Tag Archive for: crypto business

It’s Time to Move Your Crypto Business out of the United States
Christian Reeves

It’s Time to Move Your Crypto Business out of the United States

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Setting up a cryptocurrency exchange or an Exchange-Traded Fund (ETF) in the United States can be challenging due to the regulatory environment. The U.S. Securities and Exchange Commission (SEC) has been reluctant to approve Bitcoin ETFs and has called recent applications inadequate. 

They believe that these applications have not been specific enough about how they will manage a “surveillance-sharing agreement,” which is meant to deter fraud and manipulation by ensuring the fund issuer is monitoring market trading activity, clearing activity, and customer identity. The SEC has stated that all Bitcoin ETF applications have fallen short in this regard. Additionally, the SEC has concerns about the price of Bitcoin being open to manipulation, which is one of the main reasons they have been hesitant to approve a spot Bitcoin ETF​.

Bermuda, on the other hand, has been striving since 2018 to be a FinTech hub for regulated digital asset businesses. The island has established and clear regulatory frameworks for investment funds and digital asset businesses, making it an attractive location to set up a digital asset or blockchain fund. Some of the benefits of Bermuda include a world-class financial center, innovative and flexible structures with a robust legal and regulatory compliance framework, quality and expertise of service providers, ease of doing business, and a stable political climate​.

Bermuda offers a variety of fund structures, including private funds, professional class A and B funds, and standard funds. Depending on the investment strategy and investor type, different structures may be more optimal. Importantly, all funds are required to seek permission from the Bermuda Monetary Authority (BMA), and directors and service providers need to be ‘fit and proper’. There’s no requirement for directors to be registered with the BMA. If the equity interests of the fund are to be tokenized, the BMA would still consider the fund to be offering equity interests, requiring BMA registration​​.

Service providers that your fund may need to engage include a registered office provider, an administrator and custodian, an auditor, independent directors, and individuals to handle FATCA and Anti-Money Laundering and Anti-Terrorist Financing Requirements. Bermuda has legislation in place to accommodate these needs​.

Bermuda was a pioneer in the digital asset sector and implemented its digital asset legislation in 2018, which established the foundation for a comprehensive legislative and regulatory framework designed to support growth in the financial technology (Fintech) Sector. The Digital Asset Business Act 2018 (“DABA”) and the Digital Asset Issuance Act 2019 (“DAIA”) regulate ‘digital asset business’ activities conducted in or from within Bermuda. However, funds pursuing a digital asset and/or blockchain-focused strategy would not be subject to DABA or DAIA unless such an investment fund conducts a public sale of its tokenized equity interests​​.

Employee Requirements

There is a requirement to have employees in Bermuda if you operate a digital asset business or crypto business in Bermuda. The Bermuda Monetary Authority (BMA) requires all licensed digital asset businesses to have a senior representative who is resident in Bermuda. The senior representative must be knowledgeable in digital asset business and related Bermuda laws and regulations. They must also be able to report to the BMA on the activities of the licensed business.

In addition to the senior representative, the BMA also requires licensed digital asset businesses to have a minimum of two other employees who are resident in Bermuda. These employees must be responsible for the day-to-day operations of the licensed business.

The BMA’s requirement for employees in Bermuda is designed to ensure that licensed digital asset businesses have a physical presence in the country and that they are subject to the BMA’s supervision. This helps to protect investors and ensure that licensed digital asset businesses are operating in a compliant manner.

There are some exceptions to the BMA’s requirement for employees in Bermuda. For example, the BMA may allow a licensed digital asset business to have a senior representative who is resident outside of Bermuda if the business can demonstrate that it has adequate controls in place to ensure compliance with Bermuda’s laws and regulations.

Capital Requirements

The capital requirements for setting up a digital asset business or cryptocurrency exchange in Bermuda vary depending on the type of business. However, the Bermuda Monetary Authority (BMA) typically requires businesses to have a minimum of $100,000 in paid-up capital.

