1 Legal and enforcement framework
1.1 What general regulatory regimes and issues should blockchain developers consider when building the governance framework for the operation of blockchain/distributed ledger technology protocols?
There are no specific regulations applicable to blockchain technology in Mexico, given that it can be multi-sectoral. Thus, different regulations may apply depending on the use case. However, the general provisions of the Federal Law on the Protection of Personal Data and the Copyright Federal Law must be taken into consideration.
For example, if a blockchain developer wishes to operate in the medical sector, the Federal Health Law must also be taken into consideration. If the developer wants to operate in the commercial sector, the Foreign Trade Law and the Commerce Code may apply.
Additionally, the International Standards Organization has published several standards on blockchain technology that may be used as guidelines:
- ISO/TR 23455:2019, published in September 2019, focuses on smart contracts;
- ISO/TR 23244:2020, published in May 2020, focuses on the protection of privacy and personally identifiable information;
- ISO 22739:2020, published in July 2020, contains fundamental terminology for blockchain and distributed ledger technology; and
- ISO/TR 23576:2020, published in December 2020, discusses risks and controls relating to virtual assets.
1.2 How do the foregoing considerations differ for public and private blockchains?
The specific regulations that apply will depend on the particular sector.
Given that public blockchains are freely accessible to all individuals and are not controlled by a specific entity, the parties must consider:
- how comfortable they are with distributing transactional information through public nodes; and
- the type of use licence that they will grant to the general public complying with the applicable regulations to carry out such activities.
Private blockchains, by contrast, are controlled by entities. To this end, such entities should:
- consider their corporate purpose and the activities to be carried out; and
- comply with the applicable regulations to carry out such activities.
Both public and private blockchains must comply with the cybersecurity provisions, although these will be stricter in the case of public blockchains.
1.3 What general regulatory issues should users of a blockchain application consider when using a particular blockchain/distributed ledger protocol?
There are two specific issues: one relating to data protection and the other relating to consumer protection.
For data protection, the Federal Law on the Protection of Personal Data governs access to, rectification of, opposition to and cancellation of personal data:
- The right of access entitles the data subject to request and be informed of his or her personal data;
- The right of rectification entitles the data subject to rectify the data if it is inaccurate or incomplete;
- The right of opposition allows the data subject to oppose the processing of the data at any time and for legitimate reasons; and
- The right of cancellation entitles the data subject to request cancellation of the processing of his or her data.
The distinctive aspects of blockchain technology are opposed to these rights. The immutability of the blockchain means that information provided cannot be modified; therefore, specific terms and conditions must be drafted and accepted by the user.
From a consumer protection perspective, the users of a blockchain should also consider the following:
- the impossibility of reversing a transaction once executed;
- the volatility of the value of virtual assets; and
- the technological, cybernetic and fraud risks inherent in virtual assets.
1.4 Which administrative bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
No specific regulations govern blockchain technology. The authorities responsible for enforcing the laws will thus depend on the use case and their powers will depend on their capabilities under the applicable laws.
If a blockchain use case involves health services, the sanitary and health authorities will be responsible under the General Health Law.
If the blockchain use case involves securities, the National Banking and Securities Commission (CNBV) and the Ministry of Finance and Public Credit (SHCP) will be responsible under the Securities Market Law.
In the case of virtual currencies issued by financial institutions, the Mexican Central Bank is responsible for:
- granting authorisation to banks and fintech institutions to operate with virtual assets; and
- determining which virtual assets financial institutions may use.
- the CNBV is responsible for supervising and regulating, within its competence, the financial institutions operating within the Mexican financial system; and
- the SHCP, through the Securities and Savings Banking Unit, formulates policies for:
- the promotion, regulation and supervision of financial services, banking, credit, securities, assets and derived assets;
- the protection of bank savings, savings and popular credit; and
- the protection and defence of financial services consumers;
- the Financial Intelligence Unit (UIF) and the Tax Administration Service (SAT) are responsible for receiving and analysing virtual currency transaction reports;
- the UIF specifically is in charge of identifying, preventing and contribute to the prevention and combat of operations relating to money laundering and terrorist financing; and
- the SAT is responsible for monitoring vulnerable activities involving all other players.
