Circular 24/2017 — Modifications to Circular 14/2015 (LEI Code)

(First Section) OFFICIAL GAZETTE Wednesday, December 27, 2017 BANCO DE MEXICO CIRCULAR 24/2017 addressed to credit institutions, brokerage houses, general warehouse receipts, the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development, investment funds and multiple-object financial societies that have equity links with a multiple banking institution, regarding modifications to Circular 14/2015 (LEI Code).

At the margin a logo, which says: Banco de México.

CIRCULAR 24/2017
TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, GENERAL WAREHOUSE RECEIPTS, THE NATIONAL FINANCIAL INSTITUTION FOR AGRICULTURAL, RURAL, FOREST AND FISHERIES DEVELOPMENT, INVESTMENT FUNDS AND MULTIPLE-OBJECT FINANCIAL SOCIETIES THAT HAVE EQUITY LINKS WITH A MULTIPLE BANKING INSTITUTION:

SUBJECT: MODIFICATIONS TO CIRCULAR 14/2015 (LEI CODE)

The Banco de México, in order to continue promoting the sound development of the financial system, considering the usefulness of the Legal Entity Identifier Code (LEI Code) as an element that allows identifying, at the national and international level, the parties entering into operations with entities of the financial system, as well as the convenience of harmonizing, at the national level, practices in this matter with the efforts that financial authorities of other jurisdictions have been implementing, within the framework of policies and recommendations promoted by the United Mexican States jointly with the other members of the Group of Twenty (G-20), as well as by the external association known as the Financial Stability Board (FSB), has decided to issue new Rules applicable to the LEI Code, mainly with the object of:

a) Requiring that, in addition to credit institutions, brokerage houses, general warehouse receipts, investment funds, multiple-object financial societies that maintain equity links with a multiple banking institution and the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development, hold a valid LEI Code when entering into any of the operations indicated in these provisions;

b) Including trusts through which operations are entered into with the aforementioned financial entities, among the counterparties that must hold an assigned LEI Code, and

c) Clarifying the operations in which, for their execution, the aforementioned financial entities must hold their respective LEI Code.

For the above, based on Articles 28, sixth and seventh paragraphs, of the Political Constitution of the United Mexican States, 2, 3, fractions I and V, 24 and 36, of the Banco de México Law, 48 of the Credit Institutions Law, 176 of the Securities Market Law, 15 of the Investment Funds Law, 11 Bis 2, fractions XI and XII, and 87-D, fourth paragraph, of the General Law of Organizations and Auxiliary Credit Activities, 19 of the Organic Law of the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development, 22 of the Law for the Transparency and Ordering of Financial Services, 4, first paragraph, 8, fourth and seventh paragraphs, 10, 14, first paragraph, in relation to 25 Bis, fraction VII, 14 Bis, first paragraph, in relation to 17, fraction I, 15, first paragraph, in relation to 20, fraction XI, of the Internal Regulations of the Banco de México, which grant it the authority to issue provisions through the General Directorate of Financial Stability, the General Legal Directorate and the General Directorate of Payment and Corporate Services Systems, respectively, as well as Second, fractions IV, VIII and X, of the Agreement on the Affiliation of the Administrative Units of the Banco de México, has resolved to modify the name of the Rules to become "Rules applicable to the Legal Entity Identifier Code and Trusts (LEI Code)", the definitions of "LEI Code", "Counterparties", "Banking Business Days", "Manual" and "Operations", of the 1st, 2nd, 3rd, 4th, 5th, 6th, and first paragraph, and fractions I, VI and VII of the second paragraph of the 7th; first paragraph and its fraction V and second paragraph of the 8th, the title and the first paragraph of the 9th, as well as the "Single Annex", add the definition of "Financial Entities" and of "Sofomes" to the 1st, as well as a third paragraph to the 8th, and repeal the definition of "Credit Institutions" of the 1st and the last paragraph of the 7th, of the "Rules applicable to the Legal Entity Identifier Code (LEI Code)", contained in Circular 14/2015, to remain as follows:

"RULES APPLICABLE TO THE LEGAL ENTITY IDENTIFIER CODE AND TRUSTS (LEI CODE)"

"1st. Definitions.
...
LEI Code: the legal entity identifier code (referred to in English as "Legal Entity Identifier", and referred to as LEI), established under the parameters of the Swiss Confederation association referred to in English as "Financial Stability Board" (Financial Stability Board) and referred to as FSB, as a reference code issued by a Local Unit to uniquely identify legal entities that may perform Operations, as well as trusts and, where applicable, legal figures through which Operations may be entered into with Financial Entities, and which, in accordance with the Global System, may hold such Code, excluding natural persons.

Counterparties: legal entities that enter into any of the Operations with Financial Entities, as well as trusts and, where applicable, other legal figures through which Operations may be entered into that, in accordance with the Global System, may hold an LEI Code, except for natural persons.

