The proposed law requires cryptocurrency exchanges to acquire a license to qualify as regulated financial institutions. However, once they obtain the permit, the same law forbids them to avail or list any crypto service, a catch 22-situation since practically there won’t be any legal cryptocurrency exchange in the country. This according to a report from Coin Center, March 21, 2019.
De facto Ban on Crypto Exchanges
Coin Center, a non-profit cryptocurrency research and advocacy group has raised the alarm, revealing some harsh regulations as proposed by Mexico’s central bank, Banco De Mexico, which if enacted would create a de facto ban on that country’s cryptocurrency exchanges. Coin Center’s executive director Jerry Brito and Director of research Peter Van Valkenburgh have termed the proposed rules draconian and are aimed at cracking down on crypto exchanges. They said:
“Cryptocurrency exchanges dealing in fiat currency need access to the local banking system. Under the new law, that access will be severely impeded. While the central bank can claim that they are not ‘banning’ exchanges, the effect will be the same.”
Reasonable Path towards Better Regulation
As per the report, the new regulation originates from Mexico’s central bank which doesn’t seem to have the slightest interest in seeing the growth of cryptocurrencies and digital assets in the country.
The regulations fly in the face of what the original fintech legislation intended to achieve, which is facilitating effective cryptocurrency exchange regulation. Technically preventing crypto exchanges from accessing legal status as financial institutions doesn’t promote them but kill them.
The new fintech law was supposed to have created an appropriate environment in Mexico that would allow cryptocurrency exchanges to continue operating beside offering them a reasonable path towards better regulation as fully-fledged financial institutions. The Central bank now proposes to do the exact opposite by closing the door on the trending technologies by barring any regulated financial institution from offering cryptocurrency exchange, custody or transmission services to customers. Coin Center explains:
“The Mexican central bank’s proposal, unfortunately, demonstrates a dismissive ignorance of how these technologies work […] the difficulty for users to understand these processes, along with the volatility of digital assets, present an information asymmetry problem that, apparently, can only be addressed by quarantining consumers from direct contact with crypto.”
Banco de México’s proposed legislation seems to imply that citizens of the country are incapable of understanding cryptocurrencies and, should, therefore, be restricted from purchasing them. This decision, Coin center says, is a clear example of a central bank choosing to act in its self-interest while pretending to be working for the goodwill of the common man.
The Indian crypto community faces a similar dilemma after the country’s central bank; the Reserve Bank of India prohibited banking institutions from offering banking services to crypto-related business from July 2018, thereby creating an exodus. A case filed at the Indian Supreme Court is yet to be concluded as the government is yet to provide a draft cryptocurrency regulation policy framework as ordered by the court.