Mexico’s New Bill Could Be a Game Changer for Bitcoin

Mexico’s New Bill Could Be a Game Changer for Bitcoin

27238
6
SHARE

Mexico has recently introduced a bill which defines Bitcoin as a digital asset and sets forth rules for bitcoin exchanges. Bitcoin.com spoke with Sebastian Acosta Checa, founder of Mexican bitcoin exchange ISBIT, to learn more about this new bill and its effects on the Bitcoin ecosystem.

Also read: How Trump’s Wall and Remittance Tax Could Give Bitcoin a Boost

First Draft of the Bill

Bitcoin.com (BC): Can you tell us about this new bill and when it was introduced?

Sebastian Acosta Checa (SC): The first draft of this financial technology law was presented by the Secretary of Credit and Public Finance of Mexico, Jose Antonio Meade, in the 80th Mexican Banking Association Convention, held in Acapulco on March 23. In accordance with this law, the central bank will define the regulation that applies to digital assets such as Bitcoin.

Mexico's New Bill Could Be A Game Changer for Bitcoin
Jose Antonio Meade, Secretary of Credit and Public Finance of Mexico

This legislation is being promoted by the Executive Branch but it still needs to be approved by Congress. Nevertheless, I have noticed wide consensus across political parties about how this can benefit the economy, trigger more foreign investment and help our industry grow.

This new regulation is part of the National Policy for Financial Inclusion presented by the President of Mexico on June 21, 2016. One of the axes of the policy focuses on the utilization of technological innovations to provide financial services. The government is recognizing how the technological advances have transformed the manner in which people in several industries operate, including the financial sector. It is an official priority of the state to foster the application of technological innovations to reduce the cost of financial services and widen its use among the population.

How Mexico Will Define Bitcoin

BC: What does the bill say about Bitcoin?

SC: The central bank will define what a ‘digital asset’ is by following basically two criteria. The first criteria is the widespread adoption by the public (high market cap) and the second is the protocols, rules, and mechanisms that allow generation, identification, division and control the replication of such units of account.

Basically, we are talking about a currency that uses a consensus mechanism and blockchain approved by the Bank of Mexico.

Persons (including miners) with digital assets, who do not perform operations on behalf of others, are not required to obtain authorization from regulators and can use digital assets in their daily commerce.

BC: Does the bill specify what market cap is required for a cryptocurrency to be considered a digital asset? Also, is there any indication of the specifics of the consensus mechanism required?Mexico's New Bill Could Be A Game Changer for Bitcoin

SC: The draft is a 76-page document that covers a lot. It addresses most legal concerns and objections to work with Bitcoin and blockchain tech in Mexico, but it does not go into that level of detail or give concrete, technical requirements.

Guidelines will be published in the form of “Circulares” (Technical Letters) by the central bank. These letters are where, for example, the central bank will define what are legitimate “digital assets”. I can guarantee you Bitcoin and Ethereum will be there.

The most important criteria [for a digital asset] will be that the underlying technology is sound and there is widespread adoption by the public or industry.

The government’s goals are to transit to a digital economy, reduce or eliminate the use of physical cash, make the taxation process more efficient and transparent, create a mechanism to automate regulation/auditing and supervision tasks, expand the coverage of high quality and affordable financial services and more.

Requirements for Bitcoin Exchanges

BC: What does the law say about bitcoin exchanges?

SC: One section of the Financial Technology Law deals specifically with ‘Digital Assets Management Institutions’ which include bitcoin exchanges such as ISBIT.

This section of the law explains that digital assets management institutions must be Mexico's New Bill Could Be A Game Changer for Bitcoinsolvent and cannot operate under fractional reserves. Companies such as ISBIT are required to hold all the deposits of their clients, unlike banks that are capable of lending part of the deposits they obtain.

It is forbidden for bitcoin exchanges to lend or invest customers’ assets. This is a great consumer protection measure. They must also inform the public about all of the risks their clients assume when handling digital assets. In the case of services such as ours which interface with traditional banking and payment networks, we also have to obtain the legal status of an “Electronic Payment Funds Institution”.

Reserve Requirements

BC: What are the requirements for exchanges to hold funds? Is it the same as what Hawaii requires which made Coinbase exit the state?

SC: No, it would be completely unreasonable for the regulators to expect exchanges to hold the equivalent amount of value in fiat currency to match the digital asset deposits. That would kill our business model.Mexico's New Bill Could Be A Game Changer for Bitcoin

The intention of the regulators is not to kill the industry but rather to establish rules that will give more consumer protection and foster a safe path to mass adoption.

Exchanges must have in their vaults the amounts of digital assets that match their liabilities. For example, if users deposited 687 bitcoins, 35,820 ether, 10,000,005 pesos and 400,000 dollars, then we, as exchange operators, need to hold at least that amount in our reserves (687 bitcoins, 35,820 ether, 10,000,005 pesos and 400,000 dollars) and be able to prove it in case of an audit. Also, all customers’ assets must be clearly segregated from the exchange operators’ own capital and assets.

