Mexico Central Bank Releases “Catch-22” Rules, Set To Impact Crypto Exchanges

The central bank of Mexico has recently released a set of rules to govern the use and services of cryptocurrency in the country. The Banxico bank released a circular in its Official Gazette of the Federation on Friday detailing crypto-related provisions for the regulation of financial technology institutions (ITFs).

Tomas Alvarez, CEO of one of the crypto exchanges Volabit explained how the recent set of regulations would cast a shadow of uncertainty over the crypto exchanges operating in the country. Tomas said,

“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).”

Tomas went on to explain that the same Fintech law which was published last year tasked the Central bank of Mexico to come up with a secondary law which would determine which cryptocurrencies are fit for offering to the public.

The deadline for the second law was due for this week, and thus the central bank came up with its regulation last Friday, which declared no cryptocurrency can be offered to the public by these regulated financial companies.

What is a Catch-22 Scenario

The circular published by the central bank on Friday states that the financial institutions can only enter into transactions with digital assets which have a priori authorization from the central bank. However, the other part of the circular makes it clear that no exchange or institution will be authorized to directly deal with the clients or offer any transmission or custody services.

Tomas explained that the circular is quite vague and does not clearly define what they are authorized to do or what they can’t. He says its a catch-22 kind of scenario which is self-contradictory and does not make much sense. Alvarez explained,

“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.”

The Vagueness of The Circular is Quite Confusing

The circular published by the central bank is subject to public consultation until June 5, however, Alvarez says otherwise. He says that the law is in effect since the circular came out the last Friday, but the more confusing part is that it only applies to regulated fintech firms, and there are no regulated fintech firm in Mexico since they haven’t released any regulations to consider which firms fall under the category of regulated fintech firms.

Alvarez says that currently, the fintech firms which are operating in the country have been granted special wavier from the government until the guidelines for obtaining the license is released by the government. Alvarez thinks the finalization might take another 6 months.