The 2024 Guide to KYC in Mexico

With 130,7 million inhabitants in 2023, Mexico stands as Latin America's second-largest economy and holds a position among the top 15 global economies. Being part of the United States-Mexico-Canada (USMCA) agreement, Mexico benefits from proximity to the vast U.S. market. The country's rapidly expanding middle class and high connectivity make it a pivotal arena for businesses aiming for substantial growth. Recognized as one of the most advanced developing nations, forecasts suggest Mexico could ascend to the world's 7th largest economy by 2050.

Mexico’s Compliance Hurdles

Its economic ascendancy notwithstanding, Mexico is still marked as a high-risk area for money laundering, largely due to organized crime. The Financial Intelligence Unit of Mexico reported receiving around 35.7 million notices in 2022 under the current anti-money laundering (AML) legislation for both financial and non-financial companies.

This underscores the critical nature of AML regulatory frameworks in Mexico. Financial entities and businesses in certain sectors are continuously grappling with compliance challenges. These include accurately identifying the beneficial ownership and origins of their clients' and shareholders' funds, among other obligations.

FinTech Growth in Mexico

Mexico has a robust FinTech ecosystem. As reported by Catalyst Fund, the country hosted over 771 fintech firms in 2023.

The Fintech Law offers guidance for fintech operations, enhancing clarity for both local and international ventures. This legislation includes provisions for electronic money institutions (EMIs) and sets forth regulations for electronic payments and KYC procedures, categorizing risk levels based on transaction volumes monthly.

AML and Identity Verification in Mexico’s Financial Landscape

The latest FATF assessment in 2023 on Mexico's adherence to AML and counter-terrorist financing standards found Mexico compliant with 10 out of 40 FATF Recommendations and largely compliant with another 24.

A significant update to Mexico's AML legislation came in 2019 with the Federal Law for the Prevention and Identification of Transactions with Illicit Funds. According to FATF guidelines, regulated entities are mostly barred from holding or creating anonymous accounts, except in cases designed to foster financial inclusion. For deposits in pesos not surpassing a certain limit in individual accounts, anonymity is allowed. Specific AML and KYC regulations also differ by industry and regulator.

Identity verification processes have evolved in Mexico, despite the lack of a mandate for independent verification. Typically, identification copies are provided at the time of account opening.

For customers with low transaction thresholds, straightforward due diligence is deemed sufficient. Considering over 50% of Mexican adults are unbanked, simplifying the onboarding process could significantly enhance financial inclusion. With just 4.1% of the population using mobile money accounts, there's a vast market opportunity for firms that can successfully match their products with market needs.

The Crucial Role of KYC in Mexico

The combination of rapid economic development, FinTech growth, and increased regulatory scrutiny means that companies in Mexico’s financial industry need to adopt stringent KYC measures to succeed. We compiled some of the most important information that you need to know.

What is KYC?

Know Your Customer (KYC) is a key practice within global anti-money laundering (AML) efforts, essential for verifying customer identities, conducting due diligence, and monitoring transactions. In Mexico, these practices address both local and international financial threats, adhering to the FATF's 40 recommendations. The goal is to prevent the financial system from being exploited for money laundering and terrorism financing.

Tackling Money Laundering

Mexico's financial landscape has been a target for laundering billions of dollars annually, with illicit proceeds stemming from drug trafficking, corruption, and other crimes. KYC combats these activities by:

• Identity Verification: Ensuring that customers are who they claim to be, thereby preventing the misuse of financial services.
• Customer Due Diligence (CDD): Assessing and monitoring customer risk profiles to identify potential threats.
• Transaction Monitoring: Keeping an eye on customer transactions to detect and report suspicious activities effectively

The Impact of eKYC in Mexico

A significant portion of Mexico's population lacks access to basic financial services. KYC, especially through digital means (eKYC), is crucial in bridging this gap, enabling more individuals to participate in the financial system, thus fostering inclusive economic growth.

The Mexican Regulatory Landscape

Mexico's approach to AML and KYC compliance is multifaceted, involving several regulatory bodies:

• Financial Institutions: Supervised by the National Banking and Securities Commission (CNBV).
• Designated Non-Financial Businesses and Professions (DNFBPs): Regulated by the Tax Administration Service (SAT).
• Retirement Fund Managers: Oversight by the National Commission of the Retirement Savings System (CONSAR).
• Insurance and Bond Institutions: Governed by the National Insurance and Bond Commission (CNSF).

Key Legislation and Requirements

The Federal Law for the Prevention and Identification of Transactions with Resources of Illicit Origin, implemented in 2012, sets the foundation for Mexico's AML efforts. It identifies specific "vulnerable activities" and mandates KYC checks for transactions exceeding certain thresholds. Further regulations, such as the Fintech Law, extend these requirements to the digital finance sector and cryptocurrency exchanges.

Detailed KYC Requirements

For Individuals:

• Identity Verification: Utilising passports, driver’s licenses, or national ID cards along with proof of address.
• Digital Onboarding: Video KYC may be required for account openings, enhancing the authentication process.
• Customer Due Diligence (CDD): Tailoring monitoring efforts based on assessed risk profiles.
• Transaction Monitoring: Identifying suspicious activities for further investigation.

For Corporations:

• Company Information: Verification of tax ID, beneficial owners, and electronic signature details.
• Documentation: Collecting proof of address, contact information, and company structure details.
• CDD and Transaction Monitoring: Similar to individual requirements but adjusted for corporate contexts.

Mexican Passports, biometric and non-biometric

Mexicans travelling internationally use a passport, which is a machine-readable document designed to meet the standards set by the International Civil Aviation Organization (ICAO). Up until 2021, the Mexican passport was a non-biometric form of identification. Today, both biometric and non-biometric versions are in circulation among the Mexican population.

Mexico is home to the largest group of Spanish speakers in the world, with over 130 million people. But when you look at Mexican identification documents, you'll find that they sometimes use two other languages. Some of the biometric passports have text in Spanish and English, and you might even find French on others.

According to international guidelines, countries that officially speak English, French, or Spanish are supposed to use one of the other two languages for certain sections of their travel documents. It seems Mexico has chosen to use both.

Using ZignSec for KYC Automation

ZignSec offers a streamlined solution for businesses navigating Mexico's complex KYC landscape. Its platform enables:

• ID Verification Processes: Incorporating a variety of ID verification methods to ensure thorough customer vetting. This includes identity document verification and biometric methods of identification.
• Risk Management: Advanced tools for screening against PEPs, sanctions lists, and conducting adverse media checks.
• Customisable Integration: Adaptable solutions that fit the specific compliance needs of any organisation, regardless of size or sector.

By adopting ZignSec's automated solutions, companies can not only meet regulatory requirements with greater efficiency but also enhance their operational integrity and customer trust. Book a demo with us.

Safeguarding Mexico's Financial Ecosystem

The implementation of robust KYC measures is crucial for safeguarding Mexico's financial system against the threats of money laundering and terrorism financing. As the regulatory environment evolves, staying informed and leveraging technology will be key to navigating these complexities successfully.

With solutions like ZignSec, businesses have the opportunity to streamline their compliance processes, ensuring they can focus on growth while maintaining stringent security and due diligence standards. Embracing these advancements in KYC practices represents a proactive step towards fostering a more secure, inclusive, and successful financial ecosystem in Mexico.

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