The Changing Face of the Mexican Finance Sector
By Ramón Bravo
Posted: 19th June 2017 08:16
Mexico is facing one of the most important challenges (financial, economic, and commercial) of its recent history resulting from both, major events coming from abroad – commencing with Brexit, followed by the more complicated election of Donald Trump as President of the United States of America, and domestic concerns with the increasing lack of popularity of our current President, Enrique Peña Nieto (one of the most polarising Presidents Mexico has ever had), in addition to a series of obscure and inexplicable decisions made by certain State governors.
The above elements along with the increasing utilisation of the social media as a means to quickly disperse news and create awareness of our surroundings result in the need to reshape our current way of thinking.
As a Mexican attorney with over 30 years of experience advising transnational companies and Mexican conglomerates, I have had the great opportunity to deal with various situations in diverse environments. However, the current business atmosphere brings uncertainty on how to face the future and raises questions as to whether our current institutions are strong enough to deal with this chain of events.
The financial sector in Mexico has significantly changed since NAFTA became a reality.
While working as General Counsel of GE Mexico back in 1993-1994, I was afforded the opportunity to see the benefits of NAFTA first-hand, which opened the Mexican market to foreign financial services providers.
In recent years, due to the more complex regulation being put in place by the Mexican authorities concerning money laundering and tax schemes, credit offering by the banking sector has seen a reduction in their coverage, which has opened the door to private and hedge funds who are in a position to assume higher business risks and have come with a broad spectrum of products and services.
However, the imminent revision (or eventually, termination) of NAFTA raises the question on whether our financial system is sufficiently mature to overcome the changing business environment. It is not only the financial regulations which would be under analysis and scrutiny, but the whole Mexican legal system as well, including the strength, capability, and most importantly, accountability of our institutions and the public servants heading them.
We have had fierce competition from private and hedge funds. The uncertainty of the exchange rate– which has been experiencing an important devaluation in the relatively recent months, and with Donald Trump assuming the US government administration, brings to our attention the need to implement faster changes in our legal system.
The financial reforms proposed by the current administration and passed early in its term (2014) are still being implemented, and we all need to wait for their effects to be weighted and define the pros and cons thereof. Nonetheless, there are changed still needed to reduce the cost of funding and reduce rates. Collection is still a major issue in Mexico due to formalities posed by procedural laws which result in an indirect benefit to bad debtors, and a direct prejudice to good debtors.
The formal sector of the financial services offering is well regulated and structured, which has thus far helped the economy to create a healthy banking system, and the offering of products has matured.
There are initiatives being reviewed – still in its early stages – to regulate structures such as “crowdfunding” and electronic payments systems which as of today are mostly operating without major supervision of the banking authorities. Regulating these activities would help to reduce the cost of funding, open the market to new and more novel initiatives, and most importantly, bring certainty to the users of these services.
The global financial market is becoming smaller as less developed countries follow initiatives of more sophisticated economies. In certain instances, less developed countries move slow but their law reforms can be implemented quicker and more easily as there may be less third party’s interest to satisfy before proposing an amendment. Mexico has been a good example in this front, as it implements certain rules in connection with BEBPS which relate to the financial instruments and structures with related and unrelated parties.
Financial services providers need to become more creative and offer benefits other than simple low rates or tax benefits. The days of low cost funds are no longer here and these providers need to compete in different grounds. A reliable and fast service is becoming key, and not only offering financial services (e.g., the money is there), such as value added services which accompany these services.
As to the new environment we are facing, we do need to trust and have more confidence in ourselves and our own capabilities to sort out the consequences of the forthcoming changes. It is now the time to become responsible for our own acts and not to blame others therefor. There is the urgent need for our governments (State and Federal) to be accountable for their actions, and for the population to demand therefrom to be so accountable, and otherwise demand the law to be applied across the board without distinction.
Mexico has the means, the institutions, the resources (natural and man-created) to face the challenges and tests we are being posed through. Keeping and observing the rule of law is and should be the driver of all of our decisions.
Ramón Bravo is a partner at SMPS Legal, and is in charge of the M&A practice. He is involved in the banking and capital market practices, which includes aircraft financing. In recent years, Ramón has been advising several clients in government procurement procedures, which has become a very important area of day-to-day activity. I joined SMPS Legal in October, 2015, after spending over 30 years with Hogan Lovells BSTL (f.k.a., Barrera, Siqueiros y Torres Landa, S.C.).
Ramon can be contacted on 52 55 5282 9063 or by email at email@example.com