Mexico is home to almost 500 fintech start-ups. But that doesn’t seem to matter to the Bank of Mexico (Banxico). The national institution has just issued a new Fintech Law that could close almost half of these promising young companies.
The full consequences of this new regulation have yet to be seen, but the threat is imminent.
At the moment, Mexico is the leading country in Latin America when it comes to the number of fintech start-ups. More than half of these organisations are either ready to scale or in full expansion. Mexican fintech start-ups currently provide a few thousand jobs and serve between 6 and 8 million active users.
A new law for electronic payments and crowdfunding
The initial Law to Regulate Financial Technology Companies issued by Banxico was passed in 2018. One year later, the authorities added further regulations for companies that were involved in fintech activities. The new rules target specific areas in the fintech ecosystem – crowdfunding and electronic payments more specifically.
The latest regulation seems to disapprove of the usage of cryptocurrencies and virtual assets on a large scale. The requirements specify which virtual currencies are allowed in the country and establish the conditions in which financial companies can use cryptocurrencies for transactions.
From now on, fintech companies need special permission from the Mexican Central Bank to perform transactions with virtual assets. The regulation also mentions fines for companies that perform unauthorised transactions with cryptocurrencies.
Funding fintech start-ups will become more complicated as well. IPOs can only be carried out by public stock companies or transitional stock companies. These companies are required to be authorised by the National Banking and Securities Commission (CNBV) and must list their securities with the Security National Registry and get a favourable review from its exchange partner.
Last but not least, crowdfunding platforms and e-money institutions will have to get a special license to be able to operate in Mexico from now on.
Advantages for end-users
The Mexican regulation benefits banks and traditional financial institutions as it forces fintech start-ups to slow down and revise some of their operations.
The move could also have some positive effects on end-users as well. According to the guidelines issued by the Mexican authorities, fintech companies should implement a new transparency policy.
From now on, companies should provide detailed information about interest rates, fees, and the risks associated with buying, storing, and trading cryptocurrencies.
This way, end-users should be able to understand what they’re getting when buying cryptocurrency products. Moreover, they should be able to compare the terms and conditions with the ones provided by banks.
This new Mexican regulation is expected to generate visible changes in fintech platforms. Companies will have to register templates for their contracts, for instance. At the same time, they’ll need to build a series of departments for compliance and customer service that most traditional financial companies already have.
Almost half of all Mexican fintech start-ups could shut down
The new regulation could slow down the impressive growth of fintech activity in the country. Mexican news outlet El Economista predicts that these new rules could force the closure of at least 201 of the country’s 500 fintech start-ups.
Many Mexican fintech companies have been using crowdfunding and electronic payments as part of their growth strategies. That means they automatically fall under the new regulation and have to get a license to continue their activities in the Mexican market.
Moreover, only 25% of these start-ups are known to have prepared the required documents to request authorisation by the CNBV. Among the challenges that keep entrepreneurs from complying with the new laws are the high costs involved.
Another barrier between start-ups and their ability to operate as “Financial Technology Institutions” is a further condition of the National Bank. Besides compliance, a company should have a minimum capital stock of $163,265. That’s a significant amount of reserves for a start-up.
Why are authorities setting the bar so high for fintech companies?
Mexican authorities have been looking to regulate the use of cryptocurrencies in their country for some time now. The National Bank is attempting to have complete control over the virtual coins that enter the country. At the same time, the bank cites its anti-fraud and money-laundering policy as reasons for greater regulation.
However, it’s hard not to notice the bias. The rules are too rigid for young companies in explorative technology, making it almost impossible for many fintech start-ups to operate legally in Mexico.
The post Mexico regulation could close a huge number of fintech start-ups appeared first on Coin Rivet.