The following are the capital requirements for different types of digital asset businesses in Bermuda:

  • Digital Asset Custodian: $100,000
  • Virtual Currency Exchange: $100,000
  • Digital Asset Dealer: $100,000
  • Digital Asset Platform Operator: $100,000
  • Digital Asset Market Maker: $100,000

The BMA may require additional capital for businesses that are considered to be higher risk. For example, the BMA may require a business that is involved in margin trading to have a higher level of capital.

The BMA also requires businesses to maintain a certain level of capital throughout their operations. This means that businesses must maintain a minimum level of capital in their accounts and must be able to demonstrate that they have the ability to meet their financial obligations.

The capital requirements for digital asset businesses in Bermuda are designed to ensure that businesses have the financial resources to operate in a compliant manner and to protect investors. If you are considering setting up a digital asset business or cryptocurrency exchange in Bermuda, you should contact the BMA to discuss your specific requirements.

Conclusion 

Please contact me at info@premieroffshore.com for more information on setting up a cryptocurrency exchange or digital asset business. Keep in mind that only the best applicants will receive a license as Bermuda fights to ensure it doesn’t become the next Bahamas. 

Christian Reeves

How to Set Up a Crypto Exchange in Bermuda

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Bermuda has quickly emerged as a leading jurisdiction for digital asset businesses and cryptocurrency exchanges. The island has a number of advantages that make it an attractive destination for these businesses, including:

  • A comprehensive regulatory framework: Bermuda has a comprehensive regulatory framework for digital assets, which is designed to promote innovation while also protecting investors and consumers. The Bermuda Monetary Authority (BMA) is the primary regulator of digital asset businesses in Bermuda.
  • A stable political and economic environment: Bermuda has a stable political and economic environment, which provides businesses with the certainty they need to operate successfully.
  • A skilled workforce: Bermuda has a skilled workforce with experience in the financial services industry. This makes it easier for digital asset businesses to find qualified employees.
  • A favorable tax regime: Bermuda has a favorable tax regime for digital asset businesses. This can help businesses to reduce their tax liability.
  • A supportive government: The Bermuda government is supportive of the digital asset industry. The government has taken steps to promote the growth of the industry, such as establishing a regulatory sandbox for digital asset businesses.

These advantages have made Bermuda an attractive destination for a number of leading digital asset businesses and cryptocurrency exchanges. In recent months, Coinbase, the world’s largest cryptocurrency exchange, has moved its international headquarters to Bermuda. Jewel, a crypto-friendly bank, is also headquartered in Bermuda.

If you are considering setting up a digital asset business or cryptocurrency exchange, Bermuda is a jurisdiction that you should seriously consider. The island has a number of advantages that can make it the best place to do business.

Why Setup a Crypto Exchange in Bermuda

Here are some specific reasons why Bermuda is a good jurisdiction for digital asset businesses and cryptocurrency exchanges:

  • The BMA is a forward-thinking regulator: The BMA has been proactive in developing a regulatory framework for digital assets. The BMA’s Digital Asset Business Act 2018 is one of the most comprehensive and progressive digital asset regulations in the world.
  • Bermuda has a strong track record in financial services: Bermuda is a well-established international financial center with a long history of providing financial services. This gives digital asset businesses and cryptocurrency exchanges access to a mature and sophisticated financial market.
  • Bermuda is a stable and secure jurisdiction: Bermuda is a stable and secure jurisdiction with a strong rule of law. This provides digital asset businesses and cryptocurrency exchanges with the confidence they need to operate successfully.
  • Bermuda has a skilled workforce: Bermuda has a skilled workforce with experience in the financial services industry. This makes it easier for digital asset businesses and cryptocurrency exchanges to find qualified employees.
  • Bermuda has a favorable tax regime: Bermuda has a favorable tax regime for digital asset businesses and cryptocurrency exchanges. This can help businesses to reduce their tax liability.

Overall, Bermuda is a good jurisdiction for digital asset businesses and cryptocurrency exchanges. The island has a number of advantages that can make it the best place to do business.

