Latin America Advisor Publishes Eduardo Canales Q&A on Mexican Bank De-Risking

Latin American Advisor has quoted Akin Gump oil and gas associate Eduardo Canales in a featured Q&A on the topic of whether Mexico’s central bank’s new program to facilitate transfer of dollar-denominated assets between Mexican business offers a good solution to the negative consequence of de-risking.

Canales replied, “The development of rigorous anti-money laundering and compliance regulations in financial hubs around the world to de-risk international transactions has had unintended consequences on the Mexican banking system. Even though these controls were conceived to combat illegal activities, their implementation has slowed down thousands of legal transactions burdened by the heightened standards and causing, for instance, the cancellation of international bank accounts, the severance of banking relationships between international financial institutions and their Mexican counterparts and the denial to process money wires.”

He noted that estimates show Mexico had more than $380 billion in exports and more than $395 billion in imports worldwide during 2015, adding “Mexico’s integration into the global economic system as well as the interactions of thousands of Mexican businesses with firms around the world have created the need for an efficient domestic financial system that promotes observance of international anti-money laundering and compliance regulations while providing the necessary tools that facilitate transactions into, out of and within Mexico in global currencies.”

Canales described Mexico’s central bank as trying to address this market inefficiency and provide the basic tools to support the globalization of the Mexican banking system through the creation of the Sistema de Pagos Interbancarios en Dólares (SPID). He said that this interbank payment system will work as a clearinghouse to facilitate dollar transactions between Mexican businesses while incorporating transparency and anti-money laundering standards: “The SPID is expected to allow Mexican banks to process dollar transactions more efficiently and at a lower cost. Banxico is expected to supervise the operation of the clearinghouse as well as the SPID’s relationship with an American clearing bank. Moreover, the SPID will include international best practices like the use of the Global Legal Entity Identifier System, which assigns unique identifiers to legally distinct entities and allows monitoring of their financial market activities, and heightened reporting and auditing requirements for participating domestic banks.”

He closed by stating that the SPID’s success will depend on the costs involved, which will drive the participation by Mexican banks and businesses, and the regulatory and enforcement mechanisms, which, he said, “may help assimilate heightened rigorous anti-money laundering and compliance controls, ultimately de-risking Mexico.”