Mexico
Answer ... The Law to Regulate Financial Technology Institutions defines ‘virtual assets’ as “an electronically recorded representation of value used by the public as a means of payment for all types of legal acts, the transfer of which may only be carried out by electronic means. Under no circumstances shall a virtual asset be understood to be legal tender in national territory, foreign currency or any other asset denominated in legal tender or foreign currency”.
The applicable regulations will depend on the type of entity that is transacting with virtual assets.
If the entity is a financial institution, the applicable regulatory framework is:
- the Law Regulating Financial Technology Institutions (‘Fintech Law’); and
- Circular 4/2019 of Banxico, which provides that the only financial institutions that can operate with virtual assets are banks, fintech institutions and authorised financial entities within the regulatory sandbox.
The regulatory sandbox is a safe regulatory space in which financial and non-financial entities can provide a regulated financial service using an innovative model. An ‘innovative model’ is defined by the Fintech Law as “a model which, for the provision of financial services, uses technological tools or means other than those existing in the market at the time the temporary authorisation is granted in terms of this Law”.
For financial institutions to operate with virtual assets, the authorisation of Banxico is required.
For non-financial entities, the applicable regulatory framework is the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Proceeds. This law regulates exchange activities and the custody of virtual assets. If a non-financial entity wishes to operate as a cryptocurrency exchange or provide crypto wallet services, it must register with the Tax Administration Service (SAT).
Mexico
Answer ... With regard to the anti-money laundering (AML) requirements applicable to transactions involving virtual currencies, it is important to identify who is executing such transactions:
- fintech institutions or banks; or
- other entities or natural persons.
Specific know your customer (KYC)/AML rules apply to fintech institutions and banks respectively. For other entities and natural persons, the general rules of the Federal Law for the Prevention and Identification of Operations with Resources of Illegal Proceeds may apply.
The obligations to which fintech institutions and banks are subject are strict and include requirements such as:
- the development of an AML prevention manual;
- the establishment of internal functions in charge of the AML department – that is, the compliance officer and the communication and control committee; and
- a risk-based approach analysis of AML risks.
The obligations for other entities and natural persons are more flexible, but such entities must:
- register with the SAT in order to upload reports to the AML system of the Financial Intelligence Unit; and
- report transactions that exceed a pre-determined threshold of approximately $2,800 in one transaction or in accumulated transactions over a six-month period.
Mexico
Answer ... The consumer protection regime depends on the type of entity that is operating the virtual currency:
- fintech institutions and banks; or
- non-financial entities.
Financial institutions are subject to:
- the Law for the Protection and Defence of the User of Financial Services;
- secondary provisions issued by the National Commission for the Protection and Defence of Users of Financial Services; and
- the Law on the Transparency and Regulation of Financial Services.
For non-financial entities, the consumer protection regime for virtual currencies is the same as that which applies to other types of goods and services: the Federal Consumer Protection Law and secondary provisions.
Notwithstanding the above, if the virtual currency is considered a security under the Mexican securities framework, the applicable regulation is the Securities Market Law and secondary provisions.
Mexico
Answer ... The tax regime in Mexico has not been updated to consider the use of blockchain or cryptocurrencies. The standard regulations will apply; and thus a case-by-case analysis must be carried out.
An important point to consider is the digital platforms tax which was introduced in June 2020, and which applies to individuals who obtain income by providing services or selling goods through digital platforms. Under this regime, the digital platform must make the income tax and value added tax (VAT) withholdings, and will pay such withholdings directly to the SAT in certain cases.
To calculate the withholding, specific rates apply to income derived from different activities, as follows:
- Provision of services for the land transport of passengers and delivery of goods: 2.1%
- Provision of lodging services: 4%
- Disposal of goods and provision of services: 1%
For VAT purposes, the regime is simpler: the digital platform will withhold 8%, which represents 50% of the real VAT rate of 16%.
Mexico
Answer ... The main requirements that apply in this regard are AML obligations, as this activity is considered ‘vulnerable’ under the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Proceeds.
To mitigate the risk, exchanges must have strong KYC policies and to this end must:
- keep unique identification files for each client and type of client;
- draft a compliance manual and a data protection manual; and
- submit reports.
Also, exchanges must be registered with the SAT in order to access the specific system through which they must upload the corresponding reports.
Mexico
Answer ... No specific rules apply to fundraising through the creation and sale of tokens.
However, it is important to determine whether the asset has the qualities of a ‘security’ under the Mexican regulatory framework, as in this case either the securities legal framework or the crowdfunding legal framework, pursuant to the Fintech Law, may apply. Initial coin offerings will also be subject to the AML regime.