1 Legal framework

1.1 Which legislative and regulatory provisions govern the banking sector in your jurisdiction?

The Banking Law is the main statute that regulates the operation of banks in Mexico. However, other legislative provisions that regulate the operation of financial entities are also applicable to banks, such as:

  • the Law on the Transparency and Regulation of Financial Services; and
  • the Law on the Protection and Defence of Users of Financial Services.

The Banking Provisions Circular issued by the National Banking and Securities Commission (CNBV) compiles all of the banking regulation issued by the CNBV in a single instrument. It covers matters such as:

  • capitalisation;
  • early warnings;
  • contingency plans;
  • financial information; and
  • reporting.

The Central Bank of Mexico (Banxico) is a constitutionally autonomous entity, which issues administrative regulations on the operations and services provided by banking intermediaries, as well as provisions to ensure the stability of payment systems.

The National Commission for the Protection and Defence of Users of Financial Services (CONDUSEF) issues provisions on the protection of users of financial institutions, including banks, relating to matters such as:

  • the transparency of information;
  • account statements; and
  • advertising.

The Ministry of Finance and Public Credit issues general provisions on matters such as:

  • the prevention of money laundering and terrorist financing;
  • the representative offices of foreign financial entities; and
  • the subsidiaries of foreign financial institutions.

The Institute for the Protection of Bank Savings of the United Mexican States provides depositor coverage and assists troubled banking institutions.

1.2 Which bilateral and multilateral instruments on banking have effect in your jurisdiction? How is regulatory cooperation and consolidated supervision assured?

Mexico has entered into multiple international free trade agreements that regulate investments in financial services providers. These agreements usually include the following principles, among others:

  • national treatment;
  • most favoured nation; and
  • non-mandatory local presence.

They may also impose restrictions on the operation of subsidiaries of foreign financial entities.

Multiple memorandums of understanding have also been signed with the banking supervisory authorities of other countries to facilitate the exchange of information and consolidated supervision with parent entities located in other countries, or with subsidiaries of local entities that have a presence in other jurisdictions.

Likewise, the Banking Law includes the legal possibility of exchanging information with supervisory agencies in other countries in order to ensure adequate supervision of affiliated entities. The possibility for supervisory entities from other countries to conduct investigatory visits through the CNBV is also regulated in Mexico.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers (including sanctions) do they have?

Different authorities enforce the law and administrative provisions depending on their specific powers and responsibilities. For example, the CNBV – whose main purpose is to ensure the stability and proper functioning of banking entities – oversees the enforcement of a significant proportion of the legislation and regulations applicable to banks, and in particular, the regulations it has issued.

Similarly, Banxico and CONDUSEF have the power to enforce the regulations that they have issued. Each of these authorities can impose sanctions for breach of the regulations, subject to the scope and purpose of their legal framework. Such sanctions mainly consist of economic penalties and fines; although the authorities also have coercive powers, such as the power to issue orders for the fulfilment of obligations under the legal and regulatory framework.

1.4 What are the current priorities of regulators and how does the regulator engage with the banking sector?

The projects that have recently been approved or submitted for public consultation by the financial authorities give us some idea of their priorities. These include:

  • simplifying the authorisation process for banking correspondents;
  • continuing with the implementation of open banking;
  • advancing in the proportional regulation applicable to banks, which aims to make the regulatory burden depend on the type of activities being carried out; and
  • expanding certain measures introduced during the COVID-19 pandemic.

2 Form and structure

2.1 What types of banks are typically found in your jurisdiction?

From a regulatory standpoint, in addition to banks that hold a full licence and can therefore carry out all operations reserved for banks in the country, since 2008 it has been possible to incorporate banks that are only allowed to conduct certain types of operations. These banks are called ‘niche banks'.

There are three types of niche banks:

  • banks specialised in the issuance of means of payment;
  • banks specialised in service operations; and
  • banks with an operating scheme similar to universal banking, but which are subject to limitations in terms of service operations.