Business Days: days that are business days in the United Mexican States in terms of the general provisions issued for such purpose by the National Banking and Securities Commission.

Financial Entities:
credit institutions, brokerage houses, general warehouse receipts, investment funds, Sofomes and the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development.

...

Credit Institutions:
Repealed.

Manual: the document issued by the Banco de México that indicates the technological and operational requirements that must be met for the issuance of LEI Codes by Local Units established in national territory recognized by the Banco de México, for the purposes of the provisions of these Rules.

Operations: those among those indicated in the provisions cited below that, for their execution, credit institutions, brokerage houses, the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development, investment funds, general warehouse receipts and Sofomes, respectively, must hold an LEI Code, as well as require their Counterparties to provide the respective LEI Codes corresponding to them, in accordance with the terms and conditions, as well as the gradualness and deadlines, that the Banco de México determines through general provisions:
Articles 46 of the Credit Institutions Law, 176 of the Securities Market Law, 15 of the Investment Funds Law, 11 Bis 2, fractions XI and XII, and 87-D, fourth paragraph, of the General Law of Organizations and Auxiliary Credit Activities and 19 of the Organic Law of the National Financial Institution for Agricultural, Rural, Forest and Fisheries Development.

...

Sofomes: multiple-object financial societies regulated, considered as such in accordance with the General Law of Organizations and Auxiliary Credit Activities, that maintain equity links with multiple banking institutions.
..."

"2nd. Object.

Each Financial Entity, when entering into any of the Operations, must hold a valid LEI Code issued in its name, as well as obtain from the corresponding Counterparty the LEI Code issued in its name and verify that the latter is valid at the time of such execution of the referred Operation.

Financial Entities, in the Operations they enter into, must observe, with respect to the LEI Code, the terms and conditions, as well as the gradualness and deadlines that the Banco de México establishes for such purpose through general provisions."

"3rd. Issuance of the LEI Code.

To obtain LEI Codes, Financial Entities must provide the information that the respective Local Units require in accordance with what is established by the Global System. With respect to the LEI Codes in the name of the Counterparties that Financial Entities must obtain in accordance with these Rules, it will be the responsibility of said Counterparties to provide the Local Units with the information referred to in this paragraph.

In the case where LEI Codes are issued by Local Units established in national territory and recognized by the Banco de México, Financial Entities must provide said Local Units with the advanced electronic signatures referred to in Article 2, fraction XIII, of the Advanced Electronic Signature Law, tax identification cards and, when dealing with Financial Entities, the numbers assigned in accordance with the Catalog of the Financial System (CASFIM) of the Ministry of Finance and Public Credit. Likewise, with respect to the LEI Codes in the name of the Counterparties that Financial Entities must obtain in accordance with these Rules, it will be the responsibility of said Counterparties to provide the Local Units with the advanced electronic signatures, tax identification cards and the numbers assigned in accordance with the CASFIM, referred to in this paragraph."

"4th. Administration of LEI Codes by Local Units.

The LEI Code of each Financial Entity and Counterparty must remain under the administration of the Local Unit chosen by the Financial Entity and Counterparty, respectively. Said LEI Codes must be renewed by the respective Financial Entities at the end of one year, counted from the date of issuance by the corresponding Local Unit, in accordance with what is established in the contract they enter into with the respective Local Unit. With respect to the LEI Codes in the name of the Counterparties that Financial Entities must obtain in accordance with these Rules, it will be the responsibility of said Counterparties to renew their LEI Codes in the terms of this paragraph.

To execute Operations, Financial Entities must hold a valid LEI Code. Likewise, without prejudice to the obligation indicated in the first paragraph of the 2nd of these Rules, regarding Operations that Financial Entities have entered into with their Counterparties, they must verify, at least in the month of January of each year, while said Operations remain in force, that the LEI Codes of the Counterparties continue to be valid.

In the event that the information provided by a Financial Entity to a Local Unit for the issuance of its respective LEI Code is modified after such issuance, the Financial Entity must update the referred information with the respective Local Unit or with that to which its administration has been transferred, within thirty natural days following the effective date of the corresponding modification. Likewise, Financial Entities, for the execution of Operations with Counterparties, must require the latter to update with the Local Unit in question the information corresponding to said Counterparties in the same terms provided in this paragraph."

"5th. Conditions for the validity of LEI Codes.

In order for LEI Codes issued by Local Units to be considered valid for the purposes of these Rules, said Local Units must hold the recognition of the Banco de México.