1.5 What is the regulators' general approach to blockchain?
Regulators are open to the use of blockchain technology in different industries; they recognise the benefits it affords and welcome its application. The only blockchain use case that involves certain complexities is virtual assets.
While the Mexican regulatory framework is based on the principle of technological neutrality, in March 2019 the Financial System Stability Council – comprised of six financial authorities – decided to adopt a conservative approach towards virtual assets, stating that a "healthy distance" should be maintained between virtual assets and the Mexican financial system. Their position was ratified on 29 June 2021.
On 28 June 2021 the main financial regulators – the CNBV, the SHCP and Banco de México (Banxico) – issued a joint statement in which they stated as follows:
- Virtual assets do not constitute legal tender in Mexico and are not currencies under the current legal framework;
- Financial institutions with prior authorisation from the Mexican Central Bank may carry out operations with virtual assets; however, they cannot obtain authorisation for operations through which they intend to provide exchange, transmission or custody services directly to customers; and
- No financial institution has been authorised to date.
The statement also described the stance of financial regulators towards so-called ‘stablecoins', confirming that:
- the issue of these collection rights against the issuer may be equated to the collection of resources, which is restricted to domestically regulated financial institutions; and
- no financial institution has been authorised to date to issue stablecoins.
Notwithstanding the above, the financial authorities have also acknowledged that it is important to allow the admission of new technologies.
1.6 Are any industry or trade associations influential in the blockchain space?
Three blockchain associations are operating in Mexico:
- Blockchain Alliance Mexico;
- the Mexican Blockchain Association; and
- the Network of Blockchain Professionals.
The objective of Blockchain Alliance Mexico is to promote legal certainty for blockchain-based products and services. It is part of the Blockchain Association Forum (also known as the Association of Blockchain Associations) at the global level.
The Mexican Blockchain Association is comprised of key players within the Blockchain space, such as Bitso, Consensys, BIVA and GBM. It aims to:
- educate citizens on the use of blockchain technology, whose potential applications are still largely unknown;
- ensure that standards are set for the safe and high-quality use of blockchain before it goes mainstream; and
- avoid malpractice through the blockchain, such as money laundering.
Finally, the Network of Blockchain Professionals is a group of experts interested in exploring various aspects of blockchain – the concept, its derivations and practical applications – in both the public and private sectors. It aims to bring together commercial players and academics in the field, starting in Mexico and then extending across the Hispanic American community.
2 Blockchain market
2.1 Which blockchain applications and protocols have become most embedded in your jurisdiction?
Blockchain technology can be found in various sectors in Mexico, including the following
- Crypto exchanges: These enable bidders and offerors to exchange virtual assets or cryptocurrencies on a digital platform and allow users to own cryptocurrencies. There are around 26 operating, with the biggest including Bitso, Volabit and Latamex.
- Digital credentials: Professional titles, diplomas and credentials can be registered through blockchain technology, allowing users to share their qualifications directly. One of the most influential universities in the country – the Instituto Tecnológico de Estudios Superiores de Monterrey – founded Mostla, a platform that allows students to access their electronic qualifications registered on the blockchain.
- Digital signatures: Blockchain technology introduced a solution to the certain issues presented by the COVID-19 pandemic. Electronic signatures with blockchain certification ensure that documents are unique and unrepeatable. Weesign and TRATO are examples of platforms that provide blockchain certificates for the validation of signatures.
- Companies: IBM Mexico and Accenture are some of the most influential organisations using blockchain technology. Blockchain solutions providers are active in spaces including vaccine distribution, supply chains and food trust.
2.2 What potential new applications/protocols are most actively being explored?
In Mexico, blockchain technology is being utilised for different purposes, but the soundest potential applications are as follows:
- decentralised identity products for know-your-customer compliance;
- the creation of metaverses for various tourist areas in Mexico;
- the creation of fiat-backed stablecoins pegged to the Mexican peso;
- the use of cryptocurrencies or stablecoins for international transfers;
- the creation of decentralised finance lending protocols; and
- the tokenisation of assets, specifically real estate.
