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Fitch: Mexico Fintech Law Could Mitigate Operational Risks
April 10, 2017 / 7:30 PM / 8 months ago

Fitch: Mexico Fintech Law Could Mitigate Operational Risks

(The following statement was released by the rating agency) NEW YORK/MONTERREY, April 10 (Fitch) Mexico's draft financial technology (fintech) regulation law, if passed, has the potential to reduce operational risk, enhance transparency and improve security for borrowers and lenders over time, according to Fitch Ratings. The fintech law, which was distributed by the regulator to select industry participants for discussion in March 2017, could mark a step forward in developing a comprehensive regulatory framework for the sector. Furthermore, it has the potential to alter the competitive landscape and broad market dynamics over the medium-term qualitative aspects that Fitch uses when assigning ratings based on the banks' intrinsic profile. These changes would have implications for banks and nonbank financial institutions (NBFIs) that have been increasing their exposure to fintech firms through equity investments, joint ventures and participation in start-ups. Fitch believes Mexico has significant growth opportunities for fintech considering the country's large size, high rate of penetration of mobile phones and internet and substantial unbanked population. The proliferation of fintech firms reflects this. Mexico has among the largest fintech sectors in Latin America, including around 150-180 start-ups that focus on a wide range of services including payments and remittances, crowdfunding, marketplace lending and financial management. Traditional banks and NBFIs have also recognized the potential growth opportunities through fintech and have been increasing their participation in the sector. Several Fitch-rated financial groups and NBFIs have made investments in start-ups and/or have been developing their own fintech businesses. Fitch believes this trend will continue over the long term. Investment in technology can be positive for financial institutions' credit profiles to the extent that it grows the business and profitability. However, the benefits usually accrue only over the medium and long term. Additionally, the impact will only be positive if accompanied by commensurate robust risk control frameworks and levels of transparency and security as existing business models. Also key is that NBFIs maintain underwriting standards and ensure that new lines of business through fintech subsidiaries or joint ventures do not negatively affect asset quality. The draft legislation would place the supervision of fintech firms under the National Banking and Securities Commission (CNBV) and the Commission for the Protection and Defense of Financial Services Consumers (CONDUSEF). Fitch understands that the proposed regulations are broad-based but include targeted rules for crowdfunding, virtual assets (such as Bitcoin) and payment technology. Crowdfunding companies' assessments of users' creditworthiness could fall under regulation according to media reports about the proposed law. They could also be asked to consult and submit credit information from a credit bureau and communicate their methodology for borrowers' risk to the CNBV, among other nonconfirmed requirements. All fintech companies could be required to list on a registry of companies offering financial services through online platforms and be required to establish controls and have adequate infrastructure to prevent money laundering and protect against cybersecurity risks. Fitch would view these changes, if confirmed and approved, as a credit positive. Rules concerning risk measures could improve asset quality and the performance of fintech companies, as well as making competitive conditions fair for all financial market participants and improving financial inclusion in Mexico. Contact: Alba Zavala Associate Director, Financial Institutions +52 81 8399 9100 Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes No. 2612 Edificio Connexity, Piso 8 Col. Del Paseo Residencial Monterrey, N.L. Bertha Perez Associate Director, Financial Institutions +52 81 83 99 9161 Justin Patrie Senior Analyst, Fitch Wire +1 646 382-4964 33 Whitehall Street New York, NY Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email:; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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