Existing Digital Asset Businesses in Bermuda

As of March 2023, there are 23 licensed digital asset businesses in Bermuda. These businesses offer a variety of services, including:

  • Digital asset trading
  • Digital asset custody
  • Digital asset issuance
  • Digital asset advisory services

The majority of these businesses are located in Hamilton, the capital of Bermuda. However, there are also a number of businesses located in other parts of the island. I also note that many were set up prior to the tightening of regulations. These days, you need more capital, more compliance systems, better management, and a top quality business plan to be approved.

Here are some of the digital asset businesses that are licensed in Bermuda:

  • Coinbase
  • Coinfloor
  • EQONEX
  • Genesis Global Trading
  • iFinex (Bitfinex)
  • LedgerPrime
  • Omniex
  • Paxos
  • SFOX
  • Tether

Requirements to Build a Crypto Exchange in Bermuda

The Bermuda Monetary Authority (BMA) is the primary regulator of digital asset businesses in Bermuda. The BMA has a number of requirements that digital asset businesses must meet in order to be licensed. These requirements include:

  • Having a sound business plan
  • Having adequate risk management procedures in place
  • Providing clear and accurate information to customers
  • Maintaining adequate records

The BMA has been actively promoting Bermuda as a jurisdiction for digital asset businesses. The BMA has a number of initiatives in place to support the growth of the digital asset industry in Bermuda. These initiatives include:

  • A regulatory sandbox for digital asset businesses
  • A mentorship program for digital asset businesses
  • A training program for digital asset professionals

The BMA is committed to creating a regulatory environment that is conducive to the growth of the digital asset industry in Bermuda. The BMA believes that Bermuda has the potential to become a leading jurisdiction for digital asset businesses.

Capital Requirements and Costs to Open a Crypto Exchange in Bermuda

Here are the capital requirements and filing fees for setting up a crypto exchange or digital asset business in Bermuda:

  • Capital requirements: The capital requirements for a digital asset business license in Bermuda vary depending on the type of license. For the Test license, the minimum capital requirement is $50,000. For the Modified license, the minimum capital requirement is $100,000. For the Full license, the minimum capital requirement is $250,000.
  • Filing fees: The filing fees for a digital asset business license in Bermuda also vary depending on the type of license. For the Test license, the filing fee is $1,000. For the Modified license, the filing fee is:
    • $15,000 if estimated client receipts are less than $500,000
    • $30,000 if estimated client receipts are between $500,000 and $1 million
    • $45,000 if estimated client receipts are greater than $1 million
  • Estimated client receipts: The estimated client receipts are the gross revenue earned in the year preceding the year of assessment arising from digital asset business services provided or product sales to clients by a licensed undertaking.

For example, if you are applying for a Full (F) License and your estimated client receipts are $1 million, the filing fee would be $200,000.

The filing fee is payable upon submission of the application. The BMA will not review your application until the filing fee has been paid.

In addition to the capital requirements and filing fees, there are other costs associated with setting up a crypto exchange or digital asset business in Bermuda. These costs include:

  • Legal fees (typically $250,000)
  • Background Reports on all Shareholders (typically $5,000 to $10,000 per person)
  • Accounting fees and audit fees (preparing your personal or corporate financial statements and converting them to GAAP, if applicable)
  • Office, employees, and other G&A startup expenses.

The total cost of setting up a crypto exchange or digital asset business in Bermuda will vary depending on the size and complexity of the business. However, the capital requirements, legal fees, background reports, and filing fees are the most significant costs.

Conclusion
I hope you’ve found this post on building a crypto exchange in Bermuda to be helpful. If you would like more information, including a detailed quote, please contact me at info@premieroffshore.com. I will be happy to assist you to build your digital asset business in Bermuda.

Setting up a Swiss Crypto Exchange or Fintech Business
Christian Reeves

Setting up a Swiss Crypto Exchange or Fintech Business

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In this post, I’ll look at setting up a Swiss Crypto Exchange or fintech business using a fintech license or as a Qualified Intermediary. It is also possible to operate as a full bank in this capacity, but this is beyond the scope of this article. 

Introduction

Operating a cryptocurrency exchange in Switzerland involves dealing with financial transactions and requires a thorough understanding of the Swiss regulatory environment.

