CMS Expert Guide to Crypto Regulation in Mexico

There is no formal definition of crypto assets under Mexican law. However, crypto assets may, depending on their case-by-case characteristics, fit under the definition of “virtual assets” provided by law. As such, the regulatory framework applicable for virtual assets would apply to crypto assets as well. Mexican legislation provides a definition for virtual assets, which, in accordance with article 17, section XVI of the Federal Law for the Prevention and Identification of Transactions Involving Illicit Funds (Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita) and article 30 of the Fintech Law (Ley para Regular las Instituciones de Tecnología Financiera) reads as follows: “[The] representation of value electronically registered and used among the public as a means of payment for all types of legal acts, and whose transfer can only be carried out through electronic means. In no case, domestic or foreign currency or any other asset denominated in domestic or foreign currency shall be considered as a virtual asset.”

The regulation and oversight of virtual assets in Mexico involves the following authorities:

• The Mexican Central Bank (Banco de México, Banxico): Responsible for issuing specific regulations regarding the use of virtual assets by financial institutions.
• The National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, CNBV): Supervises financial institutions and monitors their compliance with virtual assets regulation.
• The Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, SHCP): Oversees the implementation and enforcement of anti-money laundering (AML) and counter-terrorism financing (CTF) regulations involving virtual assets.

Crypto assets may, depending on their case-by-case characteristics, fit under the definition of “virtual assets” provided by law. As such, the regulatory framework applicable for virtual assets would apply to crypto assets as well. Local regulators in Mexico have taken a conservative stance regarding the use of virtual assets, particularly when it comes to the use of virtual assets by financial institutions. While there is an established regulatory framework, banks and financial technology institutions (i.e. fintech entities governed under the provisions of the Fintech Law) are only permitted to engage in virtual asset transactions when conducting “internal operations”, which are understood as transactions carried out exclusively to support their own operations or the provision of their financial services. Such entities are expressly prohibited from transferring, directly or indirectly, the risk associated with virtual asset operations to their clients or the public. As a result, financial institutions are subject to strict limitations and may not engage in external virtual asset activities or offer related products or services to customers.

In contrast, individuals or legal entities that are not classified as banks or fintech entities are not subject to such operational restrictions. Their primary legal obligations relate to compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. Outside of these AML / CTF responsibilities, no additional regulatory prohibitions apply to the use of virtual assets by non-financial actors.

As explained above, there is no specific prohibition on engaging in cryptoassets-related activities (such as exchange, custody, borrowing / lending, yield / staking), provided that such activities are conducted by non-financial entities and do not fall within the scope of activities expressly reserved for licensed financial institutions (e.g., banking deposits, or keeping the custody of the clients' funds in local or foreign currency). Additionally, under Mexico’s AML regime, transactions involving virtual assets conducted by non-financial entities are classified as "vulnerable activities" for AML purposes. As such, these transactions must be reported to the Ministry of Finance and Public Credit when the amount involved is equal to or exceeds approximately USD $3,500, or its equivalent in Mexican pesos based on the applicable exchange rate.

It is important to highlight that Mexican financial regulation does not specifically address borrowing or yield-generation mechanisms commonly found in Decentralized Finance (DeFi) protocols. As a result, there is currently no legal recognition of “virtual asset lending operations”, unlike the regulated securities lending regime in capital markets. Under Mexican law, virtual assets may be considered intangible movable property, which in principle allows them to be subject of legal acts, including the creation of security interests to guarantee the fulfilment of obligations. The creation of security interests over virtual assets, such as a pledge, is generally governed by the provisions of the Federal Civil Code (Código Civil Federal), the Commercial Code (Código de Comercio), and, where applicable, the General Law of Negotiable Instruments and Credit Transactions (Ley General de Títulos y Operaciones de Crédito).

The legal and operational feasibility of using virtual assets as collateral must be analyzed on a case-by-case basis, taking into account the specific nature of the asset, the manner in which the security interest is documented, how possession or control of the asset is established and maintained, as well as the mechanisms for its enforcement in the event of default. In the absence of specific regulation, the general principles of civil and commercial law apply, making it essential to properly structure the transaction to ensure its legal validity and effectiveness.

Therefore, it is legally possible to create security interests over virtual assets under Mexican law by treating them as intangible movable property and applying the general principles in the field. Nevertheless, the lack of specific regulation means that each case must be carefully analyzed to ensure the validity, enforceability, and effectiveness of the security interest.

