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Mexico’s Central Bank Implements ‘Catch-22’ Rules for Crypto Assets

March 13, 2019
Giancarlo Roma


Mexico’s Central Bank Implements ‘Catch-22’ Rules for Crypto Assets

Mexico’s apex bank recently published its rules on cryptocurrency assets, with this latest development putting digital currency exchanges in a catch-22 type of scenario, according to the CEO of a local exchange. The new rules stipulate that the central bank will not authorize any cryptocurrency to be offered by regulated financial firms in the country.

Banxico details crypto regulation

Mexico’s central bank, Banxico, has provided a detailed cryptocurrency regulation framework for the financial technology institutions (ITFs) in the country. The new rules were published in the Official Gazette of the Federation on March 8, and they are aimed at providing clear guidelines on how fintech companies will deal with digital currencies.

The CEO of Mexican crypto exchange Volabit, Tomas Alvarez, revealed to news agencies that the country’s congress passed a law to regulate fintech companies last year. According to the law, services that are in possession of users’ fiat currencies or cryptos will need to apply for a license issued by the Mexican equivalent of the SEC (known as the CNBV) before they continue operations.

He pointed out that the fintech law also gave Banxico the power to determine the cryptocurrencies that would be offered to the public by regulated financial technology companies. The country’s apex bank was given 12 months to put in place a secondary law, with the aim of establishing a framework for the authorized cryptos.

The CEO of Volabit added the following:

“The deadline was due to expire this month so last Friday, the Bank of Mexico published their secondary laws which essentially stipulated that they wouldn’t authorize any cryptocurrency to be offered by regulated financial companies.”

Banxico was able to keep to the deadline and issued a circular on Friday, stating that fintech companies can only venture into crypto transactions that correspond with internal transactions, and the process is subject to authorization by the apex bank. The law further stipulates that regulated companies will not be granted the license to directly provide their clients with digital asset exchange, transmission, or crypto custody services.

Alvarez is not pleased with this situation as he believes it is not favorable to fintech companies. He stated this as follows:

“As a Mexican exchange, the law requires us to become a regulated fintech company or we would be deemed as operating illegally. However, if we become a regulated financial institution, then we would not be authorized to list cryptos or offer digital exchange services.”

This situation, which he calls catch-22, makes it almost impossible to operate an exchange legally in Mexico.

Public consultation on new law open

Even though the provisions in the circular are valid since the day it was published, Banxico has allowed for public suggestions and feedback until June 5. Alvarez pointed out that the provisions apply only to regulated fintech firms and, at the moment, none exist since the CNBC is yet to determine the process and requirements that need to be fulfilled before becoming one.

Alvarez added the following:

“Fintech companies in Mexico are operating with a special waiver until the process for registration is ready thus allowing companies to register for the license. This will happen in around six months.”

The CEO of Volabit is not optimistic that Banxico will change its rules as he believes the bank will ignore recommendations made by industry experts and cryptocurrency enthusiasts.

This latest development will make it harder for cryptocurrency exchanges to operate in Mexico. The entire situation is further complicated because exchanges don’t know how to become regulated fintech companies because the CNBV, the country’s SEC, is yet to release a proper guideline for the process.

Because existing exchanges will be working under illegal terms if they continue to offer crypto services and, conversely, becoming a regulated fintech company is not a favorable option either since they will not be authorized to list cryptocurrencies afterward, time will tell which direction the Mexican market takes in deciding the future of crypto exchanges and related services.