2.3 Which industries within your jurisdiction are making material investments within the blockchain space?
The main industries that are making material investments in the blockchain space are as follows:
- Luxury: Louis Vuitton parent firm LVMH, Prada and Richemont-owned Cartier have launched the Aura Blockchain Consortium.
- Automotive: Mercedes has issued a €100 million bond in a private version of ethereum and has tested a cryptographic token to incentivise safe driving.
- Finance: ING and dozens of other banks have invested $107 million in R3, a group developing distributed ledger technology for financial companies.
- Real estate: The mayor's office of Tulum, Quintana is testing blockchain network for the land registry.
- Art: Morton Auctions auctioned VIVA, a digital painting by Mexican artist Juan Carlos del Valle, the first non-fungible token (NFT) executed in collaboration with the Artereum platform.
- Sports: Club Chivas and Club Necaxa in Mexico are generating NFTs for fans.
2.4 Are any initiatives or governmental programmes in place to incentivise blockchain development in your jurisdiction?
In Mexico, there are four important initiatives aimed at incentivising blockchain development:
- GTL–LACChain: A regional legal working group was recently created under the leadership of the Inter-American Development Bank through its LACChain initiative. The regional alliance established through the legal working group has several key objectives, including the creation of a shared access database of "constitutional, legal and regulatory norms that could have relevance and application when designing and implementing technological solutions based on distributed registry technology" in each country in which it has a presence.
- The Mexican Blockchain Network is a multi-sectoral initiative aimed at establishing a public infrastructure for different participants to deploy public solutions based on blockchain technology. This initiative aims to:
- democratise access to blockchain in the country;
- open a channel to facilitate pilot projects; and
- analyse the potential uses of blockchain technology in relevant areas.
- The Innova MX initiative aims to identify the scope and implications of blockchain technology in terms of regulations, public policy, technological infrastructure and security.
- The Transparency Network is a national blockchain, headed by the Ministry of Economy. It is one of the most important blockchain applications at a national level.
3.1 How are cryptocurrencies and/or virtual currencies defined and regulated in your jurisdiction?
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).
3.2 What anti-money laundering provisions apply to cryptocurrencies?
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.
3.3 What consumer protection provisions apply to cryptocurrencies?
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.
3.4 How are cryptocurrencies treated from a tax perspective?
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%.
3.5 What regulatory requirements apply to a cryptocurrency trader/exchange?
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.
3.6 How are initial coin offerings and securities token offerings defined and regulated in your jurisdiction?
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.
4 Smart contracts
4.1 Can a smart contract satisfy the legal requirements of a legal contract under the laws of your jurisdiction? What will be considered when making this determination?
Smart contracts can satisfy almost all of the legal requirements of a legal contract in Mexico.
As there are no specific rules, guidelines or judicial decisions governing smart contracts in Mexico, the general laws that regulate contracts will apply. The contracts framework is set out in the Civil Code, which sets out the requirements for the existence and validity of a contract.
The requirements for the existence of a contract are:
- consent; and
- the object of the contract.
The requirements for validity are:
- the legality of the object or motive of the contract;
- the absence of vices of consent;
- the form of the contract; and
- the capacity of the parties.
Smart contracts can be programmed in such a way that they comply with the validity and existence requirements (eg, Ricardian contracts).
Finally, under Mexican law, contracts can be executed with advanced electronic signatures which are valid for all acts set forth in the Commercial Code. An ‘advanced electronic signature' is defined as "a set of data and characters that allows the identification of the signatory, which has been created by electronic means under his exclusive control, in such a way that it is linked only to him and to the data to which it refers, which allows any subsequent modification of these to be detectable, which produces the same legal effects as a signatory's signature, same legal effects as the autograph signature".
4.2 Are there any regulatory or governmental guidelines or policies within your jurisdiction which provide guidance on regulating/defining smart contracts?
There are no governmental or regulatory guidelines or policies in Mexico that provide guidance on the regulation or definition of ‘smart contracts'.