Accordingly, there is no express prohibition under Mexican law preventing offshore entities from providing cryptocurrency exchange or related services to local customers, provided such activities are not expressly reserved for licensed financial institutions. This applies regardless of whether the offshore operator maintains a physical presence in Mexico. However, in cases involving active solicitation of Mexican clients, such conduct could trigger regulatory scrutiny and potentially create a nexus for supervisory or tax purposes, depending on the nature and scope of the services rendered.

In Mexico, there is no specific license or regulatory authorization required to operate with virtual assets when such services are provided by non-financial entities. These entities are not subject to a licensing regime and may offer services to the general public, provided that the activities do not fall under those expressly reserved for regulated financial institutions.

Conversely, financial institutions are required to obtain prior authorization from the Mexican Central Bank to engage in operations involving virtual assets, even when such operations are limited to internal purposes. The regulatory timeframe to obtain this authorization is approximately sixty (60) banking business days. If the Bank of Mexico does not respond within such timeframe, the application is deemed denied by operation of law.

Press release No- 039 issued by the Ministry of Finance and Public Credit:

• “Virtual assets or cryptoassets are electronic information storage and exchange mechanisms. They have no intrinsic value and their technological characteristics may have various future uses that may determine their value. For this reason, they tend to be assets with a very volatile value and are considered speculative. Although they can be exchanged, they do not fulfill the functions of money, since their acceptance as means of payment is limited and they are not a good reserve or referent of value.”
• “Pursuant to the aforementioned provisions, the aforementioned institutions [Credit Institutions and FTIs] must have prior authorization from Banco de México to carry out Internal Transactions with virtual assets. Likewise, they will be prohibited from entering into transactions with such assets under terms different from those established in the respective authorization. In addition, they must at all times prevent the direct or indirect transfer of the risk of such transactions to their clients. Operations that the institutions request to enter into with virtual assets through which they intend to provide directly to their clients exchange, transmission or custody services of virtual assets shall not be eligible for obtaining such authorization.”
• Press release “Warnings on the use of virtual assets as substitutes for legal tender means of payment” issued by the Mexican Central Bank:
  • “These assets are electronic information storage and exchange mechanisms that are not backed by any institution, so they are not legal currency. The current legal framework does not recognize them as an official means of exchange or as a store of value or other forms of investments.
  • They are not legal currencies in Mexico, since the Bank of México does not issue or back them. Likewise, they are not foreign currencies because no foreign monetary authority issues or backs them.
  • Accordingly, they do not have the power to discharge payment obligations, so their function as a form of payment is not guaranteed since businesses and other persons are not obligated to accept them.
  • In other jurisdictions, their use in illicit operations has been reported, including those related to fraud and money laundering.
  • There is no type of guarantee or regulation to ensure that consumers or businesses that acquire this type of assets can recover their money. Moreover, in the absence of an identifiable organization issuing these assets or a third-party assuming obligations for such assets, legal recourse in the event of loss would be difficult to pursue.”
• Press release issued by the Mexican Central Bank titled: “Financial authorities warn of the risks associated with the use of virtual assets and the participation in investment schemes known as Initial Coin Offerings."
  • “They warn the general public about the risks associated with the use of a new method of raising funds to finance projects and activities, known internationally as “Initial Coin Offerings” (ICO). This alert is issued on a precautionary basis.
  • They also reiterate the warning issued in 2014 about the risks associated with the use of virtual assets as a form of exchange, as a store of value, or as another form of investment. In this regard, virtual assets are electronic information storage and exchange mechanisms, without the backing of financial authorities or any government institution. They do not constitute legal currency in México and are not foreign currency since no foreign monetary authority issues them or backs their liberatory power in the payment execution. Therefore, the acceptance of virtual assets as a means of payment cannot be anticipated with absolute certainty.
  • Likewise, given their nature, virtual assets have shown high volatility, since they are the object of wide speculative activity, for which reason it is essential to warn of the inherent risks for those who decide to use or invest in these assets, such as the lack of a special legal regime for the resolution of disputes, the aforementioned lack of backing, as well as the fact that the persons who administer and distribute them are not regulated or supervised by the financial authorities in our country.
  • When deciding to invest in an ICO, the following is recommended:
    • Be an investor with extensive experience and with full knowledge […].
    • Consider ICOs as high-risk investments, with the possibility of having losses up to the total amount of the investment;
    • Be on the lookout for signs or indications of fraud when investing in this type of products; such signs may be: limited time offers, guarantee of high returns, or, in general, "profit" opportunities that experienced investors describe as "too good to be true".”
• The National Commission for the Protection and Defense of Financial Services Users (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros, CONDUSEF) alerted regarding the use of Bitcoin (2021): The Commission warned users and merchants that accepting Bitcoin as a means of payment carries a high risk, as its value is highly volatile and not backed by any authority. Operations are irreversible, and there is no legal recourse in case of fraud or abrupt depreciation.

