Banking legal considerations in Mexico: Representative Offices of Foreign Financial Institutions – Part II

In accordance with the provisions of Rule Ten of the “Rules applicable to the establishment and operation of Representation Offices of Foreign Financial Institutions referred to in article 7 of the Credit Institutions Law and article 159 of the Securities Market Law (Reglas aplicables al establecimiento y operación de Oficinas de Representación de Entidades Financieras del Exterior a que se refiere el artículo 7o de la Ley de Instituciones de Crédito y el artículo 159 de la Ley del Mercado de Valores)” (hereinafter the “Rules”), the representative office of the foreign financial entity will only be authorized to carry out the following activities:

• Carry out studies, analyzes or investigations of the national financial market, including the analysis related to issuers and securities that are listed on the stock exchanges that operate in national territory, as well as process and disseminate information about it, as long as it is for the exclusive use of your represented or for its clients;
• Enter into stock brokerage agreements with brokerage houses authorized to operate in national territory, by means of which the latter provide services directly to their principal, when they are given sufficient power to do so. In no case shall the office intervene in the provision of such services;
• Inform, negotiate and formulate the proposals of terms and conditions under which the client participates in placements of securities of national issuers, abroad; as well as reporting and negotiating on other active and investment operations that the foreign financial entities they represent intend to carry out in the national territory;
• Inform and negotiate the conditions and other characteristics of the loans or credits that the foreign financial entities they represent intend to grant in the national territory for the acquisition of securities with their guarantee; and
• In general, manage and carry out administrative procedures related to the placement of securities of national issuers, abroad, in which the represented party intends to intervene.

Obligations and Prohibitions

Regarding the obligations and prohibitions applicable to representative offices, the Eleventh and Twelfth Rules establish, among others, the following:

Obligations

1)??Bear at all times the same name of the Foreign Financial Institution(s) followed by the expression “Representation Office in Mexico”.

2)??Inform the Mexican Central Bank (Banco de México) and the Mexican National Securities and Exchange Commission (Comisión Nacional Bancaria y de Valores) (“CNBV”) in writing, within a period not exceeding fifteen calendar days from the date on which they start their activities, the data of the address, telephone numbers, fax, email and personnel attached to them.

3)??Inform the authorities within thirty calendar days after the date on which the following occur: (i) the suspension of payments or the dissolution of the foreign financial entity they represent, the spin-off, merger or association of the latter with one or more plus foreign financial entities, their incorporation into an economic or financial group, as well as any other relevant fact that affects their activities in general and/or those of the representative office, (ii) the change of name of the foreign financial entity represented, or (iii) the vacancy of the legal representative in charge of the representative office caused by unforeseen causes.

4)??Submit to the authorization of the CNBV, at least fifteen calendar days prior to the date on which any change of location or closure of the representative office is planned, the appointment or substitution of the legal representative to charge of the representative office and/or the temporary suspension of activities.

5)??Keep the necessary records to identify the operations in which they are involved.

6)??Submit to the prior approval of the CNBV any kind of propaganda or publicity related to the aforementioned authorized activities.

7)??Make express mention of your denomination in your stationery, correspondence and advertising.

Prohibitions

1)??Carry out any financial intermediation activity that requires authorization by the Federal Government or carry out any act whose purpose is the execution of such activity.

2)??Act, directly or through an intermediary, in operations that involve raising funds from the public, whether on their own behalf or on behalf of others, as well as provide information in terms other than those established in the Rules and carry out any management or procedure to make possible such operations.

3)??Carry out any type of commercialization of goods or services or other commercial activity for which they can obtain income, either in cash or in kind, except those strictly essential for carrying out the activities that they are authorized to perform.

4)??Carry out activities that are different or contrary to those indicated in the Rules.