However, Mexico is part of the International Standards Organization, which is currently working on ISO/TR 23455:2019, focused on smart contracts.
4.3 What parts of traditional contract might smart contracts be able to replace?
Smart contracts can define the rules and penalties that will apply to the legal relationship in the same way as traditional contracts; therefore, the parties can establish their clauses and reflect them in the programming code. However, smart contracts are capable of enforcing obligations automatically, as transfers are made once the conditions established in the smart contract have been complied with.
4.4 What parts of traditional contracts might smart contracts be unable to replace?
Some contracts are required by law to be executed before a notary public, which will make the validity requirement relating to the form of the contract difficult to comply with. Also, the vices of consent cannot be analysed under smart contracts, given that the code is in principle impervious to the motives of the parties.
In addition, with a traditional contract, a court can invalidate or suspend the effects of certain clauses of the contract or the contract as a whole and the parties must comply with its order. This is important when it comes to controversies or events of force majeure. When using a smart contract, it is difficult to separate the clauses and the effects of each, as the contract may be viewed as a whole and may already have self-executed at the time the dispute arises.
4.5 What issues might present themselves in your jurisdiction with regard to judicial enforcement of smart contracts?
Mexican judges are not trained or qualified in blockchain, so they may have insufficient understanding of the relevant concepts or may not know how to use them to resolve a particular blockchain case.
The typical issue of jurisdiction in the case of internet applications may also arise. It is difficult to determine which specific law or jurisdiction may apply when a controversy arises in relation to a decentralised platform, which is why this must be analysed on a case-by-case basis.
4.6 What are some practical considerations that parties should consider when drafting a smart contract?
The parties should review and audit their contracts before deploying them on the blockchain. If the code is poorly written, the contract may be the target of security threats and third parties may be able to interfere with the contract.
However, the latest smart contract developments allow the parties to devise a mechanism through which disputes arising from their agreement can be resolved by self-executing decisions of private arbitrators, and which do not depend on state-controlled recognition and enforcement procedures (eg, Kleros).
There are still legal gaps regarding jurisdiction and conflict of laws in relation to distributed technology. Blockchain provides an infrastructure for the decentralised execution of smart contracts, without the presence of third parties. Therefore, it is advisable to determine which rules will apply to the smart contract.
4.7 How will the foregoing considerations differ when smart contracts are running on a private versus public blockchain?
The regulatory considerations discussed in this question with respect to smart contracts apply to both public and private blockchains.
From a technical perspective, public blockchains may be more expensive in terms of fees, energy consumption or stake provision.
5 Data and privacy
5.1 What specific challenges or concerns does blockchain present from a data protection/privacy perspective?
In Mexico, there are two main laws regarding data protection:
- one applicable to entities in the private sector; and
- the other applicable to entities in the public sector, such as authorities and state organisations.
In general, the party responsible for collecting personal data must make available to the data subject a privacy notice that complies with the applicable regulation, to ensure that the data subject consents to the collection of his or her data and the specific purpose for which it will be used.
The data protection regime entitles the data subject to access, rectify, cancel or oppose the treatment of his or her data. If these rights are not upheld, significant penalties may be imposed.
Any model based on blockchain technology must comply with the general rules on privacy and data protection in Mexico.
Notwithstanding the foregoing, there may be cases in which the right of cancellation or rectification may be limited due to the immutability of the blockchain; but there are ways in which the network can be programmed to help ensure compliance with the regulatory framework for the protection of personal data in Mexico.
The implications for virtual currency transactions are as follows:
- The transactional data cannot be erased or reversed, so the cancellation and rectification rights of users will be limited; and
- The public addresses of users and the financial information of their transactions may be treated as personal data, and may thus be subject to the abovementioned regulations.
5.2 What potential advantages can blockchain offer in the data protection/privacy context?
Blockchain has multiple advantages in the data protection/privacy context. Specifically, the use of self-sovereign identity (SSI) can enable both individuals to exercise their rights and companies to fulfil their responsibilities under data protection laws. Examples include the following:
- Pseudonymous identifiers: The data protection regime encourages the use of pseudonyms to minimise correlation. SSI connections use pseudonymous pair decentralised identifiers by default.
