Sunday, September 15, 2019

Bitso: adapting to FinTech Law could be expensive for some companies

Key facts:
Bitso migrated its operations with cryptocurrencies to the jurisdiction of Gibraltar.
Emilio Rivero says the law will be positive for users, but expensive for startups.

In the framework of the transitory provisions of the so-called FinTech Law of Mexico, this September expires the deadline for the Financial Technology Institutions (ITF) to register with the National Banking and Securities Commission (CNBV) to be able to operate legally. Emilio Rivero, senior risk and corporate affairs analyst at the Bitso cryptocurrency exchange, based in Mexico City, believes that several of the requirements set forth in this regulation could be costly for some companies.

In an interview with CriptoNoticias, Rivero argued that the main challenges for Mexican FinTech will be the necessary costs and knowledge. "Most of the companies that carried out operations and that are now regulated activities, were people who sought to undertake," he said.

From his point of view, “now, with the expected requirements, they must have a well-structured corporate government, compliance officers, information security officers, among others, which represents an increase in costs that could interfere with the viability of many startups or entities, which in the end are small and medium enterprises. ”

In fact, the Bitso cryptocurrency exchange house adapted to the regulation by separating its operations into two parts, that is, as long as Mexican pesos are used, customers will continue to use existing services, such as the Interbank Electronic Payment System (SPEI), Cash financing or Bitso Transfer. These services will continue to be under the operational supervision of the business name Bitso SAPI de CV, which is regulated by the Law to Regulate Financial Technology Institutions, better known as the FinTech Law of Mexico.

On the other hand, Rivero explained that in regard to interactions with cryptocurrencies, all of Bitso's activities, including custody, shipping, withdrawal and trading of cryptocurrencies, were migrated to a jurisdiction outside of Mexico. As of August 1 of this year, these operations are under a framework specifically developed to regulate businesses in the cryptocurrency sector of the Gibraltar Financial Services Commission (GFSC).

These movements are part of Bitso's strategy to adapt to the rules issued by the Central Bank of Mexico (Banxico), which prohibit ITFs or credit institutions (IC) that offer the general public operations with digital assets (cryptocurrencies) . However, the standard allows unregulated cryptocurrency exchange houses to continue operating. That is, regulated startups cannot operate with cryptocurrencies; while those that trade with cryptocurrencies, although they do not enter into the regulation, will not be able to exchange cryptocurrencies against Mexican pesos.

As for the FinTech Law, one of the most important aspects is that it considers the issuance of a license for the creation of digital assets, which covers platforms and services that operate with the national currency and allow the issuance of payments at internal and external, which is forcing exchange houses to make changes in their operations.

In this sense, Bitso reaffirmed its commitment to disclose and maintain in a transparent way the fair separation between the services provided in Mexico and those provided in Gibraltar.

What will happen to the users?

According to Rivero, when Bitso users interact with Mexican pesos, either through SPEI, cash funding or Bitso Transfer, they will continue to use the services of Bitso SAPI de CV, in Mexico, a company that operates under the terms of the article eighth transitory of the FinTech Law.

On the other hand, he indicated that cryptocurrency trading services, custody as well as the sending and withdrawal of it, now regulated by the GFSC DLT Regulatory Framework, will not be affected by the change of jurisdiction to Gibraltar.

As to whether immigrants will be able to mobilize their cryptocurrencies in Mexican territory, Rivero emphasized that “cryptocurrency mobility has no change as a result of these laws. In general, cryptocurrencies continue to operate the same. ”

What will companies offer?

Regarding the term of this legal framework and how it will impact new startups that wish to enter the ecosystem, Rivero stressed that companies that manage to comply with the regulation in Mexico will have the ability to offer more reliable services to their users.

In his opinion, “this is because the regulation seeks that companies that carry out the activities provided by the FinTech Act comply with specific practices such as: mandatory separation of funds, capital requirements, availability of funds, registration of movements by customer and balances, cybersecurity standards, user protection by the National Commission for the Protection and Defense of Users of Financial Services (Condusef) etc ”.

In the end, according to Rivero, the benefit to users can be positive. However, he reiterated that some of the requirements of the Law could become too high for some companies.

Waiting for the authority

As for the implications for the business as such and for the exchange houses, once the expiration date expires, Rivero considered that at this moment there is no idea about the implications that it will have for the FinTech ecosystem, ”since we would have to wait to see what the authority's response is about the whole process that has been carried out. ”

Regarding the possibility of requesting a challenge to this law, Rivero commented that “the legal framework is robust enough and therefore the institutions always have the power to object to the set of laws”.

In light of the expectations regarding the FinTech Law, Rivero said that it is still unknown what type and which exchange houses will be operating. "We have no idea yet, because we do not have information on which companies applied or not to the law, since each startup is carrying its own strategy."

Regarding what will happen to cryptocurrency ATMs, he clarified that Bitso does not operate with ATMs. However, other analysts explained that, in effect, ATMs do fall within the assumption of article 17 of the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin, and they will have to comply with all the obligations mentioned in the article and in the law, such as giving notice to the authority when operations are carried out for an amount equal to or greater than 54,496 Mexican pesos or the equivalent of 645 Units of Measurement and Update (UMA), which is the economic reference in pesos for the calculation of tax obligations.

The truth is that formally on Tuesday, September 25, the deadline established in the FinTech Law, which regulates ITFs, will expire so that companies in Mexico, including cryptocurrency exchange houses, request authorization from the CNBV, the regulatory body of the system Mexican financial The purpose is to operate under the spectrum of a regulatory framework.