Banking and Finance

Mexico

Legal Alert

Financial Reform Initiative

Recent Developments
Submission of Reform: On May 8, 2013, as part of the activities of the Pact for Mexico (Pacto por Mxico), the President of the Republic, Enrique Pea Nieto, submitted the Financial Reform initiative, which intends to increase credit penetration in Mexico via legal reforms. What is sought: The reason for the reform initiative is, through increasing the quality and quantity of credit in the country, to allow the financial sector to contribute to Mexico's economic growth. It is important to mention that Mexico's potential market is quite big, and its currently not well-served, since the credit penetration in Mexico is around 15% of the GDP, whereas in other countries, such as Colombia and Brazil, it is over 40%.

May 2013 Number 22 Visit our site: www.bakermckenzie.com/mexico Guadalajara Blvd. Puerta de Hierro 5090 Fracc. Puerta de Hierro 45110 Zapopan, Jalisco, Mxico Tel. +52 33 3848 5300 Fax +52 33 3848 5399 Juarez P.T. de la Repblica 3304, Piso 1 32330 Juarez, Chihuahua, Mxico P.O. Box 9338 El Paso, TX 79995 Tel. +52 656 629 1300 Fax +52 656 629 1399 Mexico City Edificio Scotiabank Inverlat, Piso 12 Blvd. M. vila Camacho 1 11009 Mxico, D.F., Mxico Tel. +52 55 5279 2900 Fax +52 55 5279 2999 Monterrey Oficinas en el Parque, Torre I Piso 10 Blvd. Antonio L. Rodrguez 1884 Pte. 64650 Monterrey, Nuevo Len, Mxico Tel. +52 81 8399 1300 Fax +52 81 8399 1399 Tijuana Blvd. Agua Caliente 10611, Piso 1 22420 Tijuana, B.C., Mxico P.O. Box 1205 Chula Vista, CA 91912 Tel +52 664 633 4300 Fax +52 664 633 4399

Contents in a Nutshell
Increase competition among financial institutions and make it more efficient. Give greater legal certainty to financial institutions in credit transactions. Re-characterize the role of development banks in order for the same to operate in a complementary manner with private financial institutions. Having banks maintain the optimal levels of capitalization under Basel III. The creation of financial incentives aimed at increasing the placement of credit.

Changes in the Development Banks: The initiative proposes to give more regulatory and financial flexibility to the development banks so that their goal is the expansion of credit with an emphasis on the areas considered by the President as a priority for national development. More competition among banks: The initiative contemplates measures that promote more competition in the financial system in order to expand the credit offer and improve credit conditions (i.e.,

reduce interest rates). To do this, the Federal Competition Commission will evaluate the competition conditions and will issue recommendations in this respect. Strengthening of the capital markets: The initiative intends to strengthen the capital markets by making it easier for middle-sized companies to have access to and remain listed in the Mexican Stock Exchange. More rights for users: The Financial Reform intends to strengthen the powers of the financial authorities to evaluate the performance of banks and of the National Commission for the Defense of Users of Financial Institutions to grant more freedom of choice to users of financial products. Increasing legal certainty for lenders: The initiative also includes major changes to various legal provisions that might affect the manner to conduct many judicial and administrative proceedings. It intends to reinforce the creditor's position, simplify procedures, renovate the regulation to adapt it to international trends, provide the authorities with better powers that help preserve the nation's financial health, and protect users of financial services. Improvements in the insolvency procedure: The reform intends to clarify various relevant aspects relating to insolvency proceedings that have occurred in recent cases, like subordinate debt or inter-company debt. The reform also includes the creation of a special judicial procedure to determine a bank's insolvency and process its liquidation, facilitating banks' bankruptcy proceedings and protecting the rights of savings account holders. Basel III: The initiative intends to elevate to the status of law the rules for capital formation and capital quality set forth in the Basel III accord.

Current Status
It is under review by the House of Deputies, and it might be approved by the end of the year.

We will keep you informed on the development of the initiative and its possible approval.

Contacts
Gaspar Gutirrez-Centeno Mexico City gaspar.gutierrez-centeno@bakermckenzie.com Andrs Ochoa-Bnsow Monterrey andres.ochoa-bunsow@bakermckenzie.com Mara Casas-Lpez Mexico City maria.casas-lopez@bakermckenzie.com

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