On Friday, March 10, the Bank of Mexico (colloquially known as ‘Banxico’) published a circular in the Official Gazette of the Federation with new details on cryptocurrency regulations. Since the regulations were made public, however, industry insiders have condemned them as disastrous for the industry, and the country.
“Mexico is the endpoint to the biggest remittance corridor in the world (second largest population of migrants), the 6th most visited country by tourists and [is the] country with the largest number of free trade agreements,” Sebastian Acosta Checo, CEO of Isbit, a Mexican cryptocurrency exchange.
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Checa believes that the Mexican economy “has a lot to gain from the industrial application of virtual assets (activos virtuales) to facilitate free trade, tourism and financial inclusion,” he said.
Therefore, “The impact goes beyond the crypto industry. I believe it damages the economy as a whole.”
A “Catch-22 Type of Situation”
Indeed, two cryptocurrency exchange CEOs have told News.Bitcoin.com that the regulations make it clear that Banxico does not understand a few fundamental things about how crypto works.
Thomas Alvarez, CEO of Mexican cryptocurrency exchange Volabit, explained that the new regulations are contradictory and vague. “This is a catch-22 type of situation,” he told News.Bitcoin.com.
For example, the regulations state that “institutions may only enter into transactions with virtual assets that correspond to internal transactions, subject to the prior authorization granted by the Bank of Mexico.” At the same time, however, “[the institutions] will not be eligible for obtaining the authorization” to provide clients with cryptocurrency transaction, exchange, or custody services.
Indeed, “as a Mexican exchange, the law requires you to become a regulated financial institution (otherwise you would be operating illegally). However, once you obtain this license you would not have the authorization to list any cryptocurrencies, making it legally impossible to operate an exchange in Mexico with the fintech law in place.”
“In a way, [this] is preventing institutions from offering virtual assets to end consumers,” said Checa, adding that “this is a disaster. The people within Banxico have really shown their ignorance about the subject they are trying to regulate.”
Checa also said that Banxico’s statement appears to have been written “in a rush,” and that certain important things have been left more or less open to interpretation. In Checa’s case, one important example of this was the definition of what a ‘consumer’ is: “financial institutions and foreign trade companies are not a ‘consumer’ and thus can operate freely” with Isbit.
Fintech Companies Have Until September to Register
And indeed, Isbit has “shifted gears to serving businesses, corporations and institutions (which are allowed to hold virtual assets in their balance sheets according to the previous bill published March 9, 2018). Thus we will not shut down or lose our most valuable customers,” Checa explained.
All the same, Checa understands that Isbit will need to appeal the new laws if it wants to continue to serve the public. Although the regulations have technically been effect since their publication, Alvarez said that “[they] only applies to regulated fintech companies of which none exist yet because the process for becoming a regulated fintech company has not been determined yet by CNBV (Mexico’s SEC).”
While the registration process is being determined, Checa explained that fintech companies in Mexico have permission “to operate with ‘consumers’ till September,” according to the circular.
Bitso, a third cryptocurrency exchange, clarified in a blog post that the new regulations would not stop cryptocurrency exchange operations entirely, although they may cause the industry to stagnate.
Banxico publicó nuevas reglas, representan un estancamiento para el sector pero no detienen nuestra operación. Seguiremos enfocados en nuestros usuarios; defendiendo tu derecho al acceso a la tecnología.
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— Bitso (@Bitso) March 13, 2019