In Mexico, compliance requirements for cryptoasset-related activities depend on the type of entity involved:

• Non-financial entities (i.e., individuals or legal entities not classified as banks or fintechs) may provide services involving virtual assets without the need for a license or prior authorization. However, they are subject to AML and CTF obligations under the Federal Law for the Prevention and Identification of Transactions Involving Illicit Funds. Under Mexico’s AML regime, transactions involving virtual assets conducted by non-financial entities are classified as "vulnerable activities" for AML purposes. As such, these transactions must be reported to the Ministry of Finance and Public Credit when the amount involved is equal to or exceeds approximately USD $3,500, or its equivalent in Mexican pesos based on the applicable exchange rate.
• Financial institutions (i.e. banks and fintechs) must obtain prior authorization from the Mexican Central Bank to engage in operations involving virtual assets, and even then, they may only carry out internal operations and are prohibited from offering such services to the public or transferring the associated risk to clients.

Both types of entities must also comply with applicable data protection and tax reporting obligations, depending on the nature of the services offered.

Due to the restrictive regulations in Mexico regarding virtual assets as mentioned previously, the scope of the transactions that can be carried out by financial companies is very limited. As mentioned before, the banking sector does not provide virtual assets services to the public.

The main players in this field are the virtual asset exchanges with Bitso as the leading player. Bitso is the largest cryptocurrency exchange in Latin America, which due to the restrictions already mentioned, decided to obtain its license and submit to the jurisdiction of Gibraltar for all virtual asset related services.

We do not have information as to whether there are banking institutions that operate with service providers related to virtual assets, however, as mentioned above, banking institutions may only carry out transactions as long as they are internal operations and prior authorization from the Mexican Central Bank, and they must avoid at all times the direct or indirect transfer of the risk of such transactions to their customers.

In Mexico, there is still no specific regulation which provides for a tax regime applicable to virtual assets. The only official position issued by a tax authority known to date is the one provided in the document "Income obtained by individuals derived from the sale of Cryptocurrencies and the gain obtained from such transaction", published by the Federal Agency for Consumer Protection ("PRODECON").

In such document, PRODECON provided an analysis on the tax treatment applicable to the profit obtained by individuals as a result of the income received from the sale of virtual assets, pointing out that the legal nature of virtual assets is that of a movable property and, therefore, in the absence of a special regime to tax this income, such transactions should be treated as alienations of movable property in accordance with the provisions of the Income Tax Law.

Cryptoassets are not considered legal tender in Mexico. However, it is legally possible to use virtual assets as a means of payment in private transactions in establishments or services that accept this means of payment. Likewise, there are already automatic teller machines that buy / sell bitcoins against the delivery / receipt of cash.

In this regard, the National Commission for the Protection and Defense of Users of Financial Services (Comisión Nacional para la Protección y Defensa de los Usuaruos de Servicios Financieros) warned that any person or business that uses or accepts any type of virtual currency as a form of payment, does so at their own risk and responsibility, since the use of these assets involves high volatility and possible monetary losses, for which reason there is no type of guarantee or regulation that ensures that consumers or businesses that acquire this type of asset can recover their money. 

Yes, the Mexican Central Bank, in its annual report on the exercise of the powers conferred by the Law for the Transparency and Regulation of Financial Services (Ley para la Transparencia y Ordenamiento de los Servicios Financieros), covering the period from July 2020 to June 2021, announced that it was conducting studies and developing a platform for the potential implementation of a central bank digital currency (CBDC). This initiative is intended to build upon the existing features of the Interbank Electronic Payments System (SPEI) clearing and settlement infrastructure. However, as of today, the Mexican Central Bank has not announced a specific timeline for the launch of such digital asset.

In Mexico there are currently no legal initiatives or official pronouncements by the corresponding authorities regarding the metaverse or the regulatory framework that may apply to it.