The simplification of public fundraising in Mexico

Alfonso González-Paullada Guerrero
GDP Law, Monterrey

alfonso@gplaw.mx

José M. Ramírez Álvarez
GDP Law, Monterrey

jose.r@gplaw.mx

Introduction

In recent years, Mexico has been an attractive destination for both foreign investors and foreign financial institutions seeking to establish their business in a competitive market. Therefore, the banking and finance system regulations have been crucial in this regard and have presented foreign investors and institutions with remarkable development opportunities in Mexico.

In this context, the public fundraising system has been modified to simplify the process through which a financial institution can raise funds from the public in Mexico.

The Securities Market Law (Ley del Mercado de Valores or the LMV)

The LMV has been in force since 2006 and, since then, it has only allowed companies that want to enter the public market to be granted such authorisation by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores or CNBV) through one specific and invariable process.

Like in many other civil law-based countries, the traditional process to enter the public market as per the Mexican LMV is lengthy and over-regulated and, in many cases, is discouraging for companies seeking to issue equity or debt in the public market.

Therefore, and with the goal of facilitating the process in regard to the issuance of equity or debt in the Mexican public market, the Congress of the Union made modifications to the LMV, which were published in the the Official Journal of the Federation (Diario Oficial de la Federación or DOF) on 28 December 2023. These modifications mainly consist of the implementation of a ‘simplified registration’ process involving the Mexican financial authorities in regard to the issuance of debt or equity in the public market.

The original registration process

The former and traditional process to obtain authorisation to enter the public market in Mexico mainly consisted of six steps, as per the following very oversimplified description:

1. corporate preparation. Similar to other countries, companies are required to make the respective corporate modifications, in order to adjust the company in order to meet the LMV’s regulations for public companies. This includes requirements in regard to the company’s management, corporate governance, shareholder meetings, vigilance and other modifications established therein;
2. issuing agreement. Once the company has made the appropriate corporate modifications, it must execute an issuing or placement agreement with a brokerage company, who will review all the necessary documentation and, when the time comes, will place the stock or debt certificates onto the market;
3. authorisation request. The company, along with the brokerage company, will request authorisation in order to become a public company and, therefore, to issue public equity or debt in regard to the CNBV and the stock exchange of their choosing. This request must be accompanied by the provision of the company’s financial, corporate, accounting and other information required by law;
4. the stock exchange’s opinion. The company must obtain the stock exchange’s positive opinion regarding the respective placement, whether it relates to debt or equity. This requirement is in accordance with its internal regulations, as well as the relevant legal dispositions;
5. the CNBV’s authorisation. The most important and critical step is to obtain the CNBV’s authorisation for the public placement of debt or equity. Once this authorisation is granted, the respective securities (debt or equity) shall be registered with Mexico’s National Registry of Securities; and
6. public placement. Subject to all the requirements and authorisations being fulfilled and/or granted, the brokerage company may place the securities on the public market through the respective stock exchange.

Please bear in mind that once authorisation is obtained, the company must multiple file monthly and annual reports, which represents a significant administrative burden.

The new simplified registration process

The new simplified process to enter the public market in Mexico mainly consists of the same steps as the old registration process, but there are two critical differences:

1. corporate preparation. There is no need for regular public companies to make the corporate modifications established in the LMV. The simplified registration process introduces the ‘simplified issuers’ concept, according to which the companies that choose to partake in this simplified process are not required to transform the company into the specific ‘SAB’ type of entity, which relates to the Mexican public company type; and
2. the granting of CNBV authorisation. There is no need to obtain the CNBV’s authorisation in order to make the placement. The only requirements are: the stock exchange’s positive opinion and the agreement with the respective brokerage company.

In this way, the Mexican authorities have sought to simplify the process for companies that want to enter the public market, whether to raise equity or debt. In doing so the related burden and responsibilities have been placed on the stock exchange and the brokerage company involved in such a placement.

The Fintech Law

On 9 March 2018, the Law to Regulate Financial Technology Institutions (also known as the ‘Fintech Law’) was published in the DOF. This law introduces a key concept in regard to the Mexican financial system, namely that of crowdfunding institutions.

The law defines crowdfunding institutions as those institutions that act as intermediaries between the issuing party and investors from the general public, whether in regard to the raising of debt or equity. Another important aspect is that such activities should be carried out through digital or electronic means of communication.

Therefore, crowdfunding institutions act as a type of simplified stock exchange, according to which a company can access public fundraising without the need to go through a registration process, as per the LMV.

It is important to point out that neither the companies or the investors who are involved in such operations carried out by a crowdfunding institution require authorisation from any public regulatory agency, but they are required to present certain information to the crowdfunding institution in accordance with its internal regulations. Crowdfunding institutions are required to be authorised by the CNBV to act as such, in a similar way to how a stock exchange is required to gain authorisation from the respective regulatory agency.

Conclusion

Both developments represent a positive evolution in promoting public funding processes in Mexico involving substantial simplifications in regard to the respective regulations, making Mexico’s financial system more attractive for both investors and financial institutions. Whether a company intends to enter the public fundraising market through a stock exchange or chooses to make use of a crowdfunding institution, both avenues are now viable and safe options to securely access Mexico’s public financial system.