Banxico Issues “Catch-22” Rules Impacting Crypto Exchanges

The Mexican central bank has published rules on digital assets that put cryptocurrency exchanges in “a catch-22 type of situation,” per a local exchange CEO. They “essentially stipulated that they wouldn’t authorize any cryptocurrency to be offered by regulated financial companies.”

On Friday, the Bank of Mexico (Banxico) issued a circular in the Official Gazette of the Federation that details cryptocurrency-related provisions for regulating financial technology institutions (ITFs).

“A year ago a law to regulate fintech companies was passed by the Mexican Congress. This law stipulates that services that hold custody of users’ fiat money or cryptocurrencies (most brokers and exchange business models require this) have to apply for a license issued by the Mexican equivalent of the SEC (CNBV),” Volabit CEO Tomas Alvarez detailed.

According to Alvarez, the same FinTech law “tasked the central bank of México (Banco de México) with the responsibility of determining which cryptocurrencies were authorized to be offered to the public by these regulated companies, and gave the Bank of México 12 months to come up with a secondary law to establish some kind of framework or list of authorized cryptocurrencies.”

“The deadline was due to expire this month so last Friday Bank of Mexico published their secondary laws which essentially stipulated that they wouldn’t authorize any cryptocurrency to be offered by regulated financial companies,” the CEO added.

The Banxico circular published on Friday notes 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.” Moreover, the provisions state that they won’t be “eligible for obtaining the authorization” to offer crypto exchange, custody, or transmission services directly to their customers.

“This is a catch-22 type of situation because, 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,” Alvarez remarked.

The circular’s provisions are still subject to public consultation until June 5. “Officially the law is in effect since the moment it was published (last Friday) however it 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),” the Volabit CEO said, clarifying:

“Fintech companies in Mexico are operating with a special waiver until the process for registration is ready thus allowing companies to register for the license. This will happen in around 6 months.”

“It is important to note that the comments submitted during the consultation are non-binding and the general sentiment is that Bank of Mexico will ignore them,” he asserted.