Financial services are regulated by a series of laws, regulations and circular letters from the Bank of Mexico, National Banking Commission (NBC), National Securities Commission (NSC), National Insurance and Bonding Commission (NIBC) and the Ministry of Finance.
As of April 29, 1995, the NBC and NSC merged and created the National Securities and Banking Commission (NSBC).
The Bank of Mexico
The system is regulated by the government-owned central bank, the Bank of Mexico (BM). In 1994 BM was granted autonomy in the formulation and implementation of national monetary policy.Its primary, but not only objective, is, as in any central bank, to provide the Mexican economy with currency as legal tender to achieve stability of its purchasing power, and to exclusively issue bills and mint coins. Additionally, the Bank of Mexico must promote a healthy development of the financial system, the correct operation of the payments system and participate in the Exchange Commission which establishes the exchange policy.
The BM is administered by a Governing Board of five members, one of whom is appointed Governor by the Federal Government.
As provided by Article 28 of the Mexican Constitution, BM may unilaterally determine the extension and control of credit within the financial system of the Federal Government.
Development and commercial banking
Credit institutions, which may be development or commercial banks, are the only authorized institutions to accept deposits from the general public and in turn extend credit based on such deposits.
Development banks
Development banks are those established for special objectives, such as promotion of foreign trade, financing housing and agricultural development, for example Nacional Financiera, S.N.C., which operates as the principal government bank for promotion of industry in Mexico, Banco de Comercio Exterior, S.N.C., which promotes exports, Banco Nacional de Obras y Servicios Públicos, S.N.C., which promotes construction and housing projects, among others.Foreigners may not participate in the equity of development banks.
Commercial banks
To operate as commercial banks, authorization from the Ministry of Finance and opinions from BM and the NSBC are required. The activities which they may perform are listed in Article 46 of the Law of Credit Institutions.As per decree dated February 15, 1995, capital stock of commercial banks must be represented by series "A" or "B" shares. Series "A" shares must account for at least 51% of the ordinary capital stock of the commercial bank and may be subscribed only by Mexican individuals or Mexican majority-owned entities, the Federal Government and the Savings Protection Banking Fund (FOBAPROA), holding companies of financial groups and institutional investors authorized by the Ministry of Finance. The remaining 49% may be represented either by series "A" or "B" shares. Series "B" shares may represent up to 49% of the ordinary capital stock of the bank and may be subscribed by foreigners.
The February 15, 1995, amendments allow commercial banks to issue special series "L" shares representing contribution of "additional" capital complementing its ordinary capital stock represented by series "A" and "B" shares. "L" shares have limited voting rights, and a preferred and cumulative dividend which can be greater but not less than the dividend on common stock. These shares may be issued for up to an amount equal to 40% of the ordinary capital stock and may be acquired by foreigners.
No person or entity may hold more than 5% M apital stock represented by "A" or "B" shares but may hold up to 20% with prior authorization from the Ministry of Finance. Exceptions to such limitations on holdings of ordinary capital stock are listed in Article 17 of the Law of Credit Institutions which include the Federal Government, certain institutional investors, FOBAPROA, holding companies of financial groups, shareholders of banks participating in a merger program approved by the Ministry of Finance, and foreign financial institutions when participating in a program approved by the Ministry of Finance converting a Mexican bank into an affiliate under applicable treaties. (See paragraph 9 of this Section).
Except for the period between 1982 to 1992, Mexican commercial banks were historically privately owned. Three large national banks (Banamex, Bancomer and Serfin), operating through more than 2,000 branches throughout the country, dominate this sector of the economy.
Financial groups may be formed by at least a commercial bank, a brokerage house and/or an insurance company. If the financial group does not include two of the aforementioned entities, it must include at least three of the financial entities mentioned in the above paragraph, except for companies operating investment companies. The Ministry of Finance may authorize the participation of other institutions.
To establish and operate a financial group, authorization from the Ministry of Finance is required. Each of the financial institutions that form part of the financial group must also receive authorization from various authorities such as the Ministry of Finance, BM, NSBC or NIBC.
