Mexico Regulatory Environment
Latin America has an infamous reputation for complexity in the business environment. According to the 2018 Financial Complexity Index by TMF Group, Mexico ranked in the top 10 most complex environments for financial compliance.
Over the last two decades, the government has adopted a deregulation policy to stimulate and expand business activity. Read on to learn more about Mexico’s regulatory framework and the incentives for foreign investment.
Mexico’s Regulatory Structure
Mexico is a democratic nation, organized as a federation of 31 autonomous states and a federal district. The nation runs on a formal policy adopted in the Federal Law of Administrative Procedure.
The Federal Commission for Regulatory Improvement oversees the implementation of the policy, focusing on the different institutions responsible for implementing the mandates. The different types of bodies involved in defining Mexico’s regulatory framework include:
Line Ministries
These are the centralized administrative entities for the executive power operating under Federal Public Administration (APF) auspices.
Nineteen varying ministries provide regulatory frameworks through proposed bills, enactment, decrees, and agreements. For example, the Foreign Investment Commission under the Ministry of Economy (SE) provides approvals for the incorporation of foreign companies.
Decentralized Bodies
These organizations are established through legislation or presidential decree, with defined roles, structures, and mandates. There are approximately 90 such organizations, including national exclusive petrol vendor PEMEX and the Federal Electricity Commission (CFE), which powers the nation.
Deconcentrated Bodies
Line ministries can further delegate their regulatory powers to entities, including deconcentrated bodies.
Created through laws or decrees, these organizations have specific mandates and often target particular sectors of the economy. They include finance regulators CNBV, health risk abatement body COFEPRIS, and energy management organization CRE.
Autonomous Constitutional Bodies
These are entities established directly by the constitution. They have regulatory autonomy with budgetary and administrative independence. The Central Bank is one example of an autonomous constitutional body.
Price Control Regulation
The Federal Law for Economic Competitions (LFCE) provides the rules for price structures for vital goods or services in the economy.
It establishes the maximum prices for materials, products, or services necessary for consumption and economic growth, thus protecting consumers.
Some items remain under the variable price controls. These products include petrochemicals and specified chemical products such as cellulose and fertilizers for industrial use. The prices may vary, subject to the Ministry of Economy (SE) decision.
Fair Competition Regulation
The LFCE outlaws monopolies, monopolistic activities, and unfair business practices. Price fixing, selective distribution, and other violations can lead to penalties administered by the Federal Competition Commission (COFECE).
The same guiding principles hold foreign investors, as the legislation is consistent with antitrust laws in the United States and Europe.
Security Markets Regulation
The Securities Market Law (LMV) enacted in 2006 regulates the public offerings of securities, brokerage firms, and dealers.
The National Banking and Securities Commission — the previously mentioned CNBV — regulates the security markets.
Foreign investment into Mexican stocks, equities, bonds, individuals, or companies requires approval from the CNBV. The process may take four to six months after submission of the required and recommended documents.
Broker-dealers that assist foreigners in accessing share offers and equities need to have an active registration with the National Register of Securities. Intermediaries for the investors also need to register with CNBV.
Import-Export Regulation
The Ministry of Economy is the government organization that oversees the import and export of goods. They are also responsible for regulating foreign investment and financial sector policies.
The Commerce and Industry Secretariat (SECOFI), a deconcentrated body under the SE, promotes Mexico’s economic development. It conducts international trade, investment promotion, and facilitation of technical cooperation with foreign countries, as well as other activities related to international commerce.
Mexico has several bilateral and multilateral trade agreements that regulate the flow of its imports and exports. The nation is a signatory to the United States, Mexico, Canada Agreement (USMCA), a revised version of the North American Free Trade Agreement (NAFTA).
The nation also has agreements with the European Union, EFTA (comprising Liechtenstein, Switzerland, Ireland, and Norway), Colombia, Nicaragua, Israel, Japan, and dozens of other countries.
A federal consumer protection law empowers the Federal Prosecutor for the Consumer (PROFECO) to ensure that the citizens receive quality products that meet the stipulated standards set during importation. This office is responsible for enforcing several other consumer protections as well.
Data Privacy Regulation
The Personal Data Act (LFPDPPP) is a federal law created in 2002 to protect the personal data of Mexican citizens. This law applies to people and companies in Mexico and foreign entities operating there.
Bottom Line
Mexico is gradually relaxing its regulatory environment to encourage foreign investment. The deregulation spans various sectors, including foreign trade, securities trading, and energy. The regulatory agencies have a structural framework, with line ministries having the largest policy impact.
The government is also working on a National Development Plan (PND) that focuses on increasing the country’s competitiveness. Its goal is to make it easier to do business in Mexico and attract more foreign investment.
Improvements in the business environment will take some time to show results, but the long-term prospects are positive. In the meantime, companies and individuals should be aware of the regulatory changes and take advantage of the opportunities they offer.