For the purposes of the above, the Banco de México may recognize as Local Units established in national territory those legal entities constituted in accordance with the laws of the United Mexican States, that have obtained accreditation from the Global Foundation to issue, in their capacity as Local Units, LEI Codes under the policies and principles of the Global System, and that meet the following requirements:

I. Observe what is established in these Rules and the Manual;

II. Have an internet page, accessible to the entire public, with the relevant information for the issuance, administration and renewal of the validity of LEI Codes, including the costs referred to in the 7th of these Rules, as well as the information that, where applicable, the Banco de México indicates to them;

III. Issue and, where applicable, administer the LEI Codes of Financial Entities and their Counterparties under the contract they enter into with each of them in terms of the clauses that the Banco de México has determined comply with the provisions of the 7th of these Rules;

IV. Review and validate, prior to the issuance of an LEI Code, as well as the renewal of its validity, the information presented to them by the holder of said LEI Code, in accordance with what is provided in the Manual;

V. Allow the access, use or distribution of public data related to the LEI Codes they have issued, in a public and free manner, in terms of the Manual;

VI. Provide the Banco de México with information relating to the LEI Codes they issue, subject to the consent that, for these purposes, they obtain from the persons to whom they issue said LEI Codes;

VII. Provide the Banco de México with information relating to aspects of their operation as a Local Unit, as well as any other information about their organization and functioning and LEI Codes issued in accordance with these Rules, in the form and terms that this requires. Such information must be delivered to the Banco de México through the means indicated by it, within a period of ten Business Days counted from the date of the respective information request;

VIII. Have security guidelines, operational risk management policies, strategies for evaluating operational continuity processes and contingency plans that adjust to what is established in the Manual;

IX. Allow the Banco de México access to the offices, facilities, equipment and information and communication technology systems they use for the issuance, administration or renewal of the validity of LEI Codes, in order to verify that their operation complies with what is established by these Rules and the Manual;

X. Refrain from establishing restrictions of any type for the receipt and transfer of the administration of LEI Codes issued by any other Local Unit. The above must be observed without prejudice to the review and verification that, for the purposes of the renewal of the validity of the respective LEI Codes, said Local Units require to carry out on the information that Financial Entities and Counterparties present to them, in terms of these Rules, and

XI. Obligate themselves before the subjects in whose name they issue LEI Codes that, in the event that they intend to cease acting as a Local Unit:

a) They will present the corresponding notice to the Banco de México, at least sixty natural days prior to the date on which they cease their activities as a Local Unit. In said notice, they must indicate that other Local Unit that, where applicable, will be in charge of carrying the record, update and renewal of the LEI Codes they have issued, and

b) At the latest on the third Business Day following the presentation of the notice referred to in the previous subsection, they will notify Financial Entities and Counterparties to whom they have issued LEI Codes, their intention to cease acting as a Local Unit and the destination they intend to give to the information they have received from them, as well as inform them of their right to transfer the LEI Codes issued to them to the Local Unit indicated for such effect."

"6th. Conditions for the recognition of the Local Unit by the Banco de México.

The Local Unit established in national territory interested in obtaining the recognition of the Banco de México must prove to it compliance with the conditions established in these Rules. For such purpose, the applicant must present to the General Directorate of International and Special Legal Affairs of the Banco de México the respective request, in terms of the Single Annex of these Rules.

In said request, the Local Unit established in national territory must grant its consent to be subject to what is provided in these Rules and in the Manual.

The applicant must attach to the referred request, at least, the following documentation:

I. Instrument duly notarized by a public notary by which sufficient powers are granted to the representatives of the applicant.

II. Social statutes or draft modification to the current social statutes of the applicant that hold accreditation from the Global Foundation to act as a Local Unit, which must expressly provide, at least, the following:

a) The carrying out of actions that allow its performance as a Local Unit, as part of its object, complying with the obligations established for such purpose in these Rules and the Manual, and

b) Its social domicile in national territory.

III. That which demonstrates that the applicant can comply with the functions of Local Unit, in terms of these Rules and the Manual, which must contain at least, the following:

a) The characteristics of its technological and telecommunications infrastructure, including the technical and security specifications of its operating systems, and

b) The documentation, information and certifications that accredit the characteristics and conditions of the systems, equipment, applications, structures and processes with which the applicant has to carry out its activities as a Local Unit and comply with the obligations provided in these Rules.

IV. Draft contract, in terms of what is provided in the 7th of these Rules, that the applicant intends to enter into in its capacity as Local Unit with Financial Entities and Counterparties for the issuance and administration of LEI Codes.

Once the applicant presents to the Banco de México the documentation and information indicated in this Rule, it will resolve whether it is appropriate to grant its recognition and will inform its decision within a period of ninety natural days.

In the event that, after the period indicated in the previous paragraph, the Banco de México does not communicate its decision to the applicant, it will be understood that it is not appropriate to carry out the requested recognition.

The Banco de México will publish on its internet site located at << http://www.banxico.org.mx/ >> the name of those Local Units to which it grants its recognition, in accordance with what was previously contemplated in this Rule."