The holding company must own at least 51% of the paid-in capital stock with voting rights of each of the financial institutions forming the group, and its corporate purpose must be the acquisition and administration of the shares issued by the financial institutions. The holding company may never engage in the activities of each of the financial institutions.
The February 15, 1995 Amendments to the Law of Financial Groups refer to limitations on holdings and types of shares to be issued which are essentially the same as those discussed in paragraph b) ii) of Section II.E.1 immediately above.
Insurance companies, reinsurance intermediaries, foreign reinsurers
Insurance companies
Insurance companies are regulated by the Law of Insurance Institutions and of Mutual Companies and the circular letters issued by the NIBC.Only insurance companies authorized by the Ministry of Finance may engage in any of the following insurance or reinsurance activities: i) life, ii) injuries and illness; and iii) damage in any of the following areas, among others: (1) civil liability and professional risks, (2) maritime and transport, (3) fire, (4) agriculture and animals, (5) automobiles, and (6) credit.
Insurance compa @pt have a minimum paid-in capital stock for each of the above mentioned operations determined by the Ministry of Finance during the first quarter of each year. If the insurance company has variable capital, shares representing the minimum capital required by the Ministry of Finance may not be voluntarily retired whether or not any of such shares represent the variable portion of the capital.
Certain financial institutions are limited in their participation in insurance companies. (See Section II.E.9 hereinafter for affiliates of foreign financial entities).
No person or legal entity may hold more than 15% of the capital stock of an insurance company, except the Federal Government, companies subject to NIBC surveillance, investors or other insurance companies participating in the Ministry of Finance approved merger programs, banks acting as trustees and holding companies of financial groups.
Reinsurance intermediaries
Insurance companies engaged in reinsurance operations may use the services of intermediaries residing in Mexico or abroad. Reinsurance intermediaries residing in Mexico must be authorized by the NIBC. Reinsurance intermediaries residing abroad must be registered in the Registry created for such purpose by the NIBC.
Foreign reinsurers
To participate in reinsurance operations, foreign reinsurers must be duly registered in the General Registry of Foreign Reinsurers of the Ministry of Finance.Foreign reinsures may open representative offices in Mexico which may only accept or assign reinsurance liabilities in the name of their main offices.
Individuals acting as insurance agents may be Mexican or foreign. Legal entities must be incorporated as corporations and may be 100% foreign owned, subject to authorization from the Foreign Investment Commission. The following entities may not participate in their capital stock: credit institutions, mutual insurance companies, bonding companies, brokerage houses, auxiliary credit organizations, investment companies, companies operating investment companies, exchange houses and financial commission agencies, foreign governments, holding companies of financial groups, and reinsurers of insurance and bonds.
The above institutions are subject to authorization of the Ministry of Finance except credit unions which are subject to authorization of NSBC. All except the savings and lending companies must be incorporated as corporations and have capital requirements established by the Ministry of Finance.
Exchange houses and auxiliary credit institutions, except savings and lending companies, may issue preferential, limited vote or no par value shares.
Foreign governments, other auxiliary credit institutions or exchange houses, except when participating in merger programs approved by the Ministry of Finance, and bonding and mutual insurance companies may not participate in the capital stock of auxiliary credit institutions or exchange houses.
No person or entity may hold more than 10% of the paid-in capital stock of these organizations, except for the Federal Government, credit institutions, insurance companies, stock brokerage houses and financial group holding companies, shareholders of auxiliary credit organizations and exchange houses, or those institutions when participating in a merger program approved by the Ministry of Finance. Such Ministry or the NSBC may in special cases authorize the purchase of more than the 10% limit to persons or entities with no connection to other shareholders of the respective company, and, provided such approval does not create an undue concentration of share ownership.
As per FIL, foreigners may participate up to 49% in the paid-in capital stock of general deposit warehouses, leasing and factoring companies and exchange houses, upon prior authorization from the Ministry of Finance.
