Due to the public recognition that has been given to virtual currencies also known as crypto currencies, such as Bitcoin, Ethereum, Litecoin, Dogecoin, NEO, or Ripple, among others, Mexico had the necessity to regulate the operations carried out through this type of currencies.
In order to achieve the above, on March 1st, 2018, the Congress of the Union approved the Law to Regulate Financial Technology Institutions ("Fintech Law"). The Law was published in the Official Gazette of the Federation (Diario Oficial de la Federación) on March 9th, 2018.
Among other relevant aspects, the Fintech Law provides specific regulation for modern and technological legal figures, including crowd funding transactions, online payment methods, innovative models, and this type of currencies (denominated under the law as virtual assets), and the way in which Financial Institutions shall use them during its operation.
Those who wish to operate, use, negotiate or obtain virtual assets will be subject to the Fintech Law. Previous to the execution of any transactions through which a virtual asset of this type is used, the National Banking and Securities Commission ("CNBV") must grant the corresponding authorization. Furthermore, under its eighth transitory article, the Fintech Law provides that those who, upon the entry into force of this law, were carrying out any of the activities regulated thereby must request the corresponding authorization from CNBV. The deadline for requesting said authorization will be a maximum of twelve months counted from March 10th, 2018, date in which this law entered into force.
In order to fully understand what a virtual assets is, first it is important to analyze how this type of currencies are defined. Under article 30 of the Fintech Law, a virtual asset is defined as a "representation of value that is electronically registered and is used by the public as a mean of payment for all types of legal acts, whose transfer can only be carried out through electronic means".
Even though this type of asset may be used for modern and attractive transactions, and even though it could generate a profit for those who operate with them, it is important to bear the following statement in mind, which is even provided in the law (article 30 of the Fintech Law) "in no case shall the legal tender in the national territory, currencies or any other asset denominated in legal tender or currency shall be considered as a virtual asset".
In this regard, and despite the new regulation has reduced the risks regarding the use of virtual assets, the Bank of Mexico (Banco de México) has issued a number of warnings, noting that virtual assets are storage mechanisms and electronic information exchange, without the support of the authorities, financial institutions or any government agency, and that they do not constitute a legal currency in Mexico and are not foreign currency, since no foreign monetary authority issues them or endorses their release power in making payments.
Secondly, on September 10th, 2018, the general provisions applicable to Financial Technology Institutions were published. Among a number of aspects developed and regulated under said provisions, the same provides specific regulations regarding recognition, valuation, presentation and disclosure rules regarding virtual assets, as well as new definitions related with aspects that were no clearly defined and understood under the Fintech Law and which are directly connected with virtual assets transactions and businesses.
As a result of the new legislation, those involved in the virtual assets business will be required to verify that the money with which said assets were acquired does not have an illegal origin, which will prevent the use of these assets for terrorism financing purposes or money laundering. Likewise, those who operate with this type of assets will have the obligation to disclose to their clients information indicating (i) that the virtual asset is not a legal tender and is not supported by the Federal Government, nor by the Bank of Mexico (Banco de México), (ii) the impossibility of reversing the executed transactions, (iii) the volatility of the value of the virtual asset, and (iv) the technological, cybernetic and fraud risks inherent to these assets.
In conclusion, this type of regulation and measures that are being taken by Mexico are aimed to strengthen the world of technology and the transactions through it, including virtual assets. However, there are still many obstacles that must be overcome to achieve a safe and legal technological operation of virtual assets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.