally entitled to determine in secondary regulation the characteristics that the virtual assets must fulfil to be used by the financial entities mentioned above. [1] This chapter defines virtual assets as representations of value electronically registered and utilized by the public as a means of payment for all types of legal transactions, which may only be transferred electronically. , regulation varies by state It’s hard to find a consistent legal approach to cryptocurrencies in the United States. 17(XVI), Nota de vigencia, D.O.F., Oct. 17, 2012, available as amended through March 2018 on the website of Mexico’s House of Representatives at http://www.diputados.gob.mx/LeyesBiblio/pdf/LFPIORPI_090318.pdf, archived at https://perma.cc/4UVN-GM98. In 2018, the Ley Fintech , as it was called, was passed with the support of the Comisión Nacional Bancaria y de Valores (CNBV). According to the AML/CFT secondary regulation applicable for banks, these entities must share a report with the Ministry of Finance (through the National Banking and Securities Commission) within the first 10 business days of each quarter when: (1) a client has bought a virtual asset using legal tender or foreign currency, no matter the amount of the transaction; and (2) a client has sold a virtual asset in exchange for legal tender or foreign currency, as long as the amount of the transaction made has been equal to or greater than USD 2,250. The Fund Managers and Investment Advisors are considered financial institutions pursuant to the Stock Market Law and the Investment Funds Law, so they are not entitled to operate with virtual assets under the Fintech Law. The development of crypto industry in Mexico is under threat. It creates the financial entities known as ITFs: Crowdfunding Institutions: their purpose is to facilitate communication between applicants and investors so that the latter can provide resources to the former for specific projects. These assets, which are not legal currency, are defined as representations of value electronically registered, utilized, and transferred by the public as a means of payment. In Mexico, tax residents are considered to be legal entities that have established in the country the main administration of their business, and individuals, as a general rule, who establish their home in Mexico or are nationals of the country, although this must be analysed on a case-by-case basis to determine such tax residence. For fintech and banking institutions, there are specific KYC/AML rules for each financial entity and, for other entities and natural persons, the general rules of the Federal Law for the Prevention and Identification of Operations with Resources of Illegal Proceeds apply. With an average cost of about 4.88%. Notwithstanding the above, the Investment Funds Law established that the assets subject to investment have to be securities, titles and documents to which the regime of the Stock Market Law is applicable, registered in the National Registry or listed in the International Quotation System. Mexico’s central bank has been granted broad powers on virtual assets, to be exercised through the issuance of pertinent regulations to be published within a year from the enactment of the law. Electronic Money Institutions: their purpose is the issuance, administration, redemption and transmission of electronic money for payments or transfers of funds. The Bank of Mexico made an important move on the road to the regulation of cryptocurrencies on Monday, releasing an official update to its existing policy on cryptocurrency investors and their place in the financial framework of the country. [11], Tax experts opined that, as of March 2018, Mexican law did not appear to provide for clear statutory rules on taxation pertaining to virtual assets. USA.gov, II. Law on Anti-Money Laundering Pertaining to Virtual Assets, http://www.diputados.gob.mx/LeyesBiblio/pdf/LRITF_ 090318.pdf, http://www.diputados.gob.mx/LeyesBiblio/pdf/LFPIORPI_090318.pdf, https://expansion.mx/economia/2018/03/14/se-abre-camino-para-cobrar-impuestos-a-bitcoins. In Mexico, there are no specific rules applicable to border restrictions or obligations to declare cryptocurrency holdings. Regarding natural persons, property rights for cryptocurrencies could be transferred by testamentary succession or by legitimate succession. The rapid growth of cryptocurrency trading has elicited a mixed response from global regulators and governments in a number of different ways. The long-awaited rules on crypto assets recently published by the central bank of Mexico have caused quite a stir. The obligations for fintechs and banks are highly strict and have requirements such as the development of an AML Prevention Manual, the formation of internal structures in charge of the AML department, being the Compliance Officer and the Communication and Control Committee, and a risk-based approach analysis, among others. As of the date of preparation of this chapter, there is no specific tax regulation issued for cryptocurrency; as a consequence, the corresponding tax impact must be analysed on case-by-case basis. This