However, very few niche banks are operating in the country, so the financial ecosystem is dominated by banks that hold a full licence. That said, very few of those carry out all operations reserved for banks; rather, despite holding a full licence, they limit their operations in terms of their business plan and objectives. In this regard, banks can be classified by their target market, including:

  • consumer credit;
  • mortgage;
  • trust;
  • commercial; and
  • business.

2.2 How are these banks typically structured?

All banks have the same internal structure. In general, they have:

  • a shareholders' meeting;
  • a board of directors;
  • a general director and main managers;
  • a statutory auditor; and
  • different committees that assist the board of directors with its administration and surveillance functions. The establishment of committees may be:
    • mandatory, where required by regulation, as in the case of the audit committee, the remuneration committee and the risk committee; or
    • voluntary, as in the case of a product design committee.

2.3 Are there any restrictions on foreign ownership of banks?

Currently, there are no foreign investment restrictions regarding equity in banks. However, a special regime applies to subsidiaries of foreign financial institutions that operate in a country with which Mexico has an agreement that allows for reciprocal investment in financial services.

2.4 Can banks with a foreign headquarters operate in your jurisdiction on the basis of their foreign licence?

A foreign bank cannot operate in Mexico based on the authorisation issued in its country of origin. However, it may opt to incorporate a subsidiary in Mexico, which may obtain authorisation to operate in Mexico. Alternatively, a foreign institution may request and obtain authorisation to establish a representative office in Mexico.

The operations of a representative office will be limited to providing information and negotiating, at the request of potential clients, the operations that the foreign financial institution carries out in its country of origin. It cannot advertise the fact that it carries out passive operations to the general public.

3 Authorisation

3.1 What licences are required to provide banking services in your jurisdiction? What activities do they cover?

Two authorisations are necessary to operate a bank in Mexico:

  • authorisation to establish and operate a bank; and
  • authorisation to commence operations as a bank.

The first authorisation is granted by the National Banking and Securities Commission (CNBV), based on the favourable opinion of Banxico; while the second is granted by the CNBV exclusively.

The first authorisation is granted on the basis of a documentary review of compliance with the requirements set out in the applicable regulations. The second is granted based on a review of the entity's infrastructure and operating, financial, technological and corporate governance conditions; this may even involve pre-operational investigatory visits in order for the regulator to ensure that the bank fulfils all necessary conditions to commence operations.

The authorisations allow banks to carry out the operations that are specified in their business plan and statutory bylaws. In addition to banks that hold a full licence and can thus conduct all operations that are reserved for banks, if included in the business plan and bylaws, there are three types of niche banks whose operations are limited, as discussed in question 2.1.

3.2 What requirements must be satisfied to obtain a licence?

In order to obtain a licence to establish and operate a bank, the following requirements must be met:

  • a documentary review of the draft bylaws; and
  • submission of:
    • a list of direct and indirect shareholders;
    • a list of directors and managers; and
    • the operation plan; and
  • proof of payment of a guarantee deposit equivalent to 10% of the capital requirement.

In the case of parties that will have a direct or indirect equity participation in the bank, it is necessary to review documentation to confirm that they have the requisite financial and moral solvency, as well as satisfactory credit and business records.

Likewise, in the case of senior management, proof of their experience and technical capabilities, as well as satisfactory credit history and moral solvency, is required.

The operation plan of the bank must include the following criteria:

  • the operations to be carried out;
  • security measures to preserve the integrity of information;
  • programmes for attracting resources and granting loans for passive and active operations;
  • the market segments that will be preferentially served;
  • forecasts of geographic coverage;
  • a financial viability study;
  • the basis for applying profits; and
  • organisation, management and internal controls.

Once authorisation has been obtained, the bank must obtain a second authorisation in order to commence operations. In this regard, the following criteria will be reviewed by the CNBV:

  • express mention of the operations in the bylaws;
  • compliance with the minimum capital requirements;
  • appropriate governance and corporate structure; and
  • infrastructure and internal controls.

To this end, the CNBV may carry out investigatory visits.

3.3 What is the procedure for obtaining a licence? How long does this typically take?

The procedure for obtaining a banking licence begins with an informal discussion of the business model in meetings with the financial authorities of the financial system (ie, the CNBV, the Ministry of Finance and Public Credit and Banxico). Subsequently, public officers will informally review and comment on all documentation required to obtain authorisation. Their comments will eventually be incorporated into the formal filing or application.