"7th. Contracts.

For the purposes of what is provided in the 5th, fraction III, and the 6th, fraction IV, of these Rules, the Local Unit established in national territory interested in obtaining the recognition of the Banco de México must present to it, for its approval, the draft contract it intends to enter into with Financial Entities and with their Counterparties for the issuance and administration of LEI Codes, which must observe the international standards implemented by the Global System. Likewise, the Local Unit that has obtained from the Banco de México the recognition referred to in these Rules must present to it any modification to the terms established in the referred contract, in terms of what is established in these Rules and in the Manual.

...

I. The obligation of the Local Unit to inform Financial Entities and Counterparties with whom it enters into said contract of the procedures it will follow for the provision of the service, including the requirements for the update of information for the issuance of LEI Codes, as well as the description of the manner in which it will guarantee the security and confidentiality of the information they provide to it;

II. to V. ...

VI. The obligation of Financial Entities and Counterparties with whom it enters into the contract to make known to the Local Unit any modification to its internal corporate organization that may affect the functioning of the LEI Code, including the update of the information previously provided to said Local Unit, within a period of ninety natural days subsequent to when such modifications have taken effect, and

VII. The obligation of the Local Unit to inform the Banco de México, as well as Financial Entities and their Counterparties, to whom it has issued LEI Codes, of its intention to cease acting as such, in the terms of the 5th of these Rules. Likewise, the contract must establish the procedure for both Financial Entities and their Counterparties to indicate the Local Unit to which their LEI Codes must be transferred and, for such purpose, it

Wednesday, December 27, 2017 OFFICIAL GAZETTE (First Section)

will establish the obligation of the Local Unit that transfers the LEI Codes to ensure that said LEI Codes remain valid during the transfer process.
Is repealed.”

“8th.
Cessation of recognition of the Local Unit.
The Bank of Mexico will cease to recognize the Local Unit established in national territory that falls under any of the following circumstances:

I. to IV. …

V. The Local Unit in question has not submitted to the Bank of Mexico the model and, if applicable, the modifications of the contract it enters into with Financial Entities and with Counterparties for the issuance and administration of LEI Codes, and

VI. …

Without prejudice to the foregoing, in the event that the Bank of Mexico ceases to recognize a Local Unit established in national territory, Financial Entities may continue to conduct Operations with their Counterparties using the LEI Codes issued by said Local Unit, until the validity of these expires.

In the event that the Local Unit in question falls under any of the circumstances referred to in this Rule, the Bank of Mexico will notify this fact to the effect that it manifests what is appropriate for its rights within a period of 10 business days following the date on which such notification takes effect.”

“9th. Sanctions
The Bank of Mexico will sanction, in accordance with its Law and other applicable provisions, Financial Entities that:

I. to IV. …”

“UNIQUE ANNEX
APPLICATION FOR RECOGNITION AS A LOCAL UNIT
(APPLICANT LETTERHEAD)
Mexico City, __ of _______, 20
International and Special Legal Affairs Management Bank of Mexico Present.

Through this channel, the undersigned, [ FULL NAME ], in my capacity as legal representative of (social name of the petitioner), requests that the Bank of Mexico grant this [ legal nature of the petitioner (company, association, etc.) ] its recognition as a Local Unit established in national territory capable of issuing LEI Codes that meet the conditions established in Circular 14/2015 and its modifications published subsequently, so that they are considered valid for the purposes set forth therein. For these effects, I submit to the consideration of the Bank of Mexico the documentation attached to this document.

To this effect, I declare that the documentation attached by my represented entity complies with the requirements established in the Circular containing the “Rules applicable to the Legal Entity Identifier Code (LEI Code)” and its corresponding Manual.

Likewise, attached to the present document is the documentation that confirms that the person(s) who sign(s) this application have the authority to perform administrative acts to represent (Social Name), which have not been revoked or modified in any way as of the date of submission of this application.

Finally, my represented entity expressly manifests its agreement to be subject to what is provided in Circular 14/2015 and its modifications, as well as the Manual, in force at the time of signing the present for all legal purposes.

Sincerely,

(Social Name)
(Name and signature of the legal representative(s)) (Position(s))”

TRANSITORY

(First Section) OFFICIAL GAZETTE Wednesday, December 27, 2017

UNIQUE.- This Circular will enter into force the day following its publication in the Official Journal of the Federation.

Mexico City, December 21, 2017.- The General Director of Payment Systems and Corporate Services, Lorenza Martínez Trigueros.- Initials.- The General Director of Financial Stability, Pascual Ramón O’Dogherty Madrazo.- Initials.- The General Legal Director, Luis Urrutia Corral.- Initials.

For any queries regarding the content of this Circular, please contact the Management of Authorizations, Queries and Legal Control, at the phone numbers (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000 Ext. 3200.