expansive growth is primarily attributable to the fact that over the past four years Mexico’s Crypto Bill Approved Mexico’s bill to regulate the fintech sector, which […] Mexico has recently proposed new financial technology regulations which would force banks to cut off all business with accounts dealing in exchanging cryptocurrency and fiat. Mexico’s Law to Regulate Financial Technology Companies, enacted in March 2018, includes a chapter on operations with “virtual assets,” commonly known as cryptocurrencies. The rules are still undefined and keep on changing according to government policies adopted by the ruling parties of particular countries. External Link Disclaimer | According to the AML/CFT (counter-terrorism financing) secondary regulation applicable for ITFs, these entities must share a report with the Ministry of Finance (through the National Banking and Securities Commission) within the first 10 business days of each quarter when a client has traded virtual assets for legal tender or foreign currency and vice versa, as long as the amount of the transactions made in a quarter have been equal to or greater than 7,500 Investment Units (these are units of measurement that vary according to inflation and are determined periodically by Banxico) (as of September 30th, 2020, this amount was MXN 49,121.84 – approximately USD 2,223.71). The Regulatory Sandbox, included in our Fintech Law under the figure of Innovative Models, is promoting the creation of financial institutions with the use of state-of-the-art technology, highlighting blockchain as the most used. However, this law also regulates several exciting tools that promote innovation within the Mexican financial system: Notwithstanding the foregoing, the legal framework for virtual assets also includes the Federal Law for the Prevention and Identification of Operations with Resources of Illegal Proceeds. This report surveys the legal and policy landscape surrounding cryptocurrencies around the world. In this context, it is important to analyse whether the asset has the qualities of a security under the Mexican regulatory framework, in which case that framework will be applicable. [5], Financial companies that carry out transactions with virtual assets must disclose to their clients the risks applicable to these assets. Notwithstanding the above, mining has an important energy aspect and, depending on the amount of energy required, a mining entity may be considered a qualified user and therefore subject to the corresponding energy legal framework. DISPOSICION TRANSITORIA SEXTA  (II). June 2018. However, in March 2019, the Financial System Stability Council (composed of the Ministry of Finance, the Mexican Central Bank, the National Banking and Securities Commission, the National Insurance and Bonding Commission, the National Retirement Savings System Commission and the Bank Savings Protection Institute) decided to adopt a conservative stance regarding this, considering that there should be a healthy distance between virtual assets and the Mexican financial system. Notwithstanding the foregoing, financial authorities have also expressed that it is important to allow the admission of new technologies. 30–34, Diario Oficial de la Federación [D.O.F], Mar. Full legal advice should be taken from a qualified professional when dealing with specific situations. This material is intended to give an indication of legal issues upon which you may need advice. While not dissimilar in form to the 2014 Law Library of Congress report on the same subject, which covered forty foreign jurisdictions and the European Union, this report is significantly more comprehensive, covering 130 countries as well as some regional organizations that have issued laws or policies on the subject. On March 9th, 2018, the Mexican Government published in the Mexican Official Federal Gazette the law that regulates Financial Technology Institutions (ITFs), also known as the Fintech Law (which entered into force the following day). These restrictions would essentially force cryptocurrency exchanges and custody services operating in Mexico to close up shop and take their business elsewhere. 58, DISPOSICION TRANSITORIA SEGUNDA. 9, 2018, available as originally enacted on the website of Mexico’s House of Representatives at http://www.diputados.gob.mx/LeyesBiblio/pdf/LRITF_ 090318.pdf, archived at https://perma.cc/SB6N-RQY7. The obligations for other entities and natural persons are more flexible, but they are subject to report transactions that exceed a predetermined threshold in one transaction or in the accumulated transactions of six months. As such, relevant transactions that reach or exceed a certain amount must be reported to the Mexican government starting in September 2019. Crypto operators have 12 months to comply, a local crypto exchange explained to news.Bitcoin.com. The use of virtual assets is regulated by the Fintech Law and by anti-money laundering (AML) regulations, but there are other tokens, like stablecoins, that do not fulfil the requirements to be considered virtual assets pursuant to the Fintech Law. Finally, on