(The following statement was released by the rating agency)
NEW YORK/MONTERREY, April 10 (Fitch) Mexico’s draft financial
technology
(fintech) regulation law, if passed, has the potential to reduce
operational
risk, enhance transparency and improve security for borrowers
and lenders over
time, according to Fitch Ratings.
The fintech law, which was distributed by the regulator to
select industry
participants for discussion in March 2017, could mark a step
forward in
developing a comprehensive regulatory framework for the sector.
Furthermore, it
has the potential to alter the competitive landscape and broad
market dynamics
over the medium-term qualitative aspects that Fitch uses when
assigning ratings
based on the banks’ intrinsic profile. These changes would have
implications for
banks and nonbank financial institutions (NBFIs) that have been
increasing their
exposure to fintech firms through equity investments, joint
ventures and
participation in start-ups.
Fitch believes Mexico has significant growth opportunities for
fintech
considering the country’s large size, high rate of penetration
of mobile phones
and internet and substantial unbanked population. The
proliferation of fintech
firms reflects this. Mexico has among the largest fintech
sectors in Latin
America, including around 150-180 start-ups that focus on a wide
range of
services including payments and remittances, crowdfunding,
marketplace lending
and financial management.
Traditional banks and NBFIs have also recognized the potential
growth
opportunities through fintech and have been increasing their
participation in
the sector. Several Fitch-rated financial groups and NBFIs have
made investments
in start-ups and/or have been developing their own fintech
businesses. Fitch
believes this trend will continue over the long term.
Investment in technology can be positive for financial
institutions’ credit
profiles to the extent that it grows the business and
profitability. However,
the benefits usually accrue only over the medium and long term.
Additionally,
the impact will only be positive if accompanied by commensurate
robust risk
control frameworks and levels of transparency and security as
existing business
models. Also key is that NBFIs maintain underwriting standards
and ensure that
new lines of business through fintech subsidiaries or joint
ventures do not
negatively affect asset quality.
The draft legislation would place the supervision of fintech
firms under the
National Banking and Securities Commission (CNBV) and the
Commission for the
Protection and Defense of Financial Services Consumers
(CONDUSEF). Fitch
understands that the proposed regulations are broad-based but
include targeted
rules for crowdfunding, virtual assets (such as Bitcoin) and
payment technology.
Crowdfunding companies’ assessments of users’ creditworthiness
could fall under
regulation according to media reports about the proposed law.
They could also be
asked to consult and submit credit information from a credit
bureau and
communicate their methodology for borrowers’ risk to the CNBV,
among other
nonconfirmed requirements. All fintech companies could be
required to list on a
registry of companies offering financial services through online
platforms and
be required to establish controls and have adequate
infrastructure to prevent
money laundering and protect against cybersecurity risks.
Fitch would view these changes, if confirmed and approved, as a
credit positive.
Rules concerning risk measures could improve asset quality and
the performance
of fintech companies, as well as making competitive conditions
fair for all
financial market participants and improving financial inclusion
in Mexico.
Contact:
Alba Zavala
Associate Director, Financial Institutions
+52 81 8399 9100
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes No. 2612
Edificio Connexity, Piso 8
Col. Del Paseo Residencial
Monterrey, N.L.
Bertha Perez
Associate Director, Financial Institutions
+52 81 83 99 9161
Justin Patrie
Senior Analyst, Fitch Wire
+1 646 382-4964
33 Whitehall Street
New York, NY
Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908
0540, Email:
alyssa.castelli@fitchratings.com; Elizabeth Fogerty, New York,
Tel: +1 (212) 908
0526, Email: elizabeth.fogerty@fitchratings.com.
The above article originally appeared as a post on the Fitch
Wire credit market
commentary page. The original article can be accessed at
www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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