Mexico

Author: | Published: 9 Jul 2001
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Market structure and trends

Mexico's financial system comprises commercial banks, development banks, brokerage houses, investment funds and other non-banking institutions, such as insurance companies, bonding companies, currency exchange houses, factoring companies, deposit warehouses, financial leasing companies, retirement funds managing companies, financial holding companies, credit bureaus, investment companies, credit unions, public trusts and non-bank banks.

Since the privatization of commercial banks, which began in 1990, Mexican legislation regarding financial institutions has evolved substantially towards a more open market and at present allows foreign financial entities to acquire a controlling interest in Mexican financial institutions. Today, some of the major international banks and investment firms play an important role in the Mexican financial system.

Main regulatory bodies and their powers

Financial services in Mexico are regulated and supervised mainly by the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público –SHCP); the Central Bank (Banco de México – Banxico); the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores – CNBV); the National Retirement Fund System Commission (Comisión Nacional del Sistema del Ahorro para el Retiro – CONSAR); the National Commission for the Protection and Defence of Financial Services Users (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros – CONDUSEF); the National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas –CNSF); and the Institute for the Protection of Bank Savings (Instituto para la Protección del Ahorro Bancario – IPAB).

The main laws regulating the Mexican financial system are: the Financial Groups Law (Ley para Regular las Agrupaciones Financieras – FGL); the Securities Market Law (Ley del Mercado de Valores – SML); the Investment Fund Law (Ley de Sociedades de Inversión – IFL); the Law of Credit Institutions (Ley de Instituciones de Crédito – LIC); the Credit Ancillary Organizations and Activities Law (Ley General de Organizaciones y Actividades Auxiliares de Crédito – CAOAL); the National Banking and Securities Commission Law (Ley de la Comisión Nacional Bancaria y de Valores); the Bonding Companies Law (Ley Federal de Instituciones de Finanzas – BCL); and the Insurance Companies Law (Ley General de Instituciones y Sociedades Mutualistas y de Seguros – ICL).

Ministry of Finance

The Ministry of Finance and Public Credit (SHCP) is in charge of the coordination and supervision of Mexico's financial system, the elaboration of Mexico's fiscal policy, and the interpretation of dispositions related thereto. It is the foremost financial authority, regulating the structure and operation of financial groups, and certain aspects of banking and brokerage operations. The SHCP has the authority to grant and revoke licences and authorizations for the incorporation and operation of most financial institutions.

Banco de México

Mexico's Central Bank (Banxico) is an autonomous entity, the main responsibilities of which include: (i) the formulation and implementation of monetary policy, (ii) operation as a reserve bank, (iii) acting as clearing house for Mexican banks, and (iv) regulation of the foreign exchange market and banking credit operations. Banxico (along with the CNBV) determines the reserve requirements for banks and provides discount facilities for certain types of bank loans.

National Banking and Securities Commission (CNBV)

The CNBV is primarily responsible for supervising banking, securities and credit ancillary organizations and activities. It issues regulations for banks, brokerage houses and other financial institutions; approves investment policies, and individuals appointed to serve as directors and other senior officers in most financial institutions; and reviews capital adequacy, liquidity, earnings, loan loss reserves, loan portfolio classification and risk concentration, among other things. The CNBV is also responsible for the supervision of the internal policies and procedures of financial institutions; the issuance of regulations governing industry practices, accounting, auditing, financial and other reporting standards; and the determination of minimum capital requirements for financial institutions.

National Commission for the Protection and Defence of Financial Services Users (CONDUSEF)

CONDUSEF´s main purpose is to promote, advise, protect and defend the rights and interests of users of financial products or services offered by financial institutions operating within Mexico. This Commission acts as an arbitrator in disputes between clients and financial entities.

Institute for the Protection of Bank Savings

The Institute for the Protection of Bank Savings (IPAB) is in charge of the system created to protect bank savings. It provides financial support to troubled banking institutions and acts as liquidator or receiver in their liquidation and bankruptcy process. In exceptional cases, IPAB may grant financial support to banks. IPAB also provides depositors with bank insurance that protects their deposits up to a certain amount.

Other authorities of the Mexican financial system

Other authorities of the Mexican financial system include the CNSF that supervises the insurance and bonding sectors, and CONSAR, which supervises the retirement savings sector.

