{"id":2874,"date":"2018-11-20T11:17:21","date_gmt":"2018-11-20T10:17:21","guid":{"rendered":"https:\/\/www.alvantia.com\/?p=2874"},"modified":"2018-12-04T11:27:55","modified_gmt":"2018-12-04T10:27:55","slug":"best-know-your-customer-kyc-practices-in-mexico","status":"publish","type":"post","link":"https:\/\/www.alvantia.com\/en\/best-know-your-customer-kyc-practices-in-mexico\/","title":{"rendered":"Best Know-Your-Customer (KYC) Practices in Mexico"},"content":{"rendered":"\n
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Know-Your-Customer\n(KYC) defines the controls and procedures of Obliged Entities to ensure both\nthe identification of their customers and the nature of their funds, in order\nto avoid business relationships with individuals or entities that may be\ncommitting money laundering or terrorist financing crimes. These procedures,\nwhich come into effect as soon as a new customer is acquired, must remain in\nforce (e.g. updating documents) for the entire duration of the business\nrelationship. <\/p>\n\n\n\n\n\n\n\n

What has this\nverification process meant for Mexico in terms of preventing money laundering?\nDoes this legal requirement imply any benefits for those obliged to comply with\nit?<\/p>\n\n\n\n

Regulatory framework in Mexico<\/h2>\n\n\n\n

On 17 July 2013, Mexico’s Federal Law for the Prevention and Identification of Transactions with Resources of Illicit Origin(LFPIORPI) , referred to as the \u2018Anti-Money Laundering Law<\/a><\/strong>\u2019, came into effect, in accordance with the commitments undertaken by the country as a member of the Financial Action Task Force (FATF) against money laundering, an international association that promotes policies to combat threats to the international financial system.<\/p>\n\n\n\n

The aim of the\n\u2018Anti-Money Laundering Law\u2019 is for an increase in the coordination between the\nenforcement institutions, i.e.<\/p>\n\n\n\n

\u00a0 \u00a0 \u2022\u00a0 \u00a0 The Attorney General of Mexico (PGR)<\/p>\n\n\n\n

\u00a0 \u00a0 \u2022\u00a0 \u00a0 The Office for the Treasury and Public Credit (SHCP)<\/p>\n\n\n\n

\u00a0 \u00a0 \u2022\u00a0 \u00a0 The National Banking and Securities Commission (CNBV)<\/p>\n\n\n\n

\u00a0 \u00a0 \u2022\u00a0 \u00a0 The Financial Intelligence Unit (UIF), under the authority of The Office for the Treasury and Public Credit (SHCP)<\/p>\n\n\n\n

\u00a0 \u00a0 \u2022\u00a0 \u00a0 The Federal Police<\/p>\n\n\n\n

On 16 and 23 August 2013, the Regulations<\/a><\/strong> and the General Rules<\/a><\/strong>, respectively, in reference to the legislation, were published, in order to establish the basis of compliance for the initiative. They came into effect on 1 September 2013.<\/p>\n\n\n\n

Before the\nenactment of the new \u2018Anti-Money Laundering Law\u2019, approximately 6,700 entities\nwere obliged to report to the Financial Intelligence Unit (UIF): banks, SOFOMs\n(Multiple Purpose Financial Companies), SOFOLs (Limited Purpose Financial\nCompanies), SOFIPOs (Popular Financial Companies), financial institutions,\ncredit unions, exchange offices, currency exchange centres and other financial\nentities.<\/p>\n\n\n\n

After its\nenactment, the legislator listed 15 non-financial activities as \u2018Vulnerable\nactivities\u2019 and established that they should be also reported to the UIF when\ntheir transaction amounts were in accordance with the amounts indicated in the\n\u201cAnti-Money Laundering Law\u2019. With the inclusion of these activities, the number of entities obliged to report to\nthe UIF increased to over 300,000<\/strong>.<\/p>\n\n\n\n