March 8th, 2019, Banxico published in the Mexican Official Federal Gazette the secondary regulation known as “Circular 4/2019” whose main purpose is to determine the characteristics that virtual assets must fulfil in order to be used between financial entities (ITFs and banks) and their customers. Order the print edition of Blockchain & Cryptocurrency Regulation 2021 or read free online, Order the Mexico chapter of Blockchain & Cryptocurrency Regulation 2021 in PDF format or read free online, View Basket (0), Blockchain & Cryptocurrency Regulation 2021. On the other hand, there are no restrictions or licence requirements for non-financial entities and natural persons to own cryptocurrencies; they only are obliged to comply with the report requirements. identifying their clients and verifying their identity through official identification documents, a copy of which must be kept by the provider; asking the client for information on his/her occupation if a business relationship is established; and. The restrictions for owning cryptocurrencies are only for financial institutions. In March 2018, Mexico enacted a law that provides broad rules applicable to virtual assets (i.e., cryptocurrencies). The only financial institutions entitled to operate with virtual assets are banks and fintechs (ITFs). [8] Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita [Federal Law for the Prevention and Identification of Transactions with Resources of Illicit Origin] art. Therefore, as there are no regulations or prohibitions applicable to mining, it is a permitted activity. Virtual asset (Honduras, Mexico) How Cryptocurrencies Are Regulated. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained herein. The strongest ranking factor for Mexico is Legality of Bitcoin. As other countries wait for government officials to dictate what happens with cryptocurrency and Fintech Companies, Mexico just took a big step forward. However, these financial entities can use the technology on which virtual assets are based in accordance with the terms listed in “Circular 4/2019”. These Mexican legal regulations relating to cryptocurrency, although further advanced than many countries, are still written in general terms and specifics are expected to be added at a later date by the three key entities of the banking and securities regulator CNBV, the central bank and the finance ministry. However, it is important to mention that, from a fiscal perspective, our system is based on fiscal self-determination, as well as that certain reports are applicable from a regulatory perspective (see the “Reporting requirements” section below). Foreign Law Specialist After making several adjustments to the proposed bill, Mexican senators finally approved with 102 votes in favor and none against a law that regulates financial technology companies in Mexico. Virtual assets: according to the Fintech Law, both ITFs and banks may perform operations using virtual assets, prior recognition, and authorisation from Banxico. Among the more than 400 people who downloaded the competition rules for the Sandbox Challenge, the use of blockchain technology was the favourite means of innovation, followed by artificial intelligence. The exchange of virtual assets made by non-financial entities in a habitual and professional way is regulated by the Federal Law for the Prevention and Identification of Operations with Resources of Illegal Proceeds. There are 14 ICOs and 1 Exchange offices placed in this country and 1 ICOs have forbidden Mexico residents to take part in their crowdfunding venture. [3]Â, Mexico’s central bank, Banco de México, is granted broad powers under the Law to regulate virtual assets, including, Pertinent regulations applicable to these assets must be issued by Mexico’s central bank within a year from the enactment of the law. Introduction. It is important to note that we recently had the Sandbox Challenge, the first contest of entrepreneurship and financial innovation that encourages world-class entrepreneurs to test their business models in the Mexican financial system. A bill has recently been approved by the Mexican lower house of Congress for bringing upon a regulatory overdrive in the country’s fintech sector. It establishes a regulatory framework for the offering, issuance, listing, and trading of crypto assets. Application Programming Interfaces (APIs): this tool allows financial entities to share information with other financial entities or third parties to improve the customer’s experience. Press | [8] Thus, providers of such services must report relevant transactions that reach or exceed a particular amount (equivalent to approximately US$2,780 as of April 2018) to the Mexican government starting in September 2019. specifying those virtual assets that financial companies are allowed to operate with in the country, defining their particular characteristics, and establishing the conditions and restrictions applicable to transactions with such assets; authorizing financial companies to perform transactions with virtual assets; and. 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