Types of financial institutions and key legislation

Financial sector

Financial groups
Pursuant to the FGL, various financial entities may operate together as a group under a single financial holding company. Financial groups are composed of a holding company and other financial entities. Any financial group must have at least two of the following institutions: a commercial bank, an insurance company and a brokerage house, or at least three of any other major financial entities.

Commercial banks (instituciones de banca múltiple)
Commercial banks are regulated by the LIC, which sets forth the main provisions regarding their organization, ownership, management and operation, and provides the legal framework for banking services, and active and passive activities. The LIC also includes provisions that protect the interests of the general public engaged in financial transactions.

Development banks
Development banks are owned and operated by the federal government and their purpose is to foster the development of certain sectors; they are regulated by the LIC and by their specific internal regulations. Some of these are Nafin, Banrural and Banobras.

Non-bank banks
Also known as limited scope financial companies or SOFOLES, non-bank banks are dedicated exclusively to granting loans to a specific sector or activity (eg mortgages, credit cards, car loans, etc). They may only obtain funding from the issuance and placement of securities, or through loans from local or foreign financial entities.

Public trusts
These trusts are intended to perform specific development activities. Some of the most significant public trusts include the National Employees' Housing Fund (INFONAVIT), the Fostering and Security Fund for the Consumption of Workers (FONACOT), the Housing Fund (FOVI), and the National Fund for the Fostering of Tourism (FONATUR).

Credit ancillary organizations and activities

Financial factoring companies are engaged in the acquisition of accounts receivables documented through bills, notes, drafts, and other negotiable instruments. They are regulated by the CAOAL.

Financial leasing companies are also regulated by the CAOAL. Their corporate purpose is limited to the execution and performance of financial leases and other related activities expressly authorized by the SHCP.

Credit unions have as their principal role the provision of funding to members. Such entities may only operate in the same economic sector as their members (such as agriculture or mining). They have a very limited scope and are also regulated by the CAOAL.

Savings and loans associations are non-profit corporations with legal capacity and self-patrimony, permitted to receive deposits exclusively from their partners. Their funds may only be placed among such partners or used for specific investment purposes and for their own benefit. Such associations are governed by the LIC and by the CAOAL.

Currency exchange houses are entities exclusively engaged in foreign currency purchase and sale operations with the general public within Mexican territory. This is an activity that requires authorization from the financial authorities. Such entities are regulated by the LIC and the CAOAL.

General deposit warehouses are involved in the storage, custody or maintenance, handling, control, distribution and commercialization of goods and merchandise placed under their custody or in transit, backed by a certificate of deposit. Warehouses with a specific authorization for these purposes may also receive merchandise for the tax deposit regime pursuant to the Customs Law. Such warehouses are the only institutions authorized to issue certificates of deposit and pledge bonds.

Securities and investments sector

Brokerage houses
Brokerage houses – casas de bolsa – offer intermediation services on the stock exchange market. To operate, they require authorization from the SCHP with the favourable opinion of the CNBV. Their by-laws as well as any amendment thereto must be authorized by the CNBV, which may, under certain circumstances, such as violations of the SML, order the partial or total suspension of activities; the SHCP may revoke their authorization following severe violations of the SML.

Investment funds
Investment funds are regulated by the SML and the IFL. To operate they require authorization from the CNBV. These funds have to comply with certain disclosure requirements, including the elaboration of a prospectus that must be authorized by the CNBV. They must also register their shares in the securities section of the National Registry of Securities (Registro Nacional de Valores – the RNV) and obtain grading from a credit rating agency. Investment fund operators are companies organized for the specific purpose of managing investment funds.

Under the recently issued IFL, companies duly authorized by the CNBV may act as investment funds' shares distributors or appraisers. The share role of distributors includes the promotion, third-party advisory, and purchase and sale of shares in the name of investment funds.

Investment advisers
Under the SML, individuals and companies may act as investment advisers and manage securities portfolios, offer advisory and supervision services and, in certain cases, make investment decisions in the name of third parties, provided that these services are not offered by brokerage houses or securities specialists. Investment advisers:

  • must give notice to the CNBV upon initiation and termination of their activities;
  • may not be related to financial institutions;
  • their operations must be documented under the name of their clients and carried out through brokerage houses, securities specialists, investment funds operating companies or credit institutions; and
  • they may not receive funds or securities in custody or for the performance of their activities.

