Mexico passes trailblazing fintech law

To great applause from Mexico's public and private sector, legislation establishing a much-needed regulatory framework for Mexico's burgeoning fintech industry was passed by 264-61 votes Thursday in the lower house of congress.

The legislation establishes much-needed rules governing tech firms working with disruptive technologies, including cryptocurrencies, crowdfunding and peer-to-peer financial tools.

"The new law to regulate financial technology institutions, also known as the "Ley Fintech", puts Mexico at the global forefront in the development of financial services intended to increase the level of financial inclusion and improve the conditions for competition in the Mexican financial system," the finance ministry said in a statement.

Having won senate approval in December, the legislation now moves to the executive branch, where President Enrique Peña Nieto is expected to sign the bill into law in the coming days.

Mexican bank association (ABM) also praised the lawmakers' approval of the measure, recognizing the critical role played by authorities, legislators and private sector players in this achievement. Close collaboration began in early 2017, including participation by the ABM, sector regulator CNBV, the finance ministry, the central bank and private groups, including industry association Fintech Mexico.

In a response, Fintech Mexico called the Ley Fintech "a unique law in the world that puts the Mexican financial system squarely in the 4.0 revolution."

The group added: "The law could bring more than 5bn pesos (US$265mn) annually for the benefit of families and SMEs."

The ABM noted that the new framework "recognizes technological advances, offers a level playing field for all participants and provides terms and conditions for user security," adding that the bank association would be actively working on the development of forthcoming secondary legislation.

LAW COULD SPARK M&A

The groundbreaking legislation looks to have a considerable impact on deal-making in Mexico, according to Marcela Chacón, Transactional Track Record research and business intelligence analyst for Latin America, in remarks provided to BNamericas.

"Mexico, a country that presented significant investment flows in the fintech sector in 2017, has become a regulatory model in Latin America through this new law," said Chacón. "This situation will undoubtedly generate an environment of transparency and access to information in the investment marketplace, in such a way that venture capital, private equity and M&A activity can be increased with the roughly 200 Fintech companies that operate in the country."

"Because a large part of the Mexican companies in the sector are in their initial phase of business life, various capital expansion operations will be necessary, either to boost their growth or to initiate new phases of expansion," added the TTR analyst. "This behavior will naturally lead to an upward trend in mergers, acquisitions, VC investments [etc.] through 2018."

A report Friday from local daily El Financiero put the number of fintech startups closer to 230, and cited a comment from fintech competition organization Bankia Fintech by Innsomnia, suggesting that the fintech industry could comprise 30% of the banking market in Mexico within the next decade.

Check out BNamerica's detailed spotlight on the new law next week