New powers and procedures for the supervision and inspection of financial entities in Mexico

On January 25, 2024, the Decree amending, adding, and repealing various financial laws regarding administrative procedures (“DECRETO por el que se reforman, adicionan y derogan diversas leyes financieras en materia de procedimiento administrativo”) (the “Decree”) came into effect.  The Decree amended, added, and abrogated different legal provisions in different laws that regulate the Mexican financial system to establish new powers and procedures for the supervision, inspection and oversight of financial entities in Mexico.

The Decree ammended, added and repealed different legal provisions of the following laws: (i) Law for Transparency and Regulation of Financial Services (Ley para la Transparencia y Ordenamiento de los Servicios Financieros) (“LTOSF”); (ii) Protection and Defense of Financial Services Users Law (Ley de Protección y Defensa al Usuario de Servicios Financieros) (“LPDUSF”); (iii) Credit Institutions Law (Ley de Instituciones de Crédito) (“LIC”); (iv) Securities Market Law (Ley del Mercado de Valores) (“LMV”); (v) Law to Regulate Financial Groups (Ley para Regular las Agrupaciones Financieras) (“LRAF”); (vi) General Law of Credit Organizations and Auxilary Activities (Ley General de Organizaciones y Actividades Auxiliares del Crédito) (“LGOAAC”); (vii) Law to Regulate Credit Information Entities  (Ley para Regular las Sociedades de Información Crediticia) (“LRSIC”); (viii) Investments Funds Law (Ley de Fondos de Inversión) (“LFI”); (ix) Popular Savings and Credit Law (Ley de Ahorro y Crédito Popular) (“LACP”); (x) Law to Regulate the Activities of Savings and Loan Cooperative Entities (Ley para Regular las Actividades de las Sociedades Cooperativas de Ahorro y Préstamo) (“LRASCAP”); (xi) Credit Union Law  (Ley de Uniones de Crédito) (“LUC”); (xi) Law to Regulate Financial Techonlogy Institutions (Ley para Regular las Instituciones de Tecnología Financiera) (“LRITF”); (xii) Insurance and Surety Institutions Law (Ley de Instituciones de Seguros y de Fianza)s (“LISF”); and (xiii) Retirement Savings System Law (Ley de los Sistemas de Ahorro para el Retiro) (“LSAR”).

I. New Sanctioning Administrative Procedure

Among other provisions, the Decree provides a new sanctioning administrative procedure to which the different authorities in the sector must adhere when seeking to impose a sanction on a financial entity (the “New Sanctioning Administrative Procedure”).

1. Summons to the procedure. The authorities must notify the financial entity of the beginning of the sanctioning administrative procedure (“SAP”), granting the right to a hearing and to make allegations and offer evidence within a period of 10 (ten) business days, which may be extended by an additional 10 (ten) business days period upon request of the parties.
2. Evidence period. At the end of the evidence period, the authority will have up to 60 (sixty) business days to process the evidence that has been offered.
3. Allegation period and closure of instruction. Once the evidence has been incorporated, the authority will notify the financial entity of the opening of a 5 (five) business day period to submit allegations.  On the following business day after the expiration of the period abovementioned, the instruction will be considered closed.
4. Issuance of the final decision. The authority will have a maximum period of 180 (one hundred and eighty) business days to issue and notify the final decision that concludes the SAP.

II. Expiration of the sanctioning power

The Decree regulates the expiration of the sanctioning power of the sector’s authority by establishing that the authorities will have 5 (five) years to initiate the SAP, counted from the next business day following the day on which the conduct was carried out or the infraction occurred (the “Expiration Term”). Additionally, it provides:

1. Suspension of the Expiration Term. The Expiration Term may be suspended for up to 2 (two) years for the following reasons:
   • Nonexistence of the financial entity’s address, and in such case the Expiration Term will resume from the date on which the authority becomes aware of the entity’s address.
   • Filing of any means of defense, in which case the Expiration Term will resume when the definitive resolution corresponding to the defense mechanism invoked is issued.
2. Calculation of the Expiration Term. The Expiration Term will begin to count on two different moments:
   • Continuous conducts.  The Expiration Term will begin to count from the moment in which the alleged infringing conduct ceases.
   • Ongoing conducts. The Expiration Term will begin to count from the moment of consummation of the last alleged infringing conduct.
3. Interruption of the Expiration Term. The Expiration Term will be interrupted at the time of the notification of the initiation of the SAP to the financial entity.

