Fintech Regulation Echoes

Fintech Regulation Echoes

By: J. Arnoldo Gutiérrez / Partner

        Natalia Montoya / Analyst

The Mexican financial ecosystem is constantly shifting and evolving. In a way, we can say that financial institutions are always the one at the Forefront of the development of financial technologies, be it in areas like security as in the development of new tools and services for their clients. However, these developments could not have been possible without the arrival of small startups que have garnered the attention of these financial titans We are referring to the FINTECH companies.

A lot has been written about them, about how they are trying to create innovative technologies that the user would find appealing to use.; about how they would help facilitating the Access to financing to projects that maybe the large Banks wouldn’t even consider due to their size or risk level. Because of this, one of the hot topics of the regulation points to a specific area: “Crowdfunding”.

Depending on their business model, Crowdfunders could be classified into 3 types: those who deal with direct investments in the projects (equity), those who offer an interest in the amount committed to the Project (debt) and those that offer the incentive of a finished product or service provided; being this last type the most common that would be unlikely to be as heavily regulated as the other two. And I mention this in the way that the first two models carry certain similarities to brokering securities (stock and bonds), which are subject traditionally to stern regulations and oversight.

It is known that a regulatory Project is making its rounds, it has yet to be made public or be presented to the reviewing commissions or even the legislative bodies, thus this column must be taken as merely speculative.

If the competent authorities (CNBV, SHCP, CONDUSEF) would want some type of regulation, how would it start? We have to remember that one of the objectives of these authorities is to protect the user of financial services, for which if certain investments barely or wouldn’t not be compliant with certain minimum parameters to hedge risks, irreparable damage could be caused to such user, and maybe even the market, which they have a duty to protect. Bu, is it really necessary to saddle Crowdfunders with the same Stern regulations as security brokers? We consider this would be a step back and undermine the attractiveness of this method of funding projects that most traditional financial institutions would pass on, be it an issue of risk or feasibility. Protecting the user is the corollary tenet of regulators, and we understand this, but instead of establishing rigid rules, a user profile scheme should be implemented. In other words, by establishing an investment profile for the user (aggressive, medium, low), we believe that it could be easier to match projects depending on said profile and thus hedging the risk that the user is exposed to, while informing him of the risks, should be more than enough to appease regulators and comply with the rules to protect the market, without making them into traditional brokers or investment firms.

We consider that using investor profiles could be a great tool to help mitigate risk, thus protecting the user and the Crowdfunder.

At Gloria Ponce de León y Hernandez, we have taken interest in topic like these, and we consider the FINTECH arena represent an alternative to people that have Little or no access to traditional financial services.

We would like to invite you to visit our web page:, and our social media accounts.

Civil Aviation Law Reforms

The reforms published on the Official Journal in the past month of June related to the articles 49, 50, 52, 62, 87, 2, 42, 84 and 87 of the Civil Aviation Law have been constantly cited by the media and social media, because of the supposedly new rights that the passengers have related to the national airlines, however no one has discussed the real consequences that this has to the Airlines.

To begin, the government has to understand that it is vital that when issuing new legislation to regulate airline activities, there must be a balance to be maintained between protecting the rights of users and the rights of air service providers, so that the latter cannot fail to be sustainable.

It is not that there is no legislation that regulates the service, however, it must be appropriate and coordinated with others at international level to give the confidence and freedom to fly to the passengers of these services, this instead of those laws that “defend” only the passengers, and they produce a lack of real competition and innovation on the part of the Airlines.

Legislators and users need to take into account that the aviation system is an interdependent system, that is, it operates in a chain, which is composed of airlines, airports, air traffic management, governments and the own passengers, so not all the problems that can cause a bad service by an airline are attributable to it, since these are usually given as a result of factors such as weather, overloaded infrastructure and tight airspace.

Most governments today, such as Mexico, have included in their regulations the obligation of airlines to pay their users compensation or provide assistance in case of delayed flights, which has led in figures stated by IATA (International Air Transport Association), that in 5 years (from 2012 to 2017) airlines have had to increase their spending by 8 billion USD to cover these excessive regulations that have been imposed. This is important because let’s not forget that Airline Service is a Business, so if the Airliner need to invest more money to cover these, the cost for the users will be higher and it will affect the access to these services.

Another of the most publicized subject of the reform of the Mexican Civil Aviation Law is the one called the “Right of Repentance”, which allows passengers on a flight to cancel their booking within a period of 24 hours after purchase and obtain a full refund of the payment, which if it’s well analyze, can bring to consumers more harmful effects than positive, because being the air service a business, airlines will not lose and the way the protect themselves from the right of repentance is overbooking their flights during the period the passenger has to cancel his booking.

In addition to overbooking, this right of repentance will result in an increase in flight fares, a reduction in promotional fares, and less customer satisfaction.

Finally, we must consider a discriminatory treatment that both Mexican and worldwide legislation is given to airlines, because ¿Does the train and buses services have the obligation to reimburse the customer with the right of repentance? the answer is no and this brings with it a distortion of the market and all the competitive disadvantage for this means of transport that is so beneficial for modern society, because it connects quickly peoples and cultures, contributing also 3.5% of the world GDP.

For all of the above, it is considered necessary and urgent to break the challenge that the airlines face every day to deal with the rigorous legislation of countries such as ours, so it is a key challenge to work together with the international organizations such as IATA and ICAO,  and with governments worldwide to standardize regulations in this area, thus giving less confusion to users and efficient operations to airlines.