CIRCULAR 4/2021

TO THE DEPENDENCIES AND ENTITIES OF THE FEDERAL PUBLIC ADMINISTRATION THAT DO NOT HAVE THE CHARACTER OF FINANCIAL INTERMEDIARIES:

SUBJECT: MAINTENANCE OF FOREIGN CURRENCY AND OPERATIONS WITH SUCH CURRENCY BY THE DEPENDENCIES AND ENTITIES OF THE FEDERAL PUBLIC ADMINISTRATION THAT DO NOT HAVE THE CHARACTER OF FINANCIAL INTERMEDIARIES

The Bank of Mexico, with the purpose of continuing to promote the sound development of the financial system, protect the interests of the public, and foster the proper functioning of payment systems, considers it appropriate to establish, in exercise of the powers conferred upon it by its Law, appropriate terms and conditions for foreign currency operations that the dependencies and entities of the Federal Public Administration that do not have the character of financial intermediaries must carry out. Likewise, among the conditions that must be observed to operate with foreign currency, it is appropriate to clearly establish those that must be satisfied to carry out the sale of cash foreign currency that are subject to adjudication in favor of the Mexican State or the Federal Government as a result of legal processes, in order that the financial institutions that acquire them do not assume additional responsibilities and can maintain an efficient operation with said foreign currency.

For the foregoing, based on Articles 28, sixth and seventh paragraphs, of the Political Constitution of the United Mexican States; Articles 24 and 34 of the Bank of Mexico Law; Article 22 of the Law for the Transparency and Ordering of Financial Services; Articles 1, 4, first paragraph, 8, fourth and eighth paragraphs, 10, first paragraph, 14 Bis, first paragraph, in relation with Article 17, fraction I, 14 Bis 1, first paragraph, in relation with Article 25 Bis 1, fraction IV, and 19 Bis, fraction V, of the Internal Regulations of the Bank of Mexico, which grant it the attribution to issue provisions through the General Legal Directorate, the General Directorate of Financial System Affairs, and the National Operations Directorate, respectively; as well as Article Second, fractions I, VI, and X, of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, it has resolved to issue the following:

GENERAL PROVISIONS FOR THE MAINTENANCE OF FOREIGN CURRENCY AND OPERATIONS WITH SUCH CURRENCY BY THE DEPENDENCIES AND ENTITIES OF THE FEDERAL PUBLIC ADMINISTRATION THAT DO NOT HAVE THE CHARACTER OF FINANCIAL INTERMEDIARIES

Scope of Application

Article 1. These Provisions aim to establish the terms and conditions to which the dependencies and entities of the Federal Public Administration that do not have the character of financial intermediaries must be subject, with respect to the maintenance of their Foreign Currency and operations they carry out with it.

In accordance with what is provided by Article 28, second paragraph, of the Hydrocarbons Law, persons who commercialize hydrocarbons in accordance with that article and bring Foreign Currency into the country, as well as Petróleos Mexicanos, its subsidiary productive companies, and any other assignee referred to in that Law, shall be subject to the provisions that the Bank of Mexico issues regarding said subjects. In virtue thereof, these Provisions shall not be applicable to the subjects referred to in this paragraph.

Definitions

Article 2. For brevity, for the purposes of these Provisions, the terms with initial capital letters used in these, in singular or plural, shall have the meanings indicated below, without prejudice to the different treatment given to similar terms in other regulations:

Banking Business Days: The days in the calendar on which credit institutions are not obligated to close their doors or suspend operations, in terms of the general provisions issued for such effect by the National Banking and Securities Commission.

Foreign Currency: Those indicated in the first paragraph of Article 20 of the Bank of Mexico Law.

Obligated Subjects: The dependencies and entities of the Federal Public Administration that do not have the character of financial intermediaries.

Foreign Currency Disposition Operations

Article 3. The Obligated Subjects may dispose of the Foreign Currency under their administration with those financial institutions authorized to carry out said operations that have determined to offer said operations to the respective Obligated Subjects. The aforementioned dispositions shall be subject to the terms and conditions that, for these purposes, the Obligated Subjects agree upon with the respective financial institutions.