Retirement fund system
Retirement funds managing companies, commonly known as AFOREs, are entities exclusively engaged in the administration of individual retirement savings accounts, and investment of the resources obtained under the social security laws in specialized retirement funds investment companies known as SIEFOREs, which have the exclusive purpose of investing the resources of individual accounts entrusted to them. SIEFOREs are subject to strict investment regulations. Authorization is required from CONSAR to incorporate and operate AFOREs and SIEFOREs.

Insurance sector

Insurance companies

Insurance companies are regulated by the ICL as well as by specific rules and circular letters issued by the CNSF. Only insurance companies duly authorized by the SHCP may engage in any kind of insurance activities within Mexico. The ICL is restrictive on the purchase of insurance policies from foreign insurance companies when the insured party or the insured goods are located within Mexican territory.

Bonding institutions

These companies, which are regulated by the BCL, are engaged in the professional issuance of bonds to guarantee the fulfillment of specific obligations. They can issue fidelity bonds, guarantee bonds and judicial bonds, as well as special bonds approved by the SHCP.

Establishing an operation

Method of application

To establish and operate a financial institution, authorization from the SHCP with the favourable opinion of Banxico and the CNBV is required. The applicants must attach to the authorization request a draft of the institution's by-laws, a general business and management plan, and all other necessary information required by applicable laws and regulation.

Procedure for reaching a decision

The authorization to establish and operate a financial entity is discretional. However, if denied, and the petitioner considers there was no due cause for such denial or that it was arbitrary, the petitioner may file an administrative appeal. If the administrative appeal ratifies the denial, a constitutional process that protects individual guarantees from being violated by authorities and guarantees due process of law – known as "amparo", similar in substance to the habeas corpus – may be filed.

Revocation

The principal causes for the revocation of a financial institution's authorization include:

  • breach of the relevant provisions contained in the applicable regulation;
  • dissolution, liquidation or bankruptcy of the institution;
  • failure to submit the appropriate information to the authorities; and
  • performing unlawful operations.

Shareholding

Financial institutions must comply with certain minimum capital requirements determined by the SHCP. For example, with the exception of foreign financial institutions, no single shareholder may hold more than 5% of the capital stock of a bank (or 20% with the prior authorization of the SHCP).

Credit institutions

To incorporate a bank, it is necessary to obtain authorization from the SHCP with the favorable opinion of Banxico and the CNBV. Once granted, the authorization must be published in the Official Gazette of the Federation. Commercial banks must be incorporated as sociedades anónimas, and their main purpose must be the rendering of banking and credit services.

Banks' by-laws, as well as any amendments thereto, must be approved by the SHCP and registered in the Public Registry of Commerce. An authorization request to incorporate and operate a bank must include, among others things: (i) a draft of its by-laws; (ii) a list of its shareholders indicating their individual participation in the capital stock, as well as its possible managers and directors; (iii) its general management plan; and (iv) proof of deposit, in a credit institution, of an amount equal to 10% of its minimum capital stock.

Financial services online/e-banking

Current legislation

The regulation of online financial services in México is still precarious. However, there are certain laws that regulate electronic transactions in general, such as the Consumer's Protection Federal Law (Ley Federal de Protección al Consumidor – CPFL), the Federal Civil Code (FCC), and the Commerce Code.

Paperless contracting/required paperwork

Pursuant to the FCC, a party's consent may be granted electronically, although documentary evidence and an actual written signature are required in some cases in the financial system. Notwithstanding the foregoing, most banking transactions can and are now done electronically.

Confidentiality and data protection

The information provided to or held by banks regarding their clientele may not be disclosed, unless disclosure is expressly approved by the customer or duly requested by a competent authority. The rules regarding bank secrecy set forth below apply. Financial institutions must use available technical resources to provide safety and confidentiality to the information provided by their clientele.

Consumer protection rules

Pursuant to the CPFL, any information provided through electronic or digital means by a customer to a seller or service provider is confidential and may not be disclosed in any form to third parties. Sellers must inform their costumers about any and all security elements regarding a specific transaction, and must provide, prior to the transaction, their address and telephone number, as well as any other information that may enable the costumer to identify the seller or service provider, and present any complaints or request regarding the transaction.

Buying financial institutions

Various financial laws were amended in 1999 to enable foreign financial entities of certain countries with which Mexico has entered into a trade agreement to acquire a controlling interest in Mexican financial institutions.

