For most of Mexico's history, foreign state-owned entities were not permitted to participate in the capital ownership of a Mexican bank. This meant that Mexico's heavily regulated financial services industry was effectively closed to all banks whose owners or investors included foreign sovereign entities.
This changed in 2014, when Mexican legislative reforms began allowing these banks to establish subsidiary operations in Mexico in limited circumstances.
Almost immediately, Asian banks began crossing the Pacific as some of the primary pathfinders in Mexico's newly open financial services markets.
The trends that initially drew Chinese, South Korean and other Asian financial institutions to set up their own banking institutions in Mexico continue in the current investment climate. These include opportunities to provide financing support for Asia-based multinational manufacturers and other Asia-based corporations in Mexico.
Depending on political and trade developments over the next few years, the growth potential for Asian financial institutions in Mexico could continue to increase even further.
Asian banks were among the first to take advantage of new opportunities for foreign financial institutions in Mexico.
Legislative Reforms Open Mexico’s Financial Sector to Foreign Institutions
In 2014, the Mexican government announced comprehensive reforms of the regulations governing financial institutions.
Challenges and Creativity: Establishing a Foreign-owned Bank Subsidiary in Mexico
Obtaining the authorization to establish or acquire a bank in Mexico requires creativity, a deep understanding of Mexican regulatory authorities' procedures and a patient investment approach.
Obtaining the authorization to establish or acquire a bank in Mexico requires creativity, a deep understanding of Mexican regulatory authorities' procedures and a patient investment approach.
Asian financial institutions that include foreign state-owned entities as owners or investors and that would like to take advantage of the new opportunities to expand into Mexico are more likely to find long-term success by preparing to surmount a series of challenges with creativity and insight into Mexican regulators' priorities.
Obtaining the authorization to establish or acquire a bank in Mexico requires creativity, a deep understanding of Mexican regulatory authorities' procedures and a patient investment approach.
Set up initial informal meetings with Mexican authorities
To establish a bank in Mexico, the first step for an Asian financial institution is to seek authorization from CNBV, which requires both prior approval of CNBV's Board of Governance and a favorable opinion of Mexico's Central Bank.
Before officially submitting an application for authorization of a foreign-owned financial institution, it can be highly productive to explain the proposed project to the relevant Mexican regulatory authorities and seek their informal feedback. Best practices generally involve working with Mexican regulators to convince them that the new project is supported by reputable investors, has minimal potential liabilities and will likely make a positive net contribution to the Mexican economy.
The path to approval can be complicated if the proposed bank is controlled directly or indirectly by a foreign government—or serves as a vehicle where foreign governments invest reserves—as the filing will likely require significant additional documentation.
Mexican regulatory authorities have discretionary authority to request a variety of information from applicants. Regulators have broad latitude to approve or deny a proposal and theoretically can change the approval process at any time. So it's important to know how to navigate these requests and be proactive. Instead of simply waiting for comments, a bank seeking a new license can work actively with Mexican regulators to clear a mutually agreed-upon path for approval.
Request a license to establish or acquire a bank in Mexico
An official filing of a new application with CNBV starts the clock ticking. According to statutory requirements, Mexican authorities have 180 calendar days to determine the result of an application. This can include additional requests for the Asian financial institution to submit or revise further materials.
After both CNBV's Board of Governance and Mexico's Central Bank have resolved to approve an Asian bank's application, CNBV will send an official notice authorizing the organization and operation of the new bank.
Within 90 calendar days of receiving the official notice from CNBV, the bank must formally incorporate the Mexican financial institution before a Mexican notary public, and file the deed of incorporation with CNBV for its approval, before proceeding to registration with Mexico's Public Registry of Commerce.
Prepare for immediate regulatory scrutiny of banking operations
After obtaining CNBV's approval of the deed of incorporation, the new bank will have only 180 calendar days to commence operations in Mexico and prepare for an inspection by CNBV.
Setting up bank operations in Mexico can involve significant efforts, compliance with a series of often complex and dynamic requirements, and substantial investments of time and money. So, it is prudent to begin preparing for these tasks far in advance.
In addition to submitting regulatory filings, the new Mexican bank will have to deal with a set of immediate challenges in order to be ready to commence operations within the legal timeframe. This will include adjusting complex IT infrastructure systems to Mexican requirements, in addition to executing a lease agreement for new offices, opening new bank accounts, hiring employees and special advisors (such as for labor and tax law compliance) and handling other start-up issues.
Finally, the new Mexican bank will likely receive sustained regulatory scrutiny, particularly during its first few years of operations, in addition to the ongoing efforts the new bank will face in order to comply with all applicable laws and regulations and inspections from the relevant banking authorities.
Authorities may visit the bank's operations frequently, test its processes and the feasibility of its IT infrastructure, interview its people and possibly impose fines for violations. During this period, legal counsel can be particularly helpful in knowing when and how to comply with regulatory requests. Often, the most effective approach can be to propose creative solutions to the Mexican authorities or craft persuasive arguments based on careful analysis of a particular project and its likely impact. Prepare in advance to be flexible and adapt.
PRACTICAL TIP: HAVE YOUR US BANK PERSONNEL LAUNCH YOUR BANK IN MEXICO
Asia-based financial institutions should consider having employees located in New York—or other US offices—lead the efforts to set up and run operations for a new bank subsidiary in Mexico.
US bank personnel of an Asia-based financial institution can draw from several similarities to launch a Mexican subsidiary, including:
Regulatory experience
Many Asian banks that establish operations in Mexico had previously undertaken a relatively similar process to first enter the US financial markets. Employees who are already experienced in navigating regulatory pitfalls and complying with capital requirements and other legal issues in the US can often apply that experience while adapting it to enter Mexican markets.
Time zone proximity
Responding rapidly to requests for information from Mexican authorities and conducting telephone meetings, when necessary, with Mexico is more efficient for individuals who work in North American time zones.
Overlapping customer base
An Asian bank's Mexican subsidiary very likely will serve many of the same customers as its US subsidiary. Corporate clients that conduct manufacturing operations in Mexico are likely to provide related warranty operations, marketing and other services in the US and Canada. Seamless banking service for customers who straddle borders can help maintain strong relationships with those customers.