The interested parties will then formally submit the licence application, together with the necessary documentation, to the CNB, which will send a copy of the file to Banxico for it to issue its opinion. A decision on the application should be issued within 180 days. However, this period will be suspended if the authority requests additional information and will resume once the applicant has responded to the information request.

Once Banxico has issued a favourable opinion, the CNBV's governing board will make its decision and will communicate this to the applicant within the following five days.

Upon receipt of notification, the interested parties have a period of 90 days in which to present the bank's bylaws to the CNBV for approval. Once the CNBV has approved the bylaws, the interested parties have 180 days to request authorisation for the bank to commence operations. The decision on this request for authorisation will be issued within 180 days. Usually, it takes approximately two years to obtain a licence to operate a new bank.

4 Regulatory capital and liquidity

4.1 How are banks typically funded in your jurisdiction?

Banks in Mexico have multiple regulatory possibilities to obtain funding, including:

  • equity contributions;
  • the issuance of debt or subordinated obligations;
  • bank deposit products targeted to the public;
  • the issuance of shares with limited voting rights; and
  • interbank loans.

The choice will depend on the interests and conditions of the bank.

4.2 What minimum capital requirements apply to banks in your jurisdiction?

The minimum capital or common equity required for the incorporation of a bank with a full licence is $90 million UDIs (investment units), equivalent to approximately MXN 621 million.

For niche banks, the minimum capital requirement is:

  • 54 million UDIs, equivalent to approximately MXN 372.6 million; or
  • 36 million UDIs, equivalent to approximately MXN 248.4 million.

4.3 What legal reserve requirements apply to banks in your jurisdiction?

Banks must set aside a capital reserve fund of at least 10% of their net profits until this reaches a sum equivalent to the amount of subscribed and paid-up capital.

They must also classify or grade the different types of loan portfolios that they have and consequently establish the corresponding preventive reserves according to:

  • the probability of default;
  • the severity of the potential loss; and
  • exposure to default.

This classification should be based on the general methodology set out in the banking laws or, with the prior authorisation of the financial regulator, an internal methodology.

5 Supervision of banking groups

5.1 What requirements apply with regard to the supervision of banking groups in your jurisdiction?

The Law on the Regulation of Financial Groups and subsidiary legislation govern banking groups in Mexico. The regime applies to financial entities that:

  • act under a common name or brand;
  • execute operations jointly; and
  • provide complementary services.

To be able to operate jointly, such entities must request and obtain authorisation to function as a financial group from the Ministry of Finance and Public Credit, which will grant a licence subject to the prior positive opinion of Banxico and the applicable national supervisory commission of the main entity of the corresponding financial group.

The Law on the Regulation of Financial Groups is aimed at financial entities, including banks. However, it may be possible for a financial group to be established without a bank as a member. In such case the financial group must be owned by a holding company that determines, through its corporate bodies, the main policies and strategies that will apply to each entity that is part of the group.

Likewise, different aspects of the operation of a financial group are regulated, such as:

  • the incorporation or separation of an entity into or from the group;
  • mergers and spinoffs;
  • the corporate and capital integration of the holding company;
  • authorised investments;
  • risk management;
  • internal controls;
  • the disclosure of information;
  • equity requirements;
  • accounting;
  • external auditors; and
  • parent-subsidiary liability.

5.2 How are systemically important banks supervised in your jurisdiction?

The National Banking and Securities Commission (CNBV) evaluates banks annually to identify those that are of local systemic importance, which must be approved by the CNBV governing board. Such entities must set aside an additional percentage of their revenue in the form of capital conservation buffers.

Additionally, in the event of the dissolution or liquidation of a bank, the Banking Stability Committee – comprised of representatives from different authorities of the Mexican financial system – must decide whether the institution in question is of systemic importance prior to revocation of the authorisation to operate as a bank. If the bank is considered of systemic importance, the percentage of its operations that are systemic must be determined by the committee. If the committee determines that 100% of its operations are systemic, the institution will be subject to financial reorganisation. By contrast, if the committee determines that less than 100% of its operations are systemic, the corresponding assets and liabilities must be paid or transferred to another institution, in terms of the applicable regulations.

