Fintech Regulation Echoesgph
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: www.gphlegal.mx, and our social media accounts.