- Data minimisation: The Mexican data protection regime establishes a minimisation principle, which provides that no more personal data may be collected than is necessary for the purpose for which it is being processed. Selective disclosure of SSI is ideally suited to meet this requirement.
- Data accuracy: The Mexican data protection regime requires personal data to be accurate and kept up to date. SSI allows data controllers to request personal data supplied by verifiable credentials from reputable issuers, which can be automatically updated by those issuers when the data changes.
- Zero knowledge: In an age of increasing cybersecurity breaches, protocols such as zero knowledge are essential to mitigate risks.
6.1 What specific challenges or concerns does blockchain present from a cybersecurity perspective?
The specific challenges or concerns that blockchain presents from a cybersecurity perspective will depend on the specific sector in which it is deployed.
For example, the Fintech Law sets out the technological risks that arise from virtual currency transactions, as the only law to specifically recognise the specific challenges and concerns of a blockchain use case. In this regard, fintech institutions that operate with virtual assets must disclose to their clients the risks associated with transactions involving such assets, including the following:
- Virtual assets are not legal tender and is not backed by the federal government or the Banxico;
- Some transactions cannot be reversed once executed;
- The value of the virtual asset is volatile; and
- Such transactions give rise to certain technological, cyber and fraud risks.
6.2 What potential advantages can blockchain offer in the cybersecurity context?
As blockchain is a distributed, digital, peer-to-peer, cryptographically secure, append-only and immutable technology, and may be updated through consensus or an agreement ledger, the benefits from a cybersecurity standpoint are diverse.
Blockchain technology has been hailed for its information integrity assurance. If well utilised, many sectors can benefit from it.
In addition, blockchain can be implemented in many use cases to strengthen cybersecurity, such as the following:
- Two-factor authentication platforms: Shield is an advanced daily use security tool to secure online accounts on blockchain. It is a second layer security platform based on the Binance Smart Chain.
- Securing messages: Blockchain can be used to create a standard security protocol. To enable cross-messenger communication capabilities, blockchain can be used to form a unified application programming interface framework.
- Internet of Things (IoT) security: Blockchain can be used to secure IoT systems or devices by decentralising their administration.
6.3 What tools and measures could be implemented to mitigate cybersecurity risk?
The measures that are being implemented to prevent cybersecurity risk include the following:
- the development of:
- information security manuals;
- information security policies; and
- electronic means manuals;
- the appointment of a chief information security officer;
- the application of:
- two-factor authentication; and
- physical, administrative and technical security measures;
- the use of forensic tools such as Elliptic and Chainalysis to control the transactionality of users and prevent fraud;
- the use of a virtual private network or domain name system; and
- compliance with cybersecurity international standards (ie, ISO/TC 307/WG 2)
7 Intellectual property
7.1 What specific challenges or concerns does blockchain present from an IP perspective?
The main concern from an IP perspective is the risk of IP rights violations on the blockchain. The key issues could relate to the implementation of derivative works (eg, Banksy's Morons) and jurisdiction.
Non-fungible tokens (NFTs) are cryptographic assets on the blockchain with unique identification codes and metadata that distinguish them from each other. A derivative work implies the transformation, modification or adaptation of a pre-existing work, and can be presented as an NFT. The establishment of IP rights over these kinds of works is not regulated and can present a major challenge to IP lawyers and regulators.
Another major challenge arises from the fact that as the blockchain operates in different parts of the world, it is difficult to determine jurisdiction when IP disputes arise.
7.2 What type of IP protection can blockchain developers obtain?
In Mexico, blockchain developers can obtain IP protection under the Copyright Federal Law, which protects original creative works that are susceptible of being disclosed or reproduced in any form or medium. This protection also extends to all foreign authors and owners.
In that sense, the Copyright Federal Law, through the National Copyright Institute, protects the registration of all computer programs and databases. The rights derived from such works include moral and property rights.
7.3 What are the best open-source platforms that could be used to protect developers' innovations?
In Mexico, the only tool available to protect developers' innovations is the Public Register of Copyright, which protects databases and computer programs.