BC: Other than being a bitcoin exchange, what other services does ISBIT offer?

SC: Our platform allows the electronic exchange of fiat currency for digital assets in an open market directly between participants, ensuring zero counterparty risk. We offer 3 combined services that international trade corporations need. We provide real-time local payments, traceable and efficient cross-border payments, and low-cost FX services. Corporations in Mexico are paying Mexico's New Bill Could Be A Game Changer for Bitcoinsignificant amounts in FX and bank fees when they need to send payments to or receive payments from other regions in the world. We allow corporations to perform a cross-border transaction in a matter of minutes at significantly lower cost.

We have connectivity and interoperability with more than 50 banks and financial institutions in Mexico. This gives us the capability of processing real-time payments (for example, deposits or withdrawals) between our platform and bank accounts, debit cards, or cell phones linked to a bank account. This gives us access to 39% percent of the Mexican population (essentially everyone above the age of 15 with a bank account).

Time Frame

BC: When is this bill expected to pass?

SC: The bill will be presented in the course of the next 2-4 weeks in the Congress of Union. I expect it to take several months for this law to pass. Nevertheless, it is very important for Bitcoin and blockchain tech companies to be prepared because, according to the draft, it will become effective from the first day it is published in the Official Journal of the Federation.

Our company has already implemented all the corporate governance, solvency, AML, KYC and ATF controls and procedures considered by the law in order to be prepared to obtain our license the moment the law becomes effective.

Potential Effects on Bitcoin Adoption in Mexico

BC: How will this new regulation affect Bitcoin adoption in Mexico?

SC: This regulation will give our industry a boost. Regulated bitcoin exchanges will be considered part of the financial system and will be able to integrate with many aspects of the economy.

Many remittance companies, hedge funds, pension plan administrators, money transmitters, import and export companies and others that I have spoken with, that had previously disapproved our proposals, are now very interested.

Given the size of the Mexican cross-border payments market (almost $775,000,000,000 USD in foreign trade payments, and more than $25,000,000,000 in remittances), what’s happening right now is much bigger than the possibility of an Exchange Traded Fund Mexico's New Bill Could Be A Game Changer for Bitcoin(ETF) in the USA. The regulation over our activities might open the door to foreign trade multinational corporations, financial institutions such as money transmitters, hedge funds, insurance institutions and others to use our platform to exchange currency and perform cross-border payments more efficiently.

Now consider the Pension Plans Administrators in Mexico (AFORES). This institution has assets under management in excess of 4,004,702,000,000 MXN (about $215,306,559,139 USD). Some pension plan administrators have started to expand their horizon of investments, given the bad performance they all had in the last few months. Some have discovered bitcoin’s great performance over the years, but could not justify taking positions in the market… until now.

The new regulation will change the game.

How do you think Mexico’s new bill will affect bitcoin? Let us known in the comments section below.


Images via Shutterstock, nuevolaredo.tv, and ISBIT


Get our news feed on your site. Check our widget services.

  • Arvind Rao

    Well this move by Mexico should certainly motivation governments of many countries that have not been quite so open to the idea of adoption and integration of crypto-currency into their financial systems. Bitcoin exchanges can play a great role in cost-effective expeditious processing of monetary transactions in a hassle-free manner, ensuring safety, in receipt, storage, and transmission with complete transparency and trace-ability of all financial transactions as it is based on the tamper-proof block-chain technology; thereby facilitating better tax administration and compliance that will make tax evasion very difficult if not impossible. Also curb black-money menace that is rampant the world over and bring social benefits through financial transparency, efficiency and costs savings in the economy thereby reducing the incidence of tax burden on the common man. Indeed a great move by the Mexican government- I should say; closely following the recent steps taken by the enlightened Japanese government- legitimizing the use of crypto-currency in that country. I am sure this will force the fence-sitters to move into positive action and give crypto-currency the legitimate status that it deserves globally, as a digital medium of exchange if not as a digital currency.

  • Paul Bond

    Looks to me like a ‘join Mexico or fail’. They’ve been pushed around a lot lately but they’re playing a smart game and will outmanoeuvre the competition to hold their place, and possibly become a leader in this field. Almost makes me want to move there, since I abandoned my origin country in disgust well over a decade ago to sunnier climes. Spanish at Mexico speed would be a sinch to learn. [mental note: must explore].

  • Black Pirate

    That means exchanges are bound to government regulation as expected.
    Will that apply to smart contract exchanges that don’t control the funds only the trade? That be a BIG WALL to challange. Perhaps to big once smart contract exchanges turn decentralized.

  • No link to the bill?

  • Sebastian Acosta Checa

    If you need a copy of the bill send us an email to legal@isbit.co