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Understanding the Sanctions Fintech´s Companies Could Face

By Bernardo Mendoza - Campa & Mendoza
Founding Partner


By Bernardo Mendoza | Founding Partner - Fri, 06/17/2022 - 13:00

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The National Banking and Securities Commission (Commission) has authorized 27 Financial Technology Institutions (FTI"), of which 15 are Electronic Payment Fund Institutions (IFPEs or Wallets) and 12 Crowdfunding Institutions (IFCs).

The FTIs are institutions that have vast regulatory obligations and their supervision is by different governmental entities, such as the Commission, the Financial Intelligence Unit, the central bank, and the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF), among others, so it is necessary to contemplate and understand their obligations to avoid incurring sanctions, which could be: warnings, fines (may be imposed on FTIs and/or its directors, partners, officers, and other employees), revocation of authorizations to operate, and the attribution of a crime.

According to the CNBV's sanctions portal, the authority has imposed 27 sanctions, in contravention of the Law to Regulate Financial Technology Institutions (Fintech Law) for the different conducts:

Eighteen sanctions for infringing article 12, in addition to article 103, section I of the Fintech Law, which states that “the expressions ‘financial technology institution,’ ‘collective financing institution,’ ‘electronic payment fund institution’ or others that express similar ideas in any language by which the performance of the activities of the aforementioned entities can be inferred, may not be used by unauthorized persons such as FTI’s.”

Six sanctions for infringing article 4, section XVIII of the Fintech Law, which states that “Operations shall be understood as acts of a financial or payment nature referred to in this Law, which an FTI may offer or perform with the public or, through which they are performed between Clients, in terms of this Law.” Therefore, the violations consisted of the dissemination of false information that induced an error, through their website, for the performance of the operations referred to by the Fintech Law.

Two sanctions for infringing the Eight Temporary Provision of the Fintech Law, that established “that people who at the entry into force of the Fintech Law that were carrying out the activities regulated in such regulation, were obliged to request the authorization before the National Banking and Securities Commission within a period not exceeding 12 months counted from the entry into force of those provisions. If the persons referred to in the above-mentioned paragraph did not request their authorization, then they should have refrained from continuing to provide their services”.

One sanction for infringing article 103, section V, subsection b) that regulates the dissemination of false or misleading information, through the FTIs or through companies authorized to operate with innovative models, or in any other way to carry out the operations referred to in the Fintech Law.

If we analyze the sanctions, we can point out that none are cataloged by the regulations as serious, which means that the ITFs sanctioned could have lower sanction amounts and were able to obtain some benefit from the non-imposition of these, as explained below, as long as they had requested it.

On the other hand, the Fintech Law considers the following as serious behaviors:

I. Provide the authority or customers with false or intentionally misleading information, by concealment or omission;

II. Use the money, electronic payment funds or virtual assets of the clients for purposes other than those agreed;

III. Carry out unauthorized activities and operations;

IV. Omit to present the document establishing the measures and procedures for the anti-money laundering and financing of terrorism ("AML Manual");

V. Not reporting acts, operations or services or failing to submit any report on AML matters to the Financial Intelligence Unit, through the Commission;

VI. Not having automated AML systems or by failing to establish the communication and control committee or failing to appoint a compliance officer;

VII. Perform Operations with any Client who is on the blocked-persons list;

VIII. Exceed the operating limits to which the ITF is subject, and

IX. Failure to comply with capital requirements.

For the imposition of the sanctions, the Commission considers, among other factors, the seriousness of the conduct to quantify the amount of the sanction. However, the Fintech Law contemplates the possibility that the Commission, with the approval of the Interinstitutional Committee, can declare the revocation of the authorization to operate as an ITF when it carries out an aforementioned conduct.

The ITFs, in addition to the obligations established by the CNBV, must comply with different obligations established by CONDUSEF, among which the following stand out:

  • Have a Specialized Unit for the attention of queries and claims and report the queries, claims and clarifications received and attended to periodically;
  • Registration of standard-form agreements and obligations related to such contracts;
  • Information related to the collection of commissions;
  • Proof of operations;
  • Have the Electronic Notification System;
  • Advertising and Financial Statements, and
  • Platforms they use to offer their financial products and services.

Failure to comply with the aforementioned obligations leads to CONDUSEF applying its sanctioning faculties, which implies the application of sanctions that also range from a warning to the imposition of crimes.

It should be noted that both supervisory authorities have foreseen cases in which it is possible for an entity that has committed an infringement to request the non-imposition of this, by the (i) Self-Regulation programs, (ii) request for abstention, and (iii) request for forgiveness.

The request for any of the processes must meet certain admissibility requirements including: (i) the infraction shall not be considered serious, (ii) there is no damage to third parties or to the financial system itself, (iii) there is no recidivism and (iv) it does not constitute a crime.

For all the above, Campa & Mendoza, as a law firm specialized in the financial sector, helps interested parties and those who are already involved in the ITF sector to perfectly understand the regulatory framework applicable to their operations to comply with their obligations in a timely manner and avoid being sanctioned, or, if it is necessary, the development of strategies that avoid the imposition of sanctions.

Photo by:   Bernardo Mendoza

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