5.3 What is the role of the central bank?

In accordance with the Mexican Constitution, Banxico has the exclusive power to issue the national currency. Banxico's main objective is to ensure the stability of the national currency. Banxico also regulates currency exchanges and financial intermediaries and services.

Banxico has all legal powers necessary to regulate and ensure compliance with the legal framework. According to its governing law, it has the following functions:

  • to regulate the issuance and circulation of the national currency, currency exchanges, intermediaries, financial services and payment systems;
  • to operate with banking entities as a reserve bank and a lender of last resort;
  • to provide treasury services to the federal government and act as its financial agent;
  • to advise the federal government on economic and, in particular, financial matters;
  • to participate in the International Monetary Fund and other international financial cooperation organisations and central bank groups; and
  • to cooperate with such organisations, central banks and other foreign legal entities that exercise authority in financial matters.

6 Activities

6.1 What specific regulations apply to the following banking activities in your jurisdiction: (a) Mortgage lending? (b) Consumer credit? (c) Investment services? and (d) Payment services and e-money?

In general, no specific detailed and exhaustive regulations are applicable to the different activities conducted by banks. However, various specific provisions apply to loan portfolios and the grant of credit, such as the prudential provisions that regulate the grant of loans and credit.

Mortgage loans are partially regulated under the Law for Transparency and Promotion of Competition in Guaranteed Credit, which seeks to promote:

  • best practices in the market, to encourage competition in the mortgage loan sector; and
  • access to information, to ensure that users can enter into mortgage agreements with total freedom.

Regulations issued by the National Banking and Securities Commission also regulate the provision of investment advisory services by financial intermediaries, including banking entities. The aim is to prevent bad practices among financial advisers and avoid conflicts of interest.

Finally, with regard to mortgage and consumer loan portfolios, certain provisions specifically apply to banking institutions in terms of capital requirements, portfolio rating and integration of preventive reserve funds.

7 Reporting, organisational requirements, governance and risk management

7.1 What key reporting and disclosure requirements apply to banks in your jurisdiction?

Banking institutions must submit regulatory reports, primarily to the National Banking and Securities Commission (CNBV), on matters such as:

  • investments in securities;
  • loan portfolios;
  • financial statements;
  • commercial portfolios;
  • second-tier operations and guarantees;
  • mortgage portfolios;
  • funding;
  • financial consolidation;
  • qualitative information;
  • operations classified by service;
  • risks;
  • operational information;
  • operational risk information;
  • securities; and
  • leverage ratios.

Other reports relating to user protection regulations must be submitted to Banxico and to the CNBV.

Finally, certain information must be publicly disclosed by a bank, such as the following:

  • the integration of its equity and its relationship with the bank's balance sheet;
  • the characteristics of equity instruments;
  • the weighted assets subject to total risk;
  • the adequacy of its capital in relation to its risks; and
  • the weighting factors established to calculate its capital conservation buffer.

Likewise, a bank must disclose information relating to the computation of its capital adequacy ratio, including:

  • the basis on which the total equity used to calculate this ratio was determined;
  • the integration of its main sources of leverage;
  • a comparison between its total assets and its adjusted assets;
  • the ratio between total assets and exposure on its balance sheet; and
  • its leverage ratio.

7.2 What key organisational and governance requirements apply to banks in your jurisdiction?

The decision-making bodies of banking entities are:

  • the shareholders' meeting;
  • the board of directors and general director; and
  • the statutory auditor.

Multiple committees also assist the board of directors with both its administration and surveillance functions. The establishment of certain committees – such as the audit committee, the remuneration committee, the risk committee and the communication and control committee – is mandatory; while others are established voluntarily by the bank. Likewise, there are various areas in which banks must establish dedicated functions, such as the following:

  • an internal audit function;
  • an internal comptroller;
  • a comprehensive risk management unit;
  • a compliance officer; and
  • a chief information security officer.