Otherwise, to the best of our knowledge, no open-source platforms have been developed in Mexico that could be used to protect developers' innovations.
7.4 What potential advantages can blockchain offer in the IP context?
Blockchain technology can offer many solutions in the IP context.
One of the main virtues of blockchain technology is the possibility to trace information that it affords. Content creators and authors can thus protect their brands against piracy by tracing each item from its origin and disguising those which are provided from authentic chains.
Actions performed on the blockchain are also immutable; therefore, the blockchain can provide indisputable evidence of transactions that involve the transmission of property or exploitation rights – although they must comply with the form requirements.
8 Trends and predictions
8.1 How do you think the regulatory landscape in your jurisdiction will evolve in the blockchain space over the next two years? Are any pending changes currently being considered?
Due to the evolution of the blockchain market and recent modifications introduced by the main financial regulators, we expect that the regulatory framework governing virtual currencies will soon be amended.
As there are no specific blockchain regulations in Mexico, the applicable regulations will vary depending on the use case.
In the financial sector, over the next two years, we expect that digital assets will be comprehensively regulated to provide legal certainty to virtual currency service providers. We also expect to see developments relating to the regulation of initial coin offerings and securities token offerings; and perhaps a pilot central bank digital currency issued by Banxico.
Other major innovations could be the introduction of a decentralised identity solution for Mexican citizens and the generalised use of blockchain technology for:
- healthcare purposes (eg, Lifechain);
- real estate purposes (eg, the Tulum land register); and
- tax purposes (eg, the Tax Administration Service's forensics system).
No specific regulatory reforms regarding virtual currencies or blockchain technology are as yet in the pipeline; but due to the increased use of stablecoins and innovative models emerging from the regulatory sandbox, we expect an official statement from the regulators soon.
8.2 What regulatory changes would you like your jurisdiction to implement to further advance the blockchain industry?
Concerted efforts and important reforms in relation to the following issues are required at a regulatory level in order to provide security and legal certainty:
- a specific tax regime;
- data protection on the blockchain;
- competition regulations for the virtual currencies market;
- anti-money laundering regulation and forensics requirements;
- jurisdiction – there are still loopholes in terms of execution and regulation for a technology that is distributed around the world and uses smart contracts to be fully decentralised and automated;
- the classification of virtual currencies, in order to avoid limiting the operation of multiple assets that do not have the nature of a cryptocurrency; and
- recognition of digital assets that are native to blockchain platforms.
8.3 What is the largest impediment within your jurisdiction to the adoption of blockchain technology?
There are no regulatory impediments or obstacles to the adoption of blockchain technology in Mexico. The specific issues precluding mainstream adoption are the lack of:
- knowledge of the benefits and implications of blockchain technology;
- financial education on the use of virtual currencies and other types of digital assets;
- security mechanisms to protect users and clients from the inherent limitations of blockchain technology;
- a comprehensive regulatory categorisation of digital assets;
- specialised talent for blockchain companies; and
- regulation for specific blockchain use cases in relevant industries, such as financial services, healthcare and intellectual property.
9 Tips and traps
9.1 What are your top tips for effective use of blockchain technologies in your jurisdiction and what potential sticking points would you highlight?
- Obtain comprehensive legal advice from specialised lawyers when developing your business model.
- Join the main initiatives and governmental programmes aimed at incentivising blockchain development.
- Identify the best niche markets in which to operate – at present, most business models are cryptocurrency exchanges and wallets.
- Understand the applicable industry regulations to ensure full compliance with your specific obligations.
- Ensure that the activities that you will conduct do not constitute a reserved activity for financial institutions or a prohibited activity for foreign entities. Lack of authorisation can lead to fines in the millions of dollars and up to 15 years' imprisonment.
- From a tax perspective, be aware of the tax obligations arising from your operations in Mexico and seek a specialised tax opinion in order to arrive at a good strategy in this regard.
- Be aware of the limitations of your blockchain platform, to avoid violations of the consumer protection regulations or the data protection regulations.
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.