Here are some considerations about licensing:

  1. Banking License: If your exchange operates in a way that it accepts public deposits (which may occur if you hold customers’ fiat currencies or cryptocurrencies), you might need a banking license from the Swiss Financial Market Supervisory Authority (FINMA). However, obtaining a full banking license can be a lengthy and expensive process.
  2. FinTech License: To cater to the needs of the growing fintech industry, including cryptocurrency businesses, FINMA introduced a new regulatory category in 2019 called the “FinTech” license, or “banking license light”. This license allows institutions to accept public deposits of up to CHF 100 million, provided they do not invest these deposits and do not pay any interest on them.
  3. Securities Dealer License: If your exchange is dealing with security tokens, it might need a securities dealer license.
  4. AML Regulations: Independent of the license type, any cryptocurrency exchange operating in Switzerland is required to comply with the Anti-Money Laundering (AML) Act. They must either join a self-regulatory organization (SRO) for AML purposes or be directly supervised by FINMA.

However, the specific licenses required can vary depending on the exact nature of your business, including the types of assets you’re dealing with (cryptocurrencies, security tokens, etc.), the services you offer, and the way your business operates. Furthermore, Switzerland has a highly decentralized political system, and there may be additional cantonal requirements to consider.

Setting up a Crypto Exchange in Switzerland

Here are the general steps you’d need to follow to open a cryptocurrency exchange in Switzerland. These steps may change over time as legislation evolves, so always consult with a local legal expert for the most up-to-date information.

1. Set Up a Swiss Company: In general, a crypto exchange must be registered as a Swiss company, which typically takes the form of a public limited company (AG) or a limited liability company (GmbH). The company must have a registered office in Switzerland. See Aged Swiss Trust below.

2. Membership in a Self-Regulatory Organization (SRO): Switzerland operates a dual system of financial market regulation, composed of federal regulation by the Swiss Financial Market Supervisory Authority (FINMA) and self-regulation by SROs. Depending on the type of financial service offered, crypto businesses must either become members of an SRO or be directly supervised by FINMA.

3. Apply for Necessary Licenses: If the exchange intends to accept public deposits, it will usually need a banking license. Additionally, if the exchange also operates as a securities dealer, it will need a securities dealer’s license. These licenses are granted by FINMA. Crypto exchange businesses might also be subject to the Swiss Anti-Money Laundering (AML) Act, which would require a FINMA license under the AML Act.

Switzerland has introduced a new licensing category called the “FinTech” license, or “banking license light”. This new regulatory category allows institutions to accept public deposits of up to CHF 100 million, provided they do not invest these deposits and do not pay any interest on them. These new FinTech licenses are less expensive and less complicated to obtain than a full banking license.

The requirements for the FinTech license are:

  • Having the necessary organization, qualified staff, and appropriate infrastructure.
  • Complying with the Anti-Money Laundering Act.
  • Keeping customer deposits fully segregated from the business’s operating capital.
  • Ensuring a minimum capital of 3% of the accepted public funds, but no less than CHF 300,000.
  • Compliance with Local Laws: Compliance with local laws and regulations is essential, especially regarding money laundering and securities regulations. Companies may also need to comply with other rules related to taxation, data protection, and consumer protection.

4. Secure Necessary Funding: Operating a crypto exchange can be capital-intensive. Aside from regulatory capital requirements, businesses will need enough funding to build their platform, employ staff, and cover operational costs.

5. Build Relationships with Banks: Crypto exchanges typically need relationships with banks to handle customer deposits and withdrawals. In Switzerland, finding a bank that will work with a crypto business can sometimes be a challenge.

6. Build and Test Your Platform: Before launching, you’ll need to build and thoroughly test your exchange platform. This typically involves software development and cybersecurity considerations.

7. Launch and Market Your Exchange: Once all legal and technical requirements have been met, you can launch your exchange. Ongoing marketing will likely be necessary to attract users to your platform.

Qualified Financial Intermediaries

As per the Anti-Money Laundering Act (AMLA) of Switzerland, a Qualified Financial Intermediary (QFI) is a financial intermediary that either is directly supervised by the Swiss Financial Market Supervisory Authority (FINMA), or is a member of a self-regulatory organization (SRO) recognized by FINMA for the purpose of money laundering supervision.