7.3 What key risk management requirements apply to banks in your jurisdiction?

Multiple capital requirements apply to banking institutions, due to various risk-related factors such as:

  • credit risk;
  • market risk; and
  • operational risk

Likewise, banks have different obligations regarding risk diversification in terms of active and passive operations.

There is also a body of regulation dedicated to comprehensive risk management, which aims to ensure that banks carry out their activities with a risk level that is commensurate with their total equity, liquid assets and operating capacity under normal, adverse and extreme conditions. These mechanisms must be consistent with the nature and complexity of their operations, and must allow banking entities to identify vulnerabilities. In this regard, banks must have risk management processes that help to:

  • achieve the business objectives set out in their strategic plan;
  • improve knowledge of the risks to which banks are exposed due to the development of their business activities;
  • address the risks incurred and prevent negative consequences that are observed in unfavourable and adverse conditions;
  • reduce the damage caused by unfavourable and adverse conditions and reduce the probability that such risks may affect them; and
  • improve their capacity to respond to extreme events or crises, and optimise the allocation of capital.

7.4 What are the requirements for internal and external audit in your jurisdiction?

Internal auditing must be performed by banks through an independent function of the board of directors, which will periodically and systematically review, in accordance with the annual work programme, the operation of the bank's internal control system. Thus, banking institutions must have an audit committee and an internal audit function. The audit committee must:

  • monitor the activities of the internal audit function and the internal comptroller; and
  • ensure that financial and accounting information is formulated in accordance with the guidelines and provisions to which the bank is subject, as well as with the applicable accounting principles.

The Banking Law further states that the annual financial statements must be audited by an independent external auditor, which is appointed directly by the bank's board of directors. The Banking Law sets out the applicable regime and exceptions to the responsibility of the external auditors of banking entities, and confirms that the CNBV has powers of supervision and sanction with respect to external auditors.

Hence, the law governs both the firms that provide audit services and the partners who sign the respective opinions and other reports.

8 Senior management

8.1 What requirements apply with regard to the management structure of banks in your jurisdiction?

The governance structure of banks is regulated by the Banking Law and secondary provisions. The operations of the board of directors, the general director and managers who are two hierarchical levels lower than the general director, as well as the statutory auditors, are regulated under the legal framework.

The boards of directors of banks must be comprised of a minimum of five and a maximum of 15 proprietary directors, at least 25% of whom must be independent. The directors must have the necessary technical quality, good reputations and satisfactory credit histories, as well as extensive knowledge and experience in financial, legal or administrative matters.

The general director and officers in the two hierarchal levels immediately beneath him or her must:

  • have satisfactory credit histories and good reputations;
  • be resident in the Mexican territory;
  • have spent at least five years in positions of senior decision-making authority which required knowledge and experience of financial and administrative matters;
  • have none of the impediments against being a director; and
  • not perform the regulatory functions of banks.

The statutory auditors of banks must:

  • be resident in the Mexican territory;
  • have the necessary technical quality, good reputations and satisfactory credit histories; and
  • have extensive knowledge and experience of financial, accounting, legal or administrative matters.

8.2 How are directors and senior executives appointed and removed? What selection criteria apply in this regard?

Each institution may freely appoint its main executives, provided that they meet the requirements set out in question 8.1.

8.3 What are the legal duties of bank directors and senior executives?

From a regulatory perspective, various specific obligations apply to the senior management of a banking institution, which are linked to multiple issues. These are fundamentally aimed at ensuring that the senior management assume responsibility for compliance with multiple regulatory duties. There are also obligations directly assigned to personnel such as:

  • the head of the internal audit function;
  • the head of the comprehensive risk management unit; and
  • the compliance officer.

On the other hand, the fiduciary responsibilities of senior management towards the shareholders of the bank continue to be governed by the rules that apply to commercial companies in general, which is why they have the inherent responsibility of their mandate in terms of commercial law.