On 10 March 2018, the Chamber of Deputies approved the Financial Technology Institutions Law, known as the \u2018Fintech Law<\/a><\/strong>\u2019. This led to changes in the \u2018Anti-Money Laundering Law\u2019 as it includes the exchange of virtual assets in the \u2018Vulnerable Activities\u2019 register for entities other than financial institutions, if the transactions involve the purchasing or selling of these assets on digital or electronic platforms.<\/p>\n\n\n\n

A virtual asset\nis defined as any representation of value registered and transferred by\nelectronic means, and used as a form of payment for legal transactions. Legal\ntender and currencies are therefore excluded.<\/p>\n\n\n\n

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Obligations and strategic benefits<\/h2>\n\n\n\n

The \u2018Anti-Money\nLaundering Law\u2019 is based on the Know-Your-Customer (KYC) principle, and the aim\nis for those involved to have the most and best information possible about\ntheir customers, in order to curb crime.This\nlaw establishes two fundamental obligations:<\/p>\n\n\n\n

\u00a0 \u00a0 \u2022\u00a0 \u00a0 Appropriate identification of customers.<\/p>\n\n\n\n

\u00a0 \u00a0 \u2022\u00a0 \u00a0 Report to The Office for the Treasury and Public Credit (SHCP) according to the provisions established for Vulnerable Activities.<\/p>\n\n\n\n

To comply with\nthese obligations, the companies or individuals that conduct Vulnerable\nActivities must:<\/p>\n\n\n\n

1)\u00a0 Designate a representative to the SHCP that will present the corresponding reports for the transactions made.<\/p>\n\n\n\n

2)\u00a0 Identify their customers and users (KYC), storing the information for a period of five years and abstaining from any act or transaction classified as a \u2018Vulnerable Activity\u2019 when their customers refuse to provide information or documentation to identify them.<\/p>\n\n\n\n

3)\u00a0 Present the reports of transactions with the information from the previous month as from the 17th of each month, in accordance with the transaction amount and the type of \u2018Vulnerable Activity\u2019.<\/p>\n\n\n\n

The \u2018Anti-Money Laundering Law\u2019, based on the Know-Your-Customer (KYC) principle, has therefore resulted in major progress for Mexico in the prevention of money laundering<\/strong>. This progress has been recognised by the Financial Action Task Force (FATF), which Mexico joined in 2000 and which supervises, through mutual evaluations<\/a><\/strong>, the level of implementation and compliance with international standards (known as \u2018the 40 Recommendations\u2019), performing an Evaluation of Effectiveness.<\/p>\n\n\n\n

Its most recent report (end of 2017) points out the solid legal and institutional framework in Mexico, as well as the improvement in the identification of final beneficiaries in the financial sector. This latter is due to the modifications in the Provisions in the Area of Prevention of Money Laundering and Financing of Terrorism<\/strong><\/a> issued by the SHCP and which are in the process of implementation.<\/p>\n\n\n\n

On the other\nhand, the legal requirement of Know-Your-Customer also offers a strategic\nbenefit to the financial entities and individuals that perform \u2018Vulnerable\nActivities\u2019, as it allows for the customer to be individualised, thereby personalising the service<\/strong>. In turn, it\nfacilitates best risk management<\/strong> and\nthe implementation of Go-to-market<\/strong> strategies<\/strong>.<\/p>\n\n\n\n

In conclusion:\nthe best KYC practices have led to a substantial\nimprovement in national security, tax revenue security, a growth in the GDP and\nreduction in GDP losses, and a reduction in the percentage of informal economy\nin the country<\/strong>. As with everything, we should not forget the challenge that\ncompliance with the digital standards of KYC or eKYC actually involves, which\nincludes solutions like digital signature and biometry (facial recognition,\ndigital fingerprint, iris scanning, etc.), its implementation relying on the\nclose to 65 million users of smartphones in the country and the more than 71\nmillion that enjoy internet access.<\/p>\n

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Know-Your-Customer (KYC) defines the controls and procedures of Obliged Entities to ensure both the identification of their customers and the nature of their funds, in order to avoid business relationships with individuals or entities that may be committing money laundering or terrorist financing crimes. These procedures, which come into effect as soon as a new<\/p>\n

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