MEXICO Law and Practice Contributed by: Lizette Neme, Andrea López-Malo, Shannon Reilly, Rodolfo Flores and Dunia Salum, Áurea Partners
subject to minimum capital requirements, as well as ongoing audit, accounting, and regulatory reporting obligations that are sometimes lower than those appli - cable to legacy players. However, in practice, many fintechs have expressed concerns that the regulatory framework has not fully achieved this intended level of flexibility, citing licensing timelines, operational restric - tions, and compliance burdens as limiting factors for innovation and market entry. Banks are heavily regulated, with deeper compliance obligations and capital adequacy (Basel standards). They require extensive audits, capital buffers and ongoing reporting. They are supervised more inten - sively by the CNBV and Banxico, and must meet liquidity, solvency, and governance requirements. Banks also face greater regulatory scrutiny regarding risk management and customer protection. The above differences are only possible because of the limited activities fintechs can undertake, com - pared to the extensive catalogue of activities of banks. 2.5 Regulatory Sandbox Mexico’s regulatory sandbox is regulated under the Fintech Law and its secondary applicable regulations. It was created to allow innovative financial models to operate temporarily and under supervision of the financial authorities, with a simplified and temporary regime. The sandbox was designed as an exception- based mechanism rather than a fast-track authorisa - tion process. The eligible entities are those aiming to offer regulated financial services in an innovative manner, including already licensed financial entities and entities seek - ing authorisation to become regulated. It also covers models that do not fit the existing regulatory frame - work or require testing before full licensing. Both incumbents and new market entrants may apply, pro - vided the innovation cannot be implemented under existing licences without prior testing. To qualify, applicants must propose an innovative model that differs from existing market practices and requires testing in a controlled environment. The mod - el must provide benefits to customers, be at a mini - mum viable stage (ready to operate), and be capable
of being tested with a limited number of customers under predefined operational, transactional and risk limits. If approved, the regulator may grant a tempo - rary authorisation for up to two years, extendable for one additional year. During this period, the regulator sets operational limits, capital and reporting require - ments, and may grant limited regulatory exemptions under a supervised framework. At the end of the sand - box period, participants must either obtain full authori - sation or exit the market. Despite the existence of this regulatory framework, no companies have received formal sandbox approv - al to date, largely due to a conservative regulatory approach, strict documentation requirements and lim - ited transparency in the evaluation process. 2.6 Jurisdiction of Regulators The financial regulatory landscape in Mexico is divid - ed amongst several authorities, each with its own jurisdiction and responsibilities established by law. Regulatory oversight is activity-based rather than entity-based, which often results in overlapping or concurrent jurisdiction. Overlapping jurisdiction in Mexico is managed through a functional allocation of powers based on the specific activities performed. In cases of regulatory uncertainty, market participants commonly request confirmation of regulatory crite - ria from the relevant authorities in order to clarify the applicable framework. See 2.2 Regulatory Regime . 2.7 No-Action Letters No-action letters are not formally recognised under Mexican law. Alternatives include informal discussions with regulators to understand their legal standing or requesting formal interpretations of certain provisions (criteria confirmation). However, regulators will not expressly issue written letters stating that they will not act or enforce compliance regarding an activity that is not formally authorised. 2.8 Outsourcing of Regulated Functions In Mexico, regulated financial entities are permitted to engage with third parties to carry out certain services related to their operations, under specific regulatory provisions.
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