8.4 How is executive compensation in the banking sector regulated in your jurisdiction?

Banks must implement a remuneration system – defined as a set of functions, policies and procedures established to ensure that the ordinary and extraordinary remuneration of employees, and of the different administrative, control and business units, are determined in light of the current and potential risks represented by the activities carried out. The board of directors is responsible for:

  • approving the remuneration system and the policies and procedures that regulate it;
  • defining its scope;
  • determining the personnel who are covered by the system; and
  • monitoring the proper functioning of the system.

In this regard, banks should implement, maintain and review their remuneration systems on an ongoing basis, to promote and be consistent with effective risk management.

9 Change of control and transfers of banking business

9.1 How are the assets and liabilities of banks typically transferred in your jurisdiction?

A bank's loan portfolio is usually transferred through assignment agreements, which can be effected freely unless:

  • the purchase of the portfolio is financed;
  • the debtor is liable for the solvency; or
  • there is a possibility to reacquire the portfolio.

In such cases, the authorisation of the National Banking and Securities Commission (CNBV) will be required. All other types of assets can be assigned in accordance with the applicable civil and commercial legislation.

In terms of liabilities – which usually comprise deposits – the authorisation of each creditor is required in order to assign them. As a result, this type of operation is usually conducted through a spin-off or merger; and authorisation from the financial regulators will also be required.

9.2 What requirements must be met in the event of a change of control?

Authorisation from the CNBV is required for a change of control. The requirements for granting such authorisation are based on the provisions for authorisation to incorporate a bank; it is thus necessary to prove the suitability of the shareholders, senior management, the general operating plan and the bylaws.

10 Consumer protection

10.1 What requirements must banks comply with to protect consumers in your jurisdiction?

There are multiple requirements aimed at protecting users of financial services in Mexico. The National Commission for the Protection and Defence of Users of Financial Services is responsible for the regulation and supervision of consumer protection – primarily in relation to:

  • transparency towards users and best banking practices;
  • advertising;
  • account statements;
  • accession agreements;
  • fees;
  • abusive clauses; and
  • collection offices.

10.2 How are deposits protected in your jurisdiction?

Deposit insurance for clients is managed by the Institute for the Protection of Bank Savings of the United Mexican States, a public entity which operates under the aegis of the Ministry of Finance. The deposit insurance or coverage is funded by ordinary and extraordinary fees paid by banks, based on the amount of deposits they receive and their risk profile.

11 Data security and cybersecurity

11.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for banks?

The Federal Law on Protection of Personal Data held by Individuals and secondary administrative provisions issued by the data protection regulator apply to banks, just as they do to all other commercial entities.

11.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for banks?

The Banking Provisions issued by the National Banking and Securities Commission contain multiple principles and rules on cybersecurity in relation to the provision of banking services. These include multiple preventive regulatory requirements to ensure the security and integrity of information that is in the possession of banks. The implications for banks mainly centre on the costs of compliance.

12 Financial crime and banking secrecy

12.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for banks?

Mexico complies with the principles issued by the Financial Action Task Force, which are primarily reflected in legislation on the prevention of money laundering and financing of terrorism (AML/CFT). In particular, banks are obliged to have:

  • customer and user identification policies;
  • a methodology with a risk-based approach;
  • knowledge of customer and user policies;
  • adequate internal structures (eg, a communication and control committee and compliance officer);
  • training and dissemination programmes within the institution; and
  • automated AML/CFT systems.

They are also obliged to submit reports on:

  • relevant transactions;
  • cash transactions in US dollars;
  • transactions with cashier's cheques;
  • transactions with virtual assets;
  • international transfers of funds;
  • unusual transactions; and
  • internal operations that raise an alert.

There are also restrictions on receiving cash in US dollars from banking institutions.

12.2 Does banking secrecy apply in your jurisdiction?

Yes. Banking secrecy applies in Mexico.

Banks must not report news or information about transactions in order to protect their customers. Banks may disclose information only to:

  • depositors;
  • debtors;
  • holders;
  • beneficiaries;
  • settlors;
  • trustees;
  • principals or their legal representatives; and
  • those who have been granted powers to manage the bank account or to intervene in the transaction or service.

13 Competition

13.1 What specific challenges or concerns does the banking sector present from a competition perspective? Are there any pro-competition measures that are targeted specifically at banks?