In the latter case, no person or entity may acquire more than 10% of the paid-in capital stock of a bonding company except as otherwise authorized by the Ministry of Finance. No person may own more than 15% of the paid-in capital stock of bonding companies, except: the Federal Government, entities subject to surveillance by the NSBC, individuals and other bonding companies purchasing shares in accordance with the merger programs approved by the Ministry of Finance, credit institutions acting as trustees, shareholders of merging bonding companies (subject to restrictions), holding companies of financial groups, and other authorized persons fostering technical development and commercialization of bonds.
The following institutions may not participate in the capital stock of Mexican-owned bonding companies: credit institutions, mutual insurance companies, brokerage houses, auxiliary credit organizations, and companies operating investment companies.
Foreign financial institutions must perform in their countries of origin the same activities authorized for the affiliate in Mexico. Their operations will be regulated by national legislation and the provisions of the corresponding international treaty.
The capital stock of affiliates of credit institutions, holding companies of financial groups and brokerage houses, shall be represented only by "F" and "B" shares. "F" shares must represent at least 51% of the capital stock and may be held only by an affiliate holding company or foreign financial institution. "B" shares are of free subscription, and are regulated by the provisions for "B" series contained in the corresponding laws.
In the case of affiliates of insurance companies, the capital stock shall be represented by "E" and "M" shares. "E" shares must represent at least 51% of the capital stock and may be held only by an affiliate holding company or a foreign financial institution. "M" shares are of free subscription.
In the case of special purpose financial companies (non-bank banks), auxiliary credit institutions, exchange houses, bonding companies, the capital stock will be represented by a single series of shares, 99% of which must be held by an affiliate holding company or a foreign financial institution.
In the case of investment companies or companies operating investment companies, 99% of the fixed capital stock must be held by an affiliate holding company or a foreign financial institution.
Incorporation of investment companies is subject to the authorization from the NSBC, and may be divided into: a) common investment companies, which operate exclusively with fixed and variable interest rate instruments, b) debt instruments investment companies, which operate exclusively with fixed interest rate instruments, and c) capital investment companies, which operate with securities and instruments issued by companies requiring long term funding and whose activities are related to the National Development Plan.
Management of investment companies, and purchase and distribution of their shares, may be performed by companies operating investment companies, brokerage houses and credit institutions.
Foreign participation on the fixed capital stock is limited to 49% by FIL.
Individual participation in the capital stock is limited to 10% except for: a) founding members and those purchasing shares during a six-month term from the date of incorporation who shall resell their shares in accordance with the investment plans approved by NSBC, b) brokerage houses and credit institutions, companies operating investment companies and shareholders of capital investment companies, and c) any other person authorized by NSBC.
As of July 7, 1993 the Intermediate Market initiated operations destined for the sale and purchase of shares issued by middle-sized companies not complying with the requirements established by the Mexican Stock Exchange.
Mexican companies have been authorized by Mexican authorities to place their securities in foreign markets. Furthermore, a Peso Futures Market is operating in the City of Chicago, U.S., and is soon expected to operate in Mexico City. In the near future securities of foreign companies may be registered on the Mexican Stock Exchange.
The February 15, 1995, amendments to the Law refer to the limitations on holdings of shares and types of shares to be issued which are essentially the same as those discussed in paragraph b)ii) of Section II.E.1 hereinabove.
The persons listed in Article 17 paragraph II of the Stock Exchange Law may not participate in the capital stock of brokerage houses or stock specialists. The acquisition of more than 10% of "A" or "B" shares by a single person is subject to authorization from the NSBC, but in no case may own more than 20% expect as provided for in Article 19 of the aforementioned Law.
Foreigners may participate in up to 49% of the capital stock of these companies.
UDI's may be used to denominate the value of obligations in credit instruments, except checks. They are voluntary and when due, payment must be made in New Pesos by multiplying the value of the UDI's in which the obligation is denominated by the number owed.