Applying for approval

The approval process is different for each financial institution, and as a general rule certain limits apply to stock ownership by a single shareholder or group of shareholders.

Foreign financial institutions, which qualify under the relevant free trade agreement, may own a controlling interest in Mexican financial institutions. At present, the only international treaties that enable foreign control of Mexican financial institutions are the NAFTA and the recently executed Free Trade Agreement with the EU.

Additionally, to qualify for ownership of a controlling interest in a Mexican financial institution, the relevant foreign financial institution must perform, in its country of incorporation, directly or indirectly, the same activities it intends to carry out in Mexico through the affiliate.

Time limits

There is no specific time period set forth in current laws within which the applicable authority must grant or deny an authorization for the incorporation of a financial entity. Because of its discretional nature, the term of approval often varies. Recent amendments to the SML and the CAOAL, dated June 1 and 4 2001, provide that the competent authorities must respond to any request of this nature within six months; however, this provision will not become effective until January 1 2002.

Refusal/appeal

If authorization is denied, and the applicant considers that the applicable authority did not indicate due cause for such denial or omitted to mention the applicable legal basis for such denial, the applicant may challenge the decision by filing an administrative appeal and ultimately an "amparo".

Public tender offers

Another method of acquiring control of financial institutions is through a public tender offer. Recently, tender offers have been used for such purposes. These tender offers, however, are subject to the required authorizations from the financial authorities.

Competition regulation

Procedure/time limits

The Mexican Anti-trust Commission (Comisión Federal de Competencia) is empowered to analyze any transaction that may damage or deter competition. Pursuant to the Anti-trust Law (Ley Federal de Competencia Económica), before performing any concentration that exceeds the legal thresholds set forth in the Anti-trust Law, the interested parties must file a notice with the Anti-trust Commission describing the transaction and providing information regarding the parties involved.

After filing a concentration notice, the Anti-trust Commission may request additional information. If no resolution is issued by the Anti-trust Commission within 45 calendar days of the filing date (unless additional information has been requested by such Commission), the relevant transaction is deemed approved.

Consequences of non-compliance

If the parties fail to provide notice of the relevant transaction, or otherwise fail to comply with the Anti-trust Law, the Anti-trust Commission may issue an admonition or impose a fine. Additionally, it may (i) suspend, amend or nullify the transaction, or (ii) order the partial or total de-concentration of what has been unduly concentrated. Fines may be imposed up to the equivalent of 10% of the breaching party's annual sales during the previous fiscal year, or 10% of the value of its assets, whichever is greater.

Appeal

In certain cases, a motion for reconsideration against any resolution issued by the Commission may be filed. Such motion may be admitted or dismissed by the president of the Commission. In any case, the reconsideration resolution may revoke, amend, modify or confirm the Commission's original resolution, and it suspends the enforcement of the challenged resolution during the process. Under certain circumstances, the challenging party may be requested to post a guarantee to cover any potential damages to third parties. Additionally, a challenging party can always file an "amparo" against any act of the Commission that it deems unconstitutional or a violation of its personal constitutional guarantees.

Continuing bank supervision

Banks are required to provide to IPAB all necessary information to determine their financial situation, as well as notice of any relevant event that could affect them financially. Furthermore, banks are required to make periodic filings with the CNBV and submit their unaudited monthly and audited annual financial statements to the CNBV for its review. They must also publish quarterly their unaudited balance sheets and annual audited financial statements. Banxico and the CNBV, as applicable, have the authority to investigate, audit and request information from financial institutions to ensure fulfillment of applicable laws, and may impose fines for any infringement.

Disclosure requirements

Change of management

Financial institutions must be managed by a board of directors and a general director, who are known to be honourable and possessed of financial or management skills. Their appointment, as well as that of senior officers, requires authorization from the CNBV or the CNSF, as applicable (Following recent amendments, at least 25% of the members of the boards of commercial banks and brokerage houses must be "independent directors"). There are various requirements and restrictions on those who can be appointed as managers of financial institutions (ie persons with pending law suits, or those who have been declared bankrupt or insolvent, may not be appointed as such). Managers may be terminated or suspended by the CNBV or the CNSF, as applicable, for lack of technical or moral skills in the performance of their duties, or for having incurred violations of Mexican financial laws.

