Adequate balance between

AML/CFT regime and Financial

Inclusion policy“Mexican Experience”

May 2011

Context

2

In the last years, Mexico has been involved in a financial inclusionprocess. According to a World Bank publication in 2004, only 25% ofthe population in Mexico had access to a saving account.

Source: Finance for All? Policies and Pitfalls in expanding Access, World Bank ; 2007 Financial Education Survey. Ministry of Finance, Mexico; 2009 Access to Financial Services Survey. Ministry of Finance, Mexico.

Non-users

75%

Users

25%

Non-users

55%

Users

45%

Non-users

40%

Users

60%

2004 2007 2009

World Bank

(inlude only traditional deposits

Products)

SHCP

(Include all financial products)

SHCP

(include all financial products)

Context

The level of Financial Inclusion has been increasing significantly inthe past years, but 40% of the population still unattended.

Non User

Population

40.1%

+-

Population with

Basic Inclusion

26.1%

Population with

medium Inclusion

17.1%

User Population

59.9%

Population with

high Inclusion

16.7%

Population with

1 category of

financial

product.

Population with

2 category of

financial

product.

Population with

more than 2

categories of

financial products.

Level of Financial Inclusion

3

Context

The use of financial services are lower in particular for low incomepopulation and rural area, where the available banking infrastructureis not sufficient or expensive to develop.

4

User Population

59.9%

Urban area

59.3%

Rural area

48.2%

Type of Population

Economic and Social

Level

A, B and C+82.2%

C66.6%

D+55.3%

D and E31.7%

Financial Inclusion

The effectiveness of regulatory policy to increase the level of financialinclusion lies in the establishment of an adequate balance between financialinclusion and the prevention of ML and TF activities for low risk financialproducts .

5

New channels to increase financial

inclusion

Banking Agents

Mobile Banking

Utilization of non financial entities, such as

commercial retail stores or convenient

stores, to provide basic banking services to

sectors and regions where financial entities

have no presence

Mobile network geographic coverage is

exploited to provide basic banking services

to the population

AML/CFT regime Special regime, with simplified KYC and CDD requirements, for specific

transactions, products and financial services,

Financial Inclusion & AML/CFT framework (Currently)

The new legal framework for AML/CFT for banking institutions, establish 3

differentiated account levels which determine the required information to

integrate the file, CDD and applicable reporting policies:

6

a) LOW TRANSACTIONAL

ACCOUNTS

c) TRADITIONAL ACCOUNTS

b) LOW-RISK ACCOUNTS

Financial Inclusion & AML/CFT framework (Currently)

a) Low Transactional Accounts (payroll accounts and mobile banking

scheme):

7

Accounts for natural persons whose monthly deposits transactions are below

2,000 UDIs (approx. US $720.43).Transactional level

The file requires to be integrated only with the client basic data (name,address and birth date) and it is not required to maintain a copy of thedocumentation. However, in the event that the accumulated amount oftransactions exceeds the maximum allowed transactional level, the bankinginstitution is obliged to either, obtain additional information or integrate acomplete file, according to the new risk level

KYC (File integration)

This could be achieved at the banking branch or at a banking agent. (i.e.Telco agent, commercial retail and convenient stores, etc.)

Account opening

Banking institutions should monitor that the account does not exceed thethreshold of 2,000 UDIS. If this threshold is exceeded, institutions shouldrequire more information and if necessary, submit STRs and report whenevera single transaction exceeds the threshold limit of US $10,000

Monitoring and Reporting

UDI: Unit of Investment, a fictional currency that mainly reflects the inflation. On May 10th, 2010: UDI= 4.588654 Mexican

Pesos, and US $ / Mexican Pesos = 11.65

Financial Inclusion & AML/CFT framework (Currently)

b) Low Risk Accounts:

8

Accounts for natural and legal persons whose accumulated transactions,

including deposits and withdraws, on a monthly basis do not exceed 40,000

UDIs (approx. USD13,500). The National Banking and Securities Commission

has authority to modify the abovementioned threshold, taking into consideration

the operability and conditions of these products.

Transactional level

The file requires to be integrated with the client’s whole list data requirements,however it is not required to maintain a copy of the documentation.KYC (File integration)

This could be achieved at the banking branch or at a banking agent. (i.e.TelCo agent, commercial retail and convenient stores, etc.).

Account opening

The banking institution is obliged to monitor the operations and thetransactional profile of the client, and whether the case, to present STRs andreport whenever a single transaction exceeds the threshold limit of US$10,000.

Monitoring and Reporting

UDI: Unit of Investment, a fictional currency that mainly reflects the inflation. On May 10th, 2010: UDI= 4.588654 Mexican

Pesos, and US $ / Mexican Pesos = 11.65

Challenges to financial inclusion & AML/CFT in Mexico

The key challenges and barriers to financial inclusion in Mexico are

described as follows:

CH

AL

LE

NG

E

9

• New methods to verify the identity of the client (Lack

of unique national ID system

• Adopt a non face to face scheme to open a bank

account

• Connectivity and characteristics for each type of low

risk bank account

• Simplify the regulation (Understandability)

Goals to financial inclusion & AML/CFT in Mexico

The propose for a new legal framework for AML/CFT for banking

institutions, establishes 4 differentiated account levels which

determine the required information to integrate the file, CDD and

applicable reporting policies:

10

a) LEVEL 1 c) LEVEL 3b) LEVEL 2 b) LEVEL 4

Goals to financial inclusion & AML/CFT in Mexico

a) LEVEL 1 (100% Non face to face open process, very limited amounts)

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Description of the product and financial facilities Amount/threshold limitation Customer identification

requirements

Low risk account that may allow a non face to face

open process, but subject to monitoring from financial

entities and to enhanced supervision of the financial

authorities.

Main characteristics:

Customer ID verification could be exempted.

Restricted use for payment of services and/or

products.

Not linked to a mobile phone account (For funds

transfers)

Valid only in Mexico.

Contracted at banking branches, banking agents,

by phone or at the banking institution website.

Restricted to transfer funds (to other accounts or

products)

Limited to a maximum deposit amount

of 750 UDIS per month

(Based on the EU 2,500 USD/Euros

threshold for reloadable cards)

Limited to a non-cumulative maximum

amount of 1,000 UDIS (USD315).

Not compulsory

Goals to financial inclusion & AML/CFT in Mexico

b) LEVEL 2 (ID verification “a posteriori”, but limited to USD 470 per month)

12

Description of the product and financial facilities Amount/threshold limitation Customer identification

requirements

Customer ID verification could be conducted “a

posteriori”, which would allow the contracting of

low risk products under a non-face to face

scheme, subject to further ID verification and

monitoring by financial entities (Banking

institutions should verify the data in a period no

longer than 24 months).

Contracted at banking branches, banking agents,

by phone or at the banking institution website.

May be linked to a mobile phone account.

May be used for transference of funds

Valid only in Mexico.

Limited to a maximum deposit amount

of 1,500 UDIS (USD470) per month.

Electronic file requires to be

integrated only with basic

client’s data (Name, address,

birth place and date and gender).

No copies required.

Goals to financial inclusion & AML/CFT in Mexico

c) LEVEL 3 (Maximum deposit amount of USD 950, with ID verification “a posteriori” through

the system of the National Population Registry)

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Description of the product and financial

facilities

Amount/threshold limitation Customer identification requirements

Filing requirements are obtained from

basic data of the client (from an official

ID) and should be subject to monitoring

by financial entities.

Two schemes:

a) Contracted directly at banking branches

and banking agents.

b) On a non-face to face scheme, by phone

or at the banking institution website,

subject to a further ID verification and

monitoring by financial entities.

Based on this scheme, the data verification

process banking institutions will validate

the data through the system of the National

Population Registry or RENAPO which

contains relevant information from

individuals living in Mexico.

Limited to a maximum deposit

amount of 3,000 UDIS (USD 950) per

month.

In case of the scheme a), the banking

institution must obtain complete data on

the name, birth date and address. Only

name and birth date, should match with

the official ID presented by the client.

In case of the scheme b) the banking

institution should validate that the data

provided by the client matches that at the

National Population Registry (RENAPO)

using a unique official ID number CURP).

Moreover, the national banking

supervisor, with the authorization from

the Ministry of Finance, may authorize

the use of other IDs to validate the data.

Electronic file requires to be integrated

only with basic client’s data (Name,

address, birth place and date and

gender). No copies required.

Goals to financial inclusion & AML/CFT in Mexico

d) LEVEL 4 (Maximum deposit amount of USD 3,150, with data obtained from an official ID)

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Description of the product and financial facilities Amount/threshold limitation Customer identification

requirements

The file requires to be integrated with the client’s

whole data list requirements (Obtained from an

official ID).

May be contracted in banking branches, banking

agents or companies.

May be linked to a mobile phone account.

Could be used for funds transfers.

Limited to a maximum deposit

amount of 10,000 UDIS (USD 3,150)

per month.

Electronic file requires to be

integrated with the client’s whole

list data requirements (Name,

gender, address, profession, birth

date, telephone number,

profession, nationality, place of

birth, ID information, e-mail, federal

taxpayer´s registry, among others).

No copies required.

Adequate balance between

AML/CFT regime and Financial

Inclusion policy“Mexican Experience”

May 2011