Purpose of the Decree
On January 24, 2024, the Ministry of Finance and Public Credit published in the Federal Gazette the "Decree amending, adding, and repealing various provisions of financial laws in matters of administrative procedure" (the "Decree"), which amends several articles related to administrative sanctioning procedures and rules on the statute of limitations for financial regulators.
Context of the Origin of the Decree
The Decree responds to various criteria issued by Mexico's Supreme Court of Justice (the "SCJN"), which declared that several financial laws were unconstitutional. These criteria had been leveraged by participants in the financial sector to vacate fines and sanctions.
For instance, through case law P./J. 2/2020 (10a.), the SCJN found that Article 478 of the Law on Insurance and Bonding Institutions contravened the principle of legal certainty by not providing a term for the National Insurance and Bonds Commission to issue a resolution after the procedure commenced.
In resolving this case, the SCJN ruled that for the legislator to respect the principle of legal certainty when issuing general rules that confer some authority on a regulator, it is necessary to express the powers of the regulator in clear terms. The SCJN determined that the Law on Insurance and Bonding Institutions violated the Constitution because the regulated entities were uncertain of the time frame within which the regulator might enforce its powers. This failure by Congress allowed regulators to exercise their powers at any time without temporal limitation.
Prior to this criterion, the SCJN held that the expiration term (i.e., five years since the conduct occurred or ceased) could remedy the absence of legal deadlines. However, upon reevaluation, the SCJN ruled that the expiration and the generic term provided in the regulations do not correct the absence of specific deadlines set by the legislator to limit the powers of regulators.
The SCJN ruled later that the case law concerning the Law on Insurance and Bonding Institutions applied to all financial laws exhibiting similar irregularities (e.g., Law on Credit Institutions; Securities Market Law, etc.).
Regarding the expiration term, the SCJN issued several criteria stating that the interruption of the expiration period (e.g., when a financial regulator served the order to begin a sanctioning procedure) caused legal uncertainty because it allowed financial regulators to restart the expiration term. Thus, in the absence of a rule limiting the time for a regulator to issue a resolution, the financial authorities could initiate sanctioning procedures solely to suspend or interrupt the expiration period.
These criteria made it possible for regulated entities to request the unconstitutionality not only of the financial laws but also of the procedures carried out by the financial authorities, as well as of the fines or penalties that resulted from them.
Content of the Decree
The Decree amends the following financial laws: Law for the Transparency and Regulation of Financial Services, Law for the Protection and Defense of Users of Financial Services, Law on Credit Institutions, Securities Market Law, Law to Regulate Financial Groups, General Law on Credit Organizations and Auxiliary Activities, Law to Regulate Credit Information Companies, Investment Funds Law, Law on Savings and Popular Credit, Law to Regulate the Activities of Savings and Loan Cooperative Societies, Law on Credit Unions, Law to Regulate Financial Technology Institutions, Law on Insurance and Bonding Institutions, and the Law on Retirement Savings Systems (the "Amended Laws").1
The Decree amends: (i) the expiration period applicable in these matters (i.e., five years) and specific rules determining from what moment it begins to compute, as well as the cases in which such expiration period can be interrupted or suspended; (ii) the period available to the financial regulators to issue a decision on the sanction or revocation procedures after such procedure is closed (i.e., 180 working days); and (iii) deadlines on the powers of inspection and surveillance.
In most Amended Laws,2 Congress approved modifications stating that the power of financial regulators to impose sanctions will expire in five years. This expiration period will begin on the day following the day on which the regulated entity allegedly committed the conduct, or in the case of continuous conduct, from the moment the last of the alleged violations ceased.
This expiration period can be interrupted when the alleged infringer is notified of the initiation of the administrative sanction procedure. The amendments included in the Decree clarify that the interruption of the expiration period cannot exceed the five-year expiration period.
The amendments to the Decree also clarify that the expiration period will be suspended: (i) up to two years, when the regulated entity is not located at its registered address or has provided an incorrect address, the period will resume from the date on which the authority learns of its current address; and (ii) when the regulated entity appeals any of the acts related to the sanctioning procedure. The suspension will begin on the date the entity files its complaint or lawsuit and will continue until the corresponding authority issues a final ruling.
(ii) Amendments to the Time Limits on Administrative Sanction Procedures3
In general terms, the modifications to the Amended Laws state that the alleged infringer will have ten business days to submit its defense (i.e., the right of hearing). The alleged infringer may request an extension for the same period on a single occasion.
After the deadline for submitting its defense, the alleged infringer will have up to 60 days to prepare and present evidence. After this period elapses, the financial authorities will grant the alleged infringer five business days to submit its closing arguments.
Finally, upon the expiration of the deadline to submit closing arguments, the preparatory phase of the procedure will be closed, and the financial authorities will have no more than 180 business days to issue and notify the resolution deciding on the procedure.
(iii) Maximum Deadlines for Inspection and Surveillance Acts
The Law on Retirement Savings Systems includes new provisions stating that inspection procedures by the National Retirement Savings System Commission must be concluded within 12 months after such Commission serves the participant in the Retirement Savings Systems with a visit order.
Similarly, in the Law on Insurance and Bonding Institutions and the Law on Retirement Savings Systems, the Decree includes new provisions stating that surveillance procedures carried out by the relevant regulators must conclude within 12 months after the regulators serve the regulated entity with an order of surveillance.
(iv) Transitory Articles
The Decree provides that:
- The amendments included in the Decree shall come into effect on the day following its publication (i.e., January 25, 2024);
- The administrative sanctioning procedures initiated before the date of entry into force of the Decree will continue under the procedure in force at the time of notification to the alleged infringer; and
- Decisions concluding administrative revocation procedures that began before the entry into force of the Decree must be issued under the rules in effect at the time of the notification of the right of hearing to the regulated entity.
The irregularities identified by the SCJN in several financial laws have been rectified with the issuance of the Decree, and the SCJN's prior criteria will not apply to new procedures initiated by the financial authorities.
The criteria by the SCJN can still be raised defensively on ongoing administrative sanction procedures that were initiated before January 25, 2024; but not for new procedures opened by financial regulators after such date, even if the alleged conduct was committed before its entry into force.
The analysis of challenges against financial laws or acts must be assessed on a case-by-case basis to determine whether the new provisions under the Decree apply to that procedure; if the regulators are applying the provisions on expiration terms retroactively; and any other specific constitutional or legal defects in the acts issued by financial regulators. At White & Case, we can advise you on defending your interests.
1 The Decree establishes certain particularities on these points in each of the Amended Laws. This Client Alert is informative and does not intend to develop in an exhaustive way each one of the assumptions contained in the Amended Laws. We recommend assessing the content of each of the amended provisions case-by-case.
2 The Decree does not provide modifications on this point in the Securities Market Law, Law to Regulate Financial Groups, General Law on Credit Organizations and Auxiliary Activities, Law on Savings and Popular Credit, Law to Regulate the Activities of Savings and Loan Cooperative Companies, Law on Credit Unions, and the Law on Retirement Savings Systems.
3 Also applicable to the procedures of revocation or dissolution and liquidation provided for in the Securities Market Law, Law to Regulate Financial Groups, General Law on Credit Organizations and Auxiliary Activities, Law to Regulate Credit Information Companies, Investment Funds Law, Law on Savings and Popular Credit, Law to Regulate the Activities of Savings and Loan Cooperative Companies, Law on Credit Unions, Law to Regulate Financial Technology Institutions, Law on Insurance and Bonding Institutions, and the Law on Retirement Savings Systems.
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