Mexico Passes New Law Regulating Credit Unions

September 17, 2008
Mexico Passes New Law Regulating Credit Unions

On August 29, 2008 Mexico published a new Credit Union Law (Ley de Uniones de Crédito) in the Official Journal of the Federation (Diario Oficial de laFederación). The purpose of such new law is to regulate the creation and operation of Credit Unions, as well as the transactions they may carry out. The newlaw repeals various provisions of the General Law of Organization and Activities of Auxiliary Credit Institutions (Ley General de Organizaciones yActividades Auxiliares del Crédito or “LGOAAC”). In accordance with such law, companies that have been authorized to operate under the terms of theLGOAAC are classified as level I operations, which means that they must maintain minimum paid in capital of at least the peso equivalent of two millioninvestment units (unidades de inversion or UDI). Companies operating at this level that do not have such minimum capital must within five years demonstratetheir compliance, or lose their authority to operate as Credit Unions. The law also establishes operation level II and operation level III. Credit Unions withlevel II operations must have at least three million UDIs of paid in capital and level III operations must have paid in capital of at least five million UDIs. LevelII and III operations may issue or obtain loans from other Credit Unions, carry out factoring and financial leasing operations, while the role of serving as atrustee in a guarantee trust is reserved only to those Credit Unions with level III operations. The decree states that the Mexican National Banking andSecurities Commission (Comisión Nacional Bancaria y de Valores or CNBV) will be the responsible authority for issuing minimum guidelines to which CreditUnion will be subject for their credit policies, qualification of asset credit worthiness, liquidity and internal risk management standards, among others. Theoperation of Credit Unions will be supervised by the CNBV and violations to the rules will be subject to sanctions contained in the new law ranging from 200to 100 thousand times the daily minimum salary in force in Mexico’s Federal District. It is important to note that Credit Unions have a term of 180 days to filetheir Bylaws and Articles of Incorporation for approval by the CNBV.

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