III. Procedure to revoke permits and concession titles

In the specific case of the procedure to revoke permits and concession titles established in the LIC, LMV, LRAF, LGOAAC and LRSIC, the Decree established the following:

1. Opinion of the relevant financial authorities.  During the procedure to revoke permits and concession titles, the opinion of different financial authorities will be obtained, such as the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) (“CNBV”), the Central Bank (Banco de México) (“Banxico”), the National Insurance and Bonds Commission  (Comisión Nacional de Seguros y Fianzas) (“CNSF”) or the National Commission of Retirement Saving System (Comisión Nacional del Sistema de Ahorro para el Retiro) (“CONSAR”), depending on the case.  Thus, this opinion must be issued with at least 30 (thirty) business days before the expiration of the deadline set to issue the resolution that concludes the procedure. If the opinion is issued after this period, the Ministry of Finance and Public Credit (Secretaria de Hacienda y Crédito Público)(“SHCP”) may resolve the matter based on the evidence in the file, without needing to consider the opinion.
2. Publication and registration of the resolution.  The resolution of the procedure to revoke permits and concession titles will be published in the Federal Official Gazette and must be registered in the Public Registry of Commercecorresponding to the corporate domicile of the company in question. Thus, the resolution in which the permit or concession title is revoked will cause the dissolution and liquidation of the companies from the date they are notified, without the need of a shareholders’ meeting resolution.

IV. Matters to consider

In addition to the amendments previously mentioned, the Decree also established specific amendments to the following laws:

1. Electronic notifications. The LTOSF and the LPDUSF provide, respectively, that electronic notifications may be carried out through the systems established in the general provisions issued by the CNBV, Banxico, the National Commission for the Protection and Defense of Financial Services Users (CONDUSEF) and the Federal Consumer Protection Agency (PROFECO). In matters not provided by these provisions, both regulations establish that the Federal Fiscal Code (Código Fiscal de la Federación) will apply.
2. New powers. The Decree establishes the following powers:
   • Banxico.  The LTOSF grants Banxico the power to supervise and oversee the compliance of the provisions of the laws that grant Banxico powers to regulate the specific acts and operations indicated in such provisions.
     
     Regarding this, it is noted that concerning Banxico’s authority to impose sanctions for violations of provisions of other laws, when such laws do not expressly provide for an expiration term of the sanctioning power, the provisions of section II of this note will apply. Also, when such laws do not expressly provide for the stages and terms for the Sanctioning Administrative Procedure, Banxico shall observe the provisions of section II of this note.
   • CNBV. The LRASCAP establishes that the CNBV may order the dissolution and liquidation of some Savings and Loan Cooperative Entities with basic operations level.  In such case, the order will disable the entity to carry out its operations as of the date on which it is notified and will cause the dissolution and liquidation of the entity, without the need of a shareholders’ meeting resolution. 
   • Joint powers.  The LFI establishes that the CNBV and Banxico, within the scope of their respective competencies, will have the authority to investigate, in the administrative sphere, acts or events that allegedly constitute or may constitute a violation of the provisions of the LFI or other general provisions. The supervision carried out by Banxico will comply with the provisions of its law, as well as the general rules issued by it.
     
     Additionally, the LRSIC establishes that Credit Information Companies will be subject to inspection and oversight by Banxico and the CNBV, to which they must pay fees as determined by the SHCP, as well as by Banxico, within the scope of their respective competencies.
   • CONSAR. The LSAR establishes that the supervision carried out by CONSAR will be subject to the LSAR Regulations and will include the procedures corresponding to the exercise of the powers of inspection, surveillance, prevention and correction granted to CONSAR in the LSAR, as well as in other applicable laws and provisions. In the case of credit institutions, supervision will be carried out exclusively regarding the operations related to retirement savings systems.
     