In the event that the Foreign Currency are subject to guarantees decreed by competent authorities or are subject to the extinction of domain procedure, under the applicable legal processes, the Obligated Subject responsible for the administration of said Foreign Currency may dispose of them to the financial institutions authorized for such purpose, once those Foreign Currency have been abandoned in favor of the Federal Government, by definitive declaration, or are subject to confiscation or extinction of domain by a final and binding judgment. In these cases, the transfer of ownership of the respective Foreign Currency in favor of the Federal Government or the State, through the corresponding declaration or judgment, must be final, irreversible, and irrevocable.

The Obligated Subject that falls under the circumstance described in the preceding paragraph, when requesting a financial institution to carry out the disposition of the referred Foreign Currency, must confirm to the institution that the legal status of the Foreign Currency corresponds to one of those indicated in said paragraph, as well as present, if the financial institution requests it, the declaration or judgment that accredits its status. Likewise, in the event that the financial institution in question requires it, the referred Obligated Subject must grant its consent for that institution to share the information regarding the referred legal status with those other institutions with whom it maintains correspondent relationships to process the respective Foreign Currency.

Refusal to Conclude Operations with Foreign Currency of Obligated Subjects

Article 4. Without prejudice to the power of financial institutions to refuse to conclude with the Obligated Subjects the foreign currency purchase operations referred to in these Provisions, in the event that such institutions refuse to conclude such operations with them regarding the Foreign Currency of the latter, such Obligated Subjects may inform the Bank of Mexico of this circumstance through electronic communication sent in the terms and with the detail that the Bank of Mexico establishes for such purposes through the Financial System Information Directorate, in order for the Bank of Mexico to resolve the actions that are deemed appropriate.

The aforementioned communication must include, at least, the following information:

a) The corporate name of the financial institutions that have refused to carry out the corresponding foreign currency disposition operation; b) The amount of the required operation; c) The Foreign Currency involved in the operation; d) The date on which the referred institutions communicated their refusal to conclude the operation, and e) The reasons adduced by the financial institutions in question to refuse the disposition of Foreign Currency.

The Bank of Mexico may require the Obligated Subjects to provide information additional to that indicated above, in order to have sufficient elements for the exercise of its powers.

Information to the Bank of Mexico on Foreign Currency Disposition Operations

Article 5. The Obligated Subjects must inform the Bank of Mexico about each foreign currency disposition operation of the Foreign Currency under their administration that they conclude with any of the financial institutions, through electronic communication sent in the terms and with the detail that the Bank of Mexico establishes for these purposes through the Financial System Information Directorate, no later than the fifth Banking Day following the date of the conclusion of the disposition operation in question.

The communication referred to in the preceding paragraph must include, at least, the following information:

a) The corporate name of the financial institution with which the operation was concluded; b) The amount of the operation; c) The Foreign Currency involved in the operation; d) The exchange rate applied to the operation; e) The date of conclusion, and f) The settlement date.

Without prejudice to the foregoing, the Bank of Mexico may require the Obligated Subjects in question to provide additional information that it considers pertinent related to their operations with Foreign Currency.

In the event that, from the information that each Obligated Subject transmits to the Bank of Mexico, or from that which the latter obtains in the exercise of its legal, regulatory, and administrative powers, acts or operations are derived that, in its judgment, could have some effect on the foreign exchange market, the Bank of Mexico will make known to said Obligated Subject the guidelines to which it must be subject.

TRANSITORY

SINGLE. This Circular shall enter into force on the Banking Day following its publication in the Official Gazette of the Federation.

Mexico City, May 7, 2021.- BANK OF MEXICO: The General Legal Director, Luis Urrutia Corral.- Signature.- The General Director of Financial System Affairs, José Luis Negrín Muñoz.- Signature.- The Director of National Operations, Juan Rafael García Padilla.- Signature.

For any inquiries regarding the content of this Circular, the Bank of Mexico is at your disposal through the Central Bank Authorizations and Sanctions Directorate at telephone number (55) 5237-2000 extension 3200.