Program for Identification, Review, and Inspection of Disposal Medium Networks

PROGRAM FOR IDENTIFICATION, REVIEW, AND INSPECTION OF DISPOSAL MEDIUM NETWORKS

A. Background.
As a result of the publication in the Official Gazette of the Federal Republic of the "Decree by which various provisions in the financial matter are reformed, added, and repealed, and the Law for Regulating Financial Groupings is issued" in the Official Gazette of the Federal Republic on January 10, 2014, and regarding the modifications contained in the Law for Transparency and Orderly Conduct of Financial Services (LTOSF), the transitional provisions of the aforementioned decree established that the National Banking and Securities Commission (CNBV), within 45 natural days following its entry into force, must establish a "Program for Identification, Review, and Inspection" of the Disposal Medium Networks currently in operation.

B. General Approach
The objective of the program is to incorporate Participants of Disposal Medium Networks into the CNBV's supervisory schemes, in order to ensure that they comply with the provisions applicable. Additionally, once their supervision is underway, it will be possible to identify areas of opportunity for the regulation of the sector to make effective the principles established by the LTOSF itself: Promotion of Competition; Free Access; Non-Discrimination, and Protection of Users.

The program will consist of 4 stages:

1. Process of identification, registration, and analysis of Participants.
2. Definition of methodology for review and inspection of Participants.
3. Inspection of Networks and Participants.
4. Strategic analysis – feedback.

C. STAGE 1: Identification, registration, and analysis.
The identification of the different networks and Participants will be carried out through 2 simultaneous channels:
a) The CNBV will require the different supervised financial entities, a list of all Disposal Medium Networks of which they are part, as well as a list of Participants with whom they maintain contractual relationships related to the operation of the aforementioned network, all in terms of the definitions established for this effect by the LTOSF. b) Persons who meet the definitions of Disposal Medium Networks or Participants in Disposal Medium Networks of the LTOSF may present themselves before the CNBV for identification.

The CNBV will analyze this information and determine which of these Persons must, in attention to their importance within the aforementioned Network, provide it, among other things, the following information:

• Regarding persons other than supervised financial entities:

1. Name and corporate name.
2. Articles of incorporation, if applicable.
3. Information on shareholders, if applicable (name, corporate name or trade name, nationality, shareholding participation, etc.).
4. Brief exposition of their corporate history.

• For all cases:

5. Description of their business scheme as a Participant in the Disposal Medium Network (target market, geographic coverage, etc.).
6. Other Participants or Networks with whom they maintain business relationships.
7. Detailed description of the products or services offered as a participant in the Disposal Medium Network.
8. Main clients in their capacity as Participant in the Disposal Medium Network.

The combination of these efforts will allow confirming the information received with that which the CNBV has derived from the exercise of its supervisory powers, as well as detecting the magnitude of the universe of Networks and Participants. Based on this information, it will be possible to have a complete catalog of existing Networks and Participants, as well as create the conditions that make it possible to initiate the supervisory relationship with the new subjects.

D. STAGE 2: Definition of methodology for the "Review and Inspection" of Disposal Medium Networks and their Participants.
Risk-based approach.

The review and inspection of Networks and Participants mandated by the LTOSF will start from the analysis of the information received in the Identification process in order to determine, from a risk-based perspective, the priorities in terms of supervision and thus optimize the resources of the CNBV and schedule inspection activities (in-situ and extra-situ).

Specific supervision methodology for Networks and Participants.
The supervision carried out by the CNBV of Networks and their Participants will focus on the following:
a) Compliance with applicable legal provisions.
This, with special emphasis on compliance with the mandate contained in the following subsections of article 4 Bis 3 of the LTOSF:

• Subsection III. Non-Discrimination. Establishes that the CNBV and the Bank of Mexico (Banxico) will intervene to prevent:
• Less favorable treatment is given to any third party under equal circumstances based on any concept.
• Discriminatory practices, policies, or charges are established, whether due to the characteristics of the third party or client, the Disposal Medium used, or the identity of the Issuing Entity, acquirer, or other accessories of the particular operation, except in those cases justified by differentials in the costs to provide the service in question, provided they are verifiable.
• Differentiated requirements, terms, or conditions are established for persons or operations under the same circumstances.
• Subsection IV. Protection of Users' Interests. Establishes that the CNBV will safeguard the protection of the holders of Disposal Mediums and of Businesses; ensuring:
• Transparency in the charging of Commissions, fees, or charges of any kind, both for each operation, which includes any type of right or prohibition under which these are instrumented, as well as at the level of periodic reports on the Internet page and also to the CNBV and Securities Commission for their periodic comparative publication.
• That there are no multiple charges, direct or indirect, or by various persons for the same operation or concept.
• That the level of any Interchange Fees or Commissions is adequate for the promotion of the use of Disposal Mediums and is not discriminatory, due to the nature, size, or any other circumstance.
• That the level of any Fees, including Interchange Fees, does not formally or in practice establish inadequate "floors" or "minimums" in the charging to businesses or Clients.

b) Observance of the Joint Banxico-CNBV Rules, derived from article 4 bis 3 of the LTOSF. c) Creation of regulatory reports.

E. STAGE 3: Inspection of Networks and Participants.
Once the universe of Participants and Networks has been determined, as well as the applicable supervision methodologies, the CNBV will advance in its supervision, based on the following order:

• Phase 1: Participants of the credit and debit card payment network.
• Phase 2: Access channels of the credit and debit card payment network (for example: ATMs and mobile devices).
• Phase 3: Transfers (direct debits) and Checks.
• Phase 4: Determination of new Disposal Medium Networks.

F. STAGE 4: Strategic analysis.
Finally, the supervision activities must also focus on the detection and analysis, from a legal (LTOSF) and risk perspective, of the following situations:

• Entry barriers for new Participants (interoperability aspects, among others).
• Interrelation and dependence of other Participants.
• Existence of elements of systemic importance in Networks.
• Cost scheme.
• Functionality of the operation scheme.
• Anti-competitive or discriminatory schemes.

Based on this analysis, the CNBV's supervision may determine new regulatory measures, as well as ad hoc interventions in order to promote the adequate development of the aforementioned Networks.