     It is important to highlight the fact that the inspection and oversight procedures carried out by CONSAR must conclude within a term of 12 (twelve) months counted from the date the participant in the Retirement Savings Systems is notified of the visit order or of the beginning of the oversight actions.
   • CNSF. The LISF establishes that the oversight actions carried out by the CNSF must conclude within 12 (twelve) months after the Institutions and Mutual Entities are notified of the commencement of such actions, as well as the other persons and entities regulated by the LISF and respective regulations.
3. Effects of the revocation. The Decree establishes as one of the main effects of the revocation of the authorization, that companies are not able to carry out their operations and activities from the date of notification. Furthermore, this resolution will cause their dissolution and liquidation without the need of a shareholders’ or mutualists’ meeting resolutions, or as applicable, a board of directors’ resolutions, with the following particularities.
   
   This effect is provided in the eight of the twelve amended laws, with the following particularities:
   • The LACP regulates the event of incapacity, dissolution and liquidation for the Popular Finance Entity, adding that, in any case, the position of liquidator must be held by one of the persons referred to in section IV of article 96 of the LACP;
   • The LRSIC regulates the case of incapacity, dissolution and liquidation, but adds that once the revocation has been registered in the RPC, the CNBV will request the judicial authority to appoint a liquidator if within 60 (sixty) business days of the publication of the revocation in the Federal Official Gazette the liquidator has not been appointed;
   • The LFI regulates the case of incapacity, dissolution and liquidation for mutual funds, mutual fund operating companies, mutual fund share distribution companies and mutual fund share appraisal companies in question;
   • The LUC regulates the case of incapacity, dissolution and liquidation, but for dissolution and liquidation it adds, as an exception, the case of unions that previously requested to cease to have such character;
   • The LRITF regulates the case of incapacity, dissolution, and liquidation for Financial Technology Institutions.  In addition, it regulates the procedure to revoke temporary permits; and
   • The LISF regulates the case of incapacity, dissolution and liquidation for Insurance and Bonding Institutions and for Mutual Entitles.
     
     In addition, it is important to highlight that the LRAF provides for a different scenario other than that of incapacity, dissolution, and liquidation, if the authorization of the holding company is revoked. In this scenario, the financial entities that are part of the financial group must cease to be part of the group. Such financial entities will have a maximum term of 60 (sixty) business days from the publication of the revocation in the Federal Official Gazette to suspend the offer of products and provision of financial services at the branches of the other financial entities that were part of the financial group. 
4. Extension of evidence material. The LPDUSF establishes that in the SAP all kinds of evidence will be admitted, except for testimonial evidence and confessions of authorities such as the CNBV, CNSF and CONSAR or their public officers, through the answering of specific questions. The offering, admission, preparation, presentation and evaluation of evidence will be made in accordance with the terms and conditions of the Federal Code of Civil Procedures (“CFPC”).
5. Publication of the revocation. The Decree establishes in the LFI, LACP and LISF that the resolution that revokes a permit or concession title must be published in the Federal Official Gazette and, in addition, in two newspapers with wide circulation.
6. Reconsideration Recourse.  The Decree establishes that the reconsideration recourse, will be processed in accordance with theBanxico Law.
7. Supplementary regulations.  The LSAR establishes that for supervision procedures, notifications made through means other than email, the appeal process, sanctions, the procedure for enforcing imposed fines, the reduction in payment, and the guarantee that individuals and companies must provide when challenging such fines, the provisions of the LSAR, its regulations and the CFF will apply. In matters not provided by these regulations, the provisions of the CFCP will apply.

V. Transitional Regime

Finally, the transitional regime of the Decree provides the following:

1. The Decree entered into force on the day following its publication in the Federal Official Gazette, which was January 25, 2024. Any SAP initiated prior to the entry into force of the Decree must be continued until their conclusion, in accordance with the procedure in force at the time of its notification.
2. Resolutions concluding administrative revocation procedures that were initiated by notification of the act granting the right to a hearing prior to the entry into force of the Decree, must be continued until their conclusion following the procedure in force at the time of notification to the corresponding institution or entity.
3. The processing and resolution of any SAP initiated by Banxico as of the date of entry of the Decree will be carried out according to the provisions of the Supervision Rules, Self-Correction Programs, and Sanction Procedures (Reglas de Supervisión, Programas de Autocorrección y del Procedimiento Sancionador) in force on the same date of the entry into force of the Decree.

*. *. *

This note is for informational purposes. For any questions or comments regarding the above, we are at your service

Sincerely,

Martens Abogados, S.C

*. *. *