Mexico's Large-Scale Financial Reform: Greater Availability of Credit, Lower Costs and Certainty of Legal Remedies

Within the framework of an agreement reached by Mexico’s three main political parties to promote structural reforms known as “Pacto por Mexico” (Pact for Mexico), President Enrique Peña Nieto submitted on May 8, 2013, a proposed Bill to Congress to implement significant financial reforms.

The Bill proposes to amend 34 federal laws through 13 decrees and seeks to boost the credit supply in Mexico with better conditions to increase economic growth.

Summary of the Bill

Key objectives of the Bill, subject to Congressional approval, are as follows:

• Promoting and expanding the granting of credit at lower costs by banking and other non-banking institutions, creating incentives for lenders to better offer credit in a competitive environment without imposing capped interest rates.
• Improving legal remedies available to lenders, such as more efficient recovery rights and foreclosure of security interests, and implementing better enforcement rights for guaranties structured through deposit certificates issued by general deposit warehouses.
• Improving trial procedures seeking faster resolution of controversies and granting enhanced rights to lenders through the courts, which are likely to expedite collections. The Bill would also create specialized federal courts that will deal with major commercial disputes, certain class actions and bankruptcy.
• Creating better instruments to facilitate the transfer of collateral and facilitating recovery of collateral in bankruptcy procedures.
• Redefining and strengthening the development banking system as a way to expand credit and promote development in priority areas and activities such as infrastructure, small and medium-sized companies, and innovation.
• Increasing competition in the financial system. The Mexican Federal Antitrust Commission (Comisión Federal de Competencia) would issue a report with a series of recommendations to be implemented by the financial regulators seeking to improve competition. Customers would have the ability to easily transfer consumer credit accounts from one institution to another of their choice. Provisions to prevent tied selling are also being contemplated.
• Continuing to improve solvency and prudential regulation in the financial system to complete the implementation of Basel III agreements, setting forth rules for judicial banking liquidation, new measures to better act in systemic crisis, and issuance of strict norms to ensure better practices.
• Reinforcing the authority of financial regulators (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros and Comisión Nacional Bancaria y de Valores), including among others, for: (i) organizing and operating improved arbitration alternatives and better enforcement effects to awards and rulings issued by regulators; (ii) defining healthy financial practices and reducing unfair contractual clauses and practices; (iii) performing evaluations and further supervision of banking and non-banking institutions seeking transparency and due compliance of regulatory requirements for the protection of consumers; (iv) setting forth additional measures for banking institutions to allocate additional resources to financing operations, as opposed to other activities; and (v) organizing and operating a national bureau of financial institutions providing relevant information for customers to make better decisions.
• Reinforcing anti-money-laundering regulation and harmonizing sanction procedures in different financial laws.
• Providing incentives to capital markets, including for mid-sized companies to “go public,” more flexibility to funds (Sociedades de Inversión) and companies promoting investment (Sociedades Anónimas Promotoras de Inversión or SAPIs), as well as new securities and investments instruments, such as Certificados de Capital de Desarrollo (CKDs), Títulos Referenciados a Acciones (TRACs), Exchange-Traded Funds (EFTs) and Fideicomisos de Infraestructura y Bienes Raíces (FIBRAS).

Steps to Implementation and Timing

The Bill still requires legislative steps to be approved, including discussion and approval by the House of Representatives and the Senate, and promulgation of the final Bill by the President. Changes to the initial draft may be introduced during the legislative process.

The reforms could potentially be approved before the end of the year. We will keep you up-to-date on further developments.

If you have questions related to this alert, please contact Roberto Arena ([email protected]; +52.55.5.284.8542) or Marco Nájera ([email protected]; +52.55.5.284.8545) of Gardere’s Mexico City office or Charles E. Meacham ([email protected]; 713.276.5633) of Gardere’s Houston office.