Various regulatory concerns have been voiced regarding competition for banking entities. These basically relate to the establishment of the necessary infrastructure for the operation of financial intermediaries, such as credit bureaux, acquisition businesses and clearing houses, which have historically been owned by banks.

In this regard, the financial and competition regulators have expressed concern that competition may be limited in these market segments. Thus, financial reforms were introduced in 2014 in a bid to encourage new players to enter these market segments.

14 Recovery, resolution and liquidation

14.1 What options are available where banks are failing in your jurisdiction?

Before a bank enters into a resolution scheme, Banxico may grant a last-resort loan or credit to the troubled institution. A monitoring and surveillance regime is in place for capital adequacy ratios known as ‘early alerts', through which the supervisor classifies entities according to the level of compliance with their capital adequacy ratios and capital conservation buffers. If a bank reaches a level which implies that a breach of its ratios and buffers is likely, the authority will take measures to restore those ratios and buffers, such as:

  • requesting a capital restoration plan; or
  • suspending acts that would extract value from the bank, such as payment of dividends, bonuses or compensation.

Ultimately, the bank may also be subject to a conditional operation regime, under which its shares are contributed to a trust under the control of the Institute for the Protection of Bank Savings (IPAB) in a bid to restore its capital ratios and buffers within a certain timeframe under the protection of an approved plan.

If the defaults to ratios and buffers continue, IPAB will assume control of the banking entity.

14.2 What insolvency and liquidation regime applies to banks in your jurisdiction?

In Mexico, a liquidation regime applies to banks whose authorisation to operate has been revoked. Authorisation may not be revoked if the bank has been declared systemic and its financial assets are also systemic; otherwise, revocation is appropriate in case of insolvency.

The financial authorities will choose the resolution scheme that is most appropriate for the bank once its authorisation has been revoked. These include the transfer of assets and liabilities to a ‘bridge institution' and the payment of those assets that are considered systemic. In any case, the liquidation will deal with the sale of assets and the payment of liabilities. Depositor coverage is afforded by IPAB.

There are three possibilities for liquidation:

  • proceedings carried out in court, where the bank's assets are not sufficient to cover its liabilities (bankruptcy);
  • proceedings carried out at the administrative headquarters before the IPAB; and
  • in case of voluntary revocation, where there are no deposits, proceedings requested by the interested parties themselves.

The payment priority scheme is determined by the applicable legal framework.

15 Trends and predictions

15.1 How would you describe the current banking landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

It is expected that the banking regime will be reformed in order to:

  • simplify the process for authorisation of banking correspondents;
  • further the implementation of open banking;
  • increase in the proportional regulation applicable to banks, which aims to make the regulatory burden depend on the type of activities being carried out; and
  • expand certain measures for banks introduced during the COVID-19 pandemic.

15.2 Does your jurisdiction regulate cryptocurrencies? Are there any legislative developments with respect to cryptocurrencies or fintech in general?

Cryptocurrencies are regulated under the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin. This law regulates the providers of services for the exchange of virtual assets or cryptocurrencies. The legal framework identifies the exchange of virtual assets as a vulnerable activity for the purpose of prevention of money laundering and terrorist financing, as virtual assets are not recognised by Banxico.

On the other hand, banking entities and fintechs regulated under the Fintech Law are only allowed to perform internal operations with cryptocurrencies, and not operations in relation to their clients. However, banking and fintech entities can provide cryptocurrency services to clients through other mechanisms, such as the regulatory sandbox and the indirect provision of services.

16 Tips and traps

16.1 What are your top tips for banking entities operating in your jurisdiction and what potential issues would you highlight?

The regulatory burden for banks in Mexico is relatively heavy. It is thus necessary to evaluate the business model in advance in order to determine whether authorisation to operate as a bank is required, as other types of financial intermediaries can conduct activities such as offering credit products and accepting deposits under less stringent regimes and therefore at lower cost. However, banks tend to enjoy access to better sources of financing than other types of financial institutions in Mexico.

Likewise, banks that operate in Mexico should explore strategic alliances with commercial entities or entities in the fintech sector in order to enhance their scope of operations and thus boost their growth.

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.