Change of control

Any transfer of control of a Mexican financial entity requires prior authorization of the SHCP. Under Mexican law, a person or group of persons is considered to acquire control of a bank if it owns 30% or more of the outstanding shares of its capital stock; controls the shareholders meeting; is in the position to appoint its managers; or in any other manner takes de facto control.

Cross-border supervision

Mexican laws are only applicable to Mexican entities and Mexican nationals for acts carried out within Mexican territory. However, and as yet another exception to the bank secrecy laws, following the amendments to the SML dated June 1 and June 4 2001, the CNBV may provide foreign financial authorities with information received by commercial banks and brokerage houses, provided there is an information exchange agreement executed with such authority contemplating the principle of reciprocity.

Bank insolvency

Relevant legislation

The insolvency of banking institutions is regulated by the Business Reorganization Law (Ley de Concursos Mercantiles – BRL), which regulates the reorganization and bankruptcy of companies in financial distress.

Triggers and types of proceedings

Pursuant to the BRL, the insolvency process of banking institutions begins with the appointment by a judge of a manager/receiver for the credit institution. Such manager/receiver shall take all necessary actions to protect the employees, facilities and assets of the banking institution, as well as creditors' interests. If the bank is found to be insolvent, it will be declared in bankruptcy, and the receiver will be the sole administrator of the bank, liquidate its assets or sell the credit institution as a going concern through public bid, whichever is more profitable. The proceeds will be paid out to creditors according to their ranking.

Power of the authorities to intervene

Bankruptcy of credit institutions can only be requested by the IPAB or the CNBV. IPAB has the right to propose to the judge the appointment, removal or substitution of the receiver, and the CONSUSEF may appoint three supervisors to protect and represent the interests of the creditors of the bankrupt institution. Once the motion requesting the bankruptcy of a credit institution has been filed, it must close all its offices and suspend all operations.

Status of creditors/depositors

The priority of creditors is determined as follows: (i) privileged creditors; (ii) secured creditors; (iii) labour and tax-related creditors; and (iv) common creditors, who will collect on a pro rata basis without any distinction. Foreign creditors have the same rights of national creditors. The bankruptcy judge, the supervisors and the receiver must cooperate with foreign courts in all bankruptcy proceedings.

Pursuant to the provisions of the Law for the Protection of Bank Savings (Ley de Protección para el Ahorro Bancario), IPAB may, under certain circumstances, grant financial aid to an insolvent banking institution through the subscription of shares or subordinated obligations, the assumption of obligations, the granting of loans or through the acquisition of real estate.

Capital requirements and bank secrecy

Capital adequacy

The minimum statutory capital of banking institutions is the equivalent to 0.12% of the sum of the net capital of all Mexican banks. During the first semester of each year, the CNBV must publish the minimum capital stock that banks are required to have (approximately $17, 073, 000).

Liquidity

Financial institutions must maintain liquid assets for an amount not less than the result of multiplying 60-day and lesser maturity liabilities, by the factor determined by Banxico.

Large exposures

Pursuant to diverse rules issued by the SHCP, credit institutions may not grant a loan to:

  • a natural person in excess of 10% of the bank's net capital or 0.5% of the net capital of all national credit institutions; nor
  • a company in excess of 30% of the bank's net capital or 6% of the net capital of all national credit institutions.

Financings amongst credit institutions may be granted for an amount equal to 100% of the net capital of the lending institution. These limits will not be applicable to loans granted to the federal government or guaranteed by the federal government, to federal states, to federal entities, for the construction of low income housing, or for the export of manufactured products; among others.

Bank secrecy

Pursuant to the LIC, credit institutions may not provide information regarding their clients' deposits, services or transactions, except:

  • to the client itself or its legal representatives;
  • to judicial authorities, upon request, in relation to a proceeding in which the client is a defendant or a party thereof;
  • when requested by tax authorities, through the CNBV, for tax-related purposes;
  • when required by the IPAB; or
  • when requested in relation to anti-money-laundry purposes as determined by the SHCP.

Pursuant to a recent amendment published in June 1 2001, the CNBV may provide foreign financial authorities information regarding operations and services received from credit institutions, provided an information exchange agreement has been executed with the foreign financial authority contemplating the principle of reciprocity.


Franck, Galicia y Robles SC

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Tel: +525 540 9200
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www.fgdr.com.mx