The term “financial intermediaries” is broadly defined and can include not only banks, insurance institutions, and securities dealers, but also entities such as asset managers, collective investment schemes, and even certain types of fintech companies. These intermediaries need to comply with the Swiss AMLA.

As per Paragraph 2, Section 3 of the AMLA, a financial intermediary is obliged to join a self-regulatory organization (SRO) or to submit to direct supervision by FINMA.

In practical terms, financial intermediaries supervised under AMLA have to comply with duties such as:

  1. Due diligence obligations: They are obliged to verify the identity of their contracting party and, where necessary, establish the identity of the beneficial owner.
  2. Record-keeping: They have to keep records that fully reflect all transactions in such a way that third parties can understand them within a reasonable period of time.
  3. Clarification obligations: In the case of business relationships or transactions which appear unusual or in the case of suspicions of money laundering, a financial intermediary must clarify the economic background and the purpose of these transactions or relationships and document the results.

The licenses are used to enable financial intermediaries to conduct their business within the legal framework of Switzerland. Once a company is classified as a QFI, it is authorized to perform activities like accepting and holding deposits, lending, securities dealing, asset management, and more, depending on the specifics of the license. However, the company is obliged to comply with AMLA and other relevant regulations.

Using an Aged Swiss Trust for a Crypto Exchange or Fintech Business

Establishing a cryptocurrency exchange or a fintech business under an aged Swiss trust or “shelf corporation” can have several advantages:

  1. Established History: An aged corporation is a company that has been around for a while, which can make it appear more credible to customers, business partners, and banks. This is particularly beneficial in the fintech and crypto space, where trust is crucial.
  2. Business Relationships: Existing corporations may already have established relationships with banks, suppliers, and other business partners. These relationships can be leveraged when launching new services, like a crypto exchange.
  3. Speed of Setup: Aged corporations are already registered and have fulfilled all necessary legal requirements, so they can be faster to set up compared to starting a new company from scratch. This can help your business get to market more quickly.
  4. Easier Access to Credit and Investment: Some banks and investors see older corporations as less risky, which can make it easier to obtain credit or attract investment.
  5. Regulatory Approval: Regulatory bodies may view older corporations more favorably, which could potentially facilitate the process of obtaining necessary licenses.
  6. Corporate Image: As you mentioned, the age of a company can help improve the business’s image with customers and with business partners, systems providers, and correspondent banking partners. It can provide a sense of stability and reliability.

However, it’s important to keep in mind that there are also potential drawbacks to using an aged corporation. For example, you may inherit liabilities from the previous operation of the company, or there may be additional due diligence required to ensure the company’s previous operations were in good standing. Additionally, an aged corporation may be more expensive to purchase than setting up a new corporation.

Moreover, regardless of the age of the company, compliance with local regulations, including obtaining the necessary licenses and ensuring adherence to anti-money laundering (AML) regulations, is still required.

Conclusion

In conclusion, setting up a cryptocurrency exchange in Switzerland can be a complex process that requires thorough preparation and a deep understanding of the regulatory landscape. However, with the right approach and guidance, it’s possible to navigate this process and establish a successful business.

It’s strongly recommended to seek advice from legal experts and professionals who are familiar with Swiss fintech regulations and the process of setting up a business in Switzerland. This way, you can ensure that your business is fully compliant with all relevant laws and regulations, and set up for success in the long term.

For more information on acquiring an aged Swiss Trust and building an exchange or fintech in Switzerland, please contact us at info@premieroffshore.com 

Selling Bitcoin for Cash in Canada
Christian Reeves

Selling Bitcoin for Cash in Canada

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In this post, I will look at selling Bitcoin for cash in Canada. The bottom line is that it’s legal to sell Bitcoin for cash in Canada so long as you watch out for cash buyers with illegal businesses looking to launder their drug proceeds (for example). We don’t want to get involved with any buyer that could be a target of law enforcement.

Introduction: 

There is no law in Canada that specifically prohibits the sale of Bitcoin for cash. However, there are some laws that could apply to this activity. For example, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) require businesses that deal in cash to report suspicious transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). This means that if you sell a large amount of Bitcoin for cash, you may be required to report the transaction to FINTRAC.

Cash Transactions Over the Limit

In addition to the PCMLTFA, there are also some provincial and territorial laws that restrict cash transactions. For example, in Ontario, cash transactions over $10,000 are required to be reported to the Ministry of Finance. In British Columbia, cash transactions over $5,000 are required to be reported to the Financial Institutions Commission of British Columbia.

What to Do If You Are Selling Bitcoin for Cash

If you are selling Bitcoin for cash, it is important to be aware of the laws that apply to this activity. You should also be prepared to report any suspicious transactions to FINTRAC. If you are unsure about the laws that apply to your situation, you should consult with an attorney.

Here are some tips for staying compliant with the law when selling Bitcoin for cash:

  • Keep good records of all cash transactions. This includes the date, time, amount, and identity of the person who sold you the Bitcoin.
  • Report any suspicious transactions to FINTRAC. This includes transactions that are large, unusual, or appear to be related to criminal activity.
  • Be aware of the provincial and territorial laws that restrict cash transactions.
  • Consult with an attorney if you have any questions about the laws that apply to your situation.

By following these tips, you can help to ensure that you are staying compliant with the law when selling Bitcoin for cash.

Review:

As the world becomes more digitally inclined, Bitcoin and other cryptocurrencies have grown in popularity and usage. This shift has resulted in governments worldwide, including Canada, taking steps to regulate this emerging financial landscape. In this article, we will explore the legal nuances around selling Bitcoin for cash and the implications of cash transactions that exceed established limits in Canada.

Regulations Around Selling Bitcoin for Cash

Selling Bitcoin for cash is legal in Canada. However, certain regulations govern this process to ensure transparency, prevent fraud, and curb money laundering. Bitcoin is generally considered a commodity by the Canadian government and is thus subject to the barter transaction rules under the Income Tax Act.

Those involved in Bitcoin transactions are also subject to regulations stipulated by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). As part of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), businesses dealing with cryptocurrencies, including Bitcoin, must register with FINTRAC. This registration requires the implementation of certain protocols, such as verifying the identities of those involved in transactions, maintaining detailed transaction records, and reporting any suspicious transactions to the authorities.

Cash Transaction Limits

Cash transaction limits are another crucial factor in the legal landscape surrounding Bitcoin sales for cash. In Canada, any business that receives $10,000 or more in cash in a single transaction, or two or more transactions that total $10,000 or more within a 24-hour period, is legally obligated to report such transactions to FINTRAC. This rule applies to both Bitcoin-cash exchanges and traditional cash transactions.

These businesses must also keep detailed records of cash transactions exceeding this threshold. The information usually includes the identities of those involved, details of the transaction, and any suspicious activities. Non-compliance with these requirements can lead to severe penalties, including hefty fines and criminal charges.

Implications and Considerations

While the regulatory framework in Canada allows for Bitcoin transactions and sales, it is crucial to understand that this landscape can be complex. The government has clear guidelines to prevent illicit activities such as money laundering and fraud. For individuals or businesses involved in selling Bitcoin for cash, it is advisable to keep abreast of the latest developments in the law and maintain transparency in all dealings.

Additionally, as Bitcoin transactions fall under the umbrella of barter transactions, they are subject to taxation. Thus, all Bitcoin transactions should be duly reported in income tax filings.

It’s important to note that legal regulations and guidelines may have changed beyond this information, last updated in September 2021. Therefore, it’s recommended to seek professional financial or legal advice for the most accurate and current information.

In conclusion, the sale of Bitcoin for cash in Canada is generally permissible, provided that all transactions adhere to the country’s legal and financial regulations. Complying with these rules helps maintain a transparent and robust financial system that can leverage the potential of cryptocurrencies like Bitcoin while mitigating associated risks.

doing business in mexico
Christian Reeves

An Inside Look at the Business Climate in Mexico for FinTech and Crypto Businesses

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The dynamic business landscape in Mexico is offering fertile ground for both FinTech and crypto businesses. Driven by a potent mix of regulatory evolution, market potