Circular 21/2008 — Modifies Circular 2019/95

2008, Year of Physical Education and Sport CIRCULAR 21/2008 Mexico, D.F., May 19, 2008. TO THE MULTIPLE BANKING INSTITUTIONS: SUBJECT: MODIFICATIONS TO CIRCULAR 2019/95.

The Bank of Mexico, based on Articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 24 and 26 of the Bank of Mexico Law; 22 of the Law for Transparency and Ordering of Financial Services; 8th, third and sixth paragraphs, 10, 14 in relation to Article 25, fraction II, and 17, fraction I, of the Internal Regulations of the Bank of Mexico published in the Official Gazette of the Federation on September 30, 1994, whose last modification was published in said Official Gazette on May 9, 2008, which grant the General Directorate of Analysis of the Financial System and the Directorate of Central Banking Regulations, respectively, the authority to participate in the issuance of regulations, all of them of the Internal Regulations of the Bank of Mexico published in the Official Gazette of the Federation on September 30, 1994, whose last modification was published in said Official Gazette on May 9, 2008, with the purpose of promoting the sound development of the financial system through the updating of regulations directed at said institutions,

considering that: a) The Law for Transparency and Ordering of Financial Services, made known through Decree published in the Official Gazette of the Federation on June 15, 2007, assigned other financial authorities various faculties that corresponded to this Central Bank; b) As a result of said assignment of faculties, it is necessary to adapt the regulation issued by the Bank of Mexico in various matters, and c) It is convenient to establish an expedited mechanism so that newly created institutions and those that have recently increased their basic capital can calculate the limit to be observed in relation to the regime for the admission of liabilities for foreign currency operations.

It has resolved to modify sections M.11.11.3; M.11.11.32, first paragraph; M.11.11.33; M.11.11.34, second and third paragraphs; M.11.11.35; M.11.81.1; M.11.81.2, first paragraph; M.12.1; M.12.11; M.12.12; M.13.64; M.38; M.38.2; M.38.3; M.39, third paragraph, and M.61.3, third paragraph, and Annex 20; add sections M.12.12.1 and M.12.12.2; as well as repeal sections M.11.11.14; M.11.86; M.12.13; M.12.14; M.12.15; M.12.16; M.12.17, and M.37, all of Circular 2019/95, to remain in the following terms:

M.1 PASSIVE OPERATIONS M.11. CHARACTERISTICS OF NATIONAL CURRENCY OPERATIONS M.11.1 BANKING MONEY DEPOSITS M.11.11.1 Demand Deposits

“M.11.11.14. Repealed.”

“M.11.11.3 Special Personal Savings Accounts The special personal savings accounts referred to in the Income Tax Law shall be subject to the following:”

“M.11.11.32. Amounts Deposits may be received for the amounts deposited by the interested parties, who must observe the maximum savings amount provided for in the Income Tax Law. . . .”

“M.11.11.33. Yields Institutions may freely agree with their clientele on the interest rates that accrue on these deposits, which may be different for different types of account holders. The rates will be applied to the average daily balances of the period in which they have been in effect. Institutions may freely agree on the frequency of interest payments. Interest may be capitalized even if the balance of an account is at the maximum amount according to applicable provisions.”

“M.11.11.34. Withdrawals . . . When the principal or interests are withdrawn in whole or in part, the depositary institution must withhold as provisional payment the corresponding amount in terms of what is provided in the Income Tax Law. The depositary institutions will remit the withheld amounts in terms of the Federal Tax Code and must also comply with the obligations indicated in said Income Tax Law.”

“M.11.11.35. Documentation In case of several deposits documented separately, their combined amount will be considered for purposes of the maximum amount referred to in M.11.11.32. All documentation related to the respective deposits and withdrawals must expressly mention that they refer to a special personal savings account provided for in the Income Tax Law.”

M.11.8 GENERAL PROVISIONS M.11.81. DOCUMENTATION

“M.11.81.1 The passive operations referred to in the previous sections will be recorded in documents that comply with applicable provisions.”

“M.11.81.2 In contracts, titles, or documents signed with their clients in accordance with what is provided in sections M.11.2, M.11.3, M.11.4, M.11.5, M.11.6, and M.11.7 BIS, institutions must clearly stipulate each and every characteristic of the respective operation, among others: a) the legal nature; b) the term and maturity date; c) if applicable, the annual interest rate and the method for calculating interest, as well as d) the payment date of the principal and, if applicable, interest, specifying the manner in which they may be disposed of. . . .”

“M.11.86. Repealed.”

M.12. CHARACTERISTICS OF FOREIGN CURRENCY OPERATIONS

“M.12.1 Demand Deposits with or without checkbook payable in the Mexican Republic These deposits must comply with what is provided in the “General Rules to which credit institutions must adhere to receive demand deposits with or without checkbook in Foreign Currency”, which are attached as Annex 2. The depositor may not assign the rights derived for him from the legal instrument in which the deposit is documented.”

“M.12.11. WITHDRAWALS Demand deposits with checkbook will be withdrawable by drawing checks from offices that institutions have established in the towns indicated in subsection a) of the First of the Rules mentioned in the previous section, regarding deposits held by the natural persons mentioned in said subsection, and throughout the Mexican Republic regarding deposits of account holders referred to in subsections b) and c) of said Rule.”

“M.12.12. OTHER PROVISIONS”

“M.12.12.1 Institutions may freely determine the commissions, if any, that they will apply for the management of these deposits, informing them to the clientele in advance.”

“M.12.12.2 Prior to the establishment of these deposits, institutions must request from the applicant in question the documentation that, in their judgment, demonstrates that they meet the requirements provided in Rule First, subsections a), b), and c) of the Rules mentioned in M.12.1, as applicable. In all cases, the institution must keep in the client’s file a record of compliance with the stated requirements.”

“M.12.13. Repealed.” “M.12.14. Repealed.” “M.12.15. Repealed.” “M.12.16. Repealed.” “M.12.17. Repealed.”

M.13. REGIMES FOR ADMISSION OF LIABILITIES AND INVESTMENT FOR FOREIGN CURRENCY OPERATIONS M.13.6 COMPUTATION

“M.13.64. For purposes of what is provided in section M.13.2, the basic capital will be that determined in terms of the general provisions referred to in Article 50 of the Credit Institutions Law, corresponding to the third month immediately preceding the month in question. Without prejudice to the foregoing: a) Regarding institutions constituted in the month for which the calculation is made, as well as in the month immediately preceding it, the basic capital relative to the date on which resources were effectively contributed for constitution will be used; b) Regarding institutions constituted in the second month immediately preceding the month for which the calculation is made, the basic capital relative to the close of said second month will be used; c) Regarding institutions that have increased any of the items that make up their basic capital in the month immediately preceding the month for which the calculation is made, the basic capital relative to the date on which said increase was effectively made will be used, and d) Regarding institutions that have increased any of the items that make up their basic capital in the second month immediately preceding the month for which the calculation is made, the basic capital relative to the close of said second month will be used.

The provisions in subsections c) and d) above will be applicable only if institutions inform the basic capital used as reference to the Financial System Information Directorate of the Bank of Mexico, in the manner established by it. In the event that, subsequent to the month in question, the amount of the institution's basic capital, applied in said month, is subject to modification for any reason, the Bank of Mexico may determine in each case whether a new calculation of the liability admission limit for Foreign Currency Operations should be made considering the modified basic capital.

For purposes of calculating the limit referred to in section M.13.2, the dollar equivalent of the corresponding basic capital will be considered, using the exchange rate published by the Bank of Mexico in the Official Gazette of the Federation in accordance with what is established in the “Applicable Provisions for Determining the Exchange Rate to Fulfill Obligations Denominated in Foreign Currency Payable in the Mexican Republic”, on the next banking business day following the date corresponding to the basic capital.”

“M.37. Repealed.”

“M.38. ELECTRONIC FUNDS TRANSFERS.”

“M.38.2 Institutions must provide customers who send Interbank Funds Transfers, as well as within the same institution, the possibility to incorporate information to identify the reason for payment, in terms of the manual of the clearing house in question or the agreements made. Such information must be sent to the credit institution of the transfer beneficiary. Institutions receiving such transfers must make available to beneficiaries the information referred to in the previous paragraph. . . .”

“M.38.3 Institutions must maintain on their electronic page on the worldwide network (Internet), a simple guide on the Interbank Funds Transfer services they provide, including direct debits at other credit institutions, and deliver a printed copy free of charge to any person who requests it at their branches.”

“M.39. NON-BANKING CARD ADMINISTRATION . . . . . . Institutions providing these services must ensure that the cards do not contain on the front, information related to the institutions themselves, such as their name or any other expression, symbolism, emblem, or logo that could induce error or confusion regarding the person to whom compliance with the corresponding obligations can be demanded. . . .”

M.61. FOREIGN EXCHANGE RISK POSITIONS

“M.61.3 LIMITS . . . . . . For purposes of what is provided in this section, the basic capital will be that determined in terms of the general provisions referred to in Article 50 of the Credit Institutions Law, corresponding to the third month immediately preceding the month in question. Without prejudice to the foregoing: a) Regarding institutions constituted in the month for which the calculations are made, as well as in the month immediately preceding it, the basic capital relative to the date on which resources were effectively contributed for constitution will be used; b) Regarding institutions constituted in the second month immediately preceding the month for which the calculations are made, the basic capital relative to the close of said second month will be used; c) Regarding institutions that have increased any of the items that make up the basic capital in the month immediately preceding the month for which the calculations are made, the basic capital relative to the date on which said increase was effectively made will be used, and d) Regarding institutions that have increased any of the items that make up the basic capital in the second month immediately preceding the month for which the calculations are made, the basic capital relative to the close of said second month will be used. . . .”

“ANNEX 20 DETERMINATION OF THE BASE AMOUNT USED TO CALCULATE THE MAXIMUM CREDIT LIMITS RELATIVE TO PAYMENT SYSTEMS

The Bank of Mexico will determine the credit limits and some other parameters regarding payment systems, for each institution, based on the amount resulting from the following formula:

Base Amount = (e - C) * (α / (C^β)) + δ * UDI

Where: α = 2.460 β = 0.000735 δ = 0.033333 UDI = Value of the Investment Unit (UDI) on the calculation date. C = the amount, expressed in millions of UDIs, that results according to the case, as follows: a) It will be equal to the net capital -calculated in accordance with the general provisions referred to in Article 50 of the Credit Institutions Law- corresponding to the multiple banking institution, in case it is not a member of any financial group or belongs to a financial group in which it participates only as a multiple banking institution, or b) It will be equal to the sum of the net capitals -calculated in accordance with general provisions referred to in Article 50 of the Credit Institutions Law- corresponding to the multiple banking institutions that belong to the same financial group in which two or more of said institutions participate.

In the case of multiple banking institutions that belong to the same financial group, the credit limits will be distributed among the institutions of said financial group in proportion to the net capital of each of them, unless said institutions request the Operational Processing Directorate of the Bank of Mexico to establish proportions different from the aforementioned, using for this purpose the request whose model is attached as Appendix, duly signed by authorized officials who have power to perform acts of administration. Said request, accompanied by a certified copy of the deed in which the respective powers are recorded, must be presented at least 3 banking business days in advance of the date on which the new distribution is intended to take effect.

The Bank of Mexico will apply the limits calculated in accordance with sections M.71.31.4, M.71.32.1, and M.72.23 of Circular 2019/95 starting from the first banking business day of each month. To carry out said calculation, the net capital it will consider will be that determined in terms of the general provisions referred to in Article 50 of the Credit Institutions Law, corresponding to the third month immediately preceding the month in question. Without prejudice to the foregoing: i) Regarding institutions constituted in the month for which the calculations are made, as well as in the month immediately preceding it, the net capital relative to the date on which resources were effectively contributed for constitution will be used; ii) Regarding institutions constituted in the second month immediately preceding the month for which the calculations are made, the net capital relative to the close of said second month will be used; iii) Regarding institutions that have increased any of the items that make up their basic capital in the month immediately preceding the month for which the calculations are made, the net capital relative to the date on which said increase was effectively made will be used, and iv) Regarding institutions that have increased any of the items that make up their basic capital in the second month immediately preceding the month for which the calculations are made, the net capital relative to the close of said second month will be used.

The provisions in subsections iii) and iv) above will be applicable only if institutions inform the net capital used as reference to the Financial System Information Directorate of the Bank of Mexico, in the manner established by it. In the event that any credit institution reports a negative net capital for the calculation date, said capital will be considered equal to zero. Without prejudice to the foregoing, the Bank of Mexico may decrease any of the mentioned limits. Likewise, it may establish for some institution in particular, limits different from those corresponding to it in terms of this Annex and the cited sections.”

TRANSITIONAL PROVISIONs FIRST.- This Circular will enter into force on May 20, 2008. SECOND.- From the entry into force of this Circular, Circulars-Telefax 62/97, 22/98, 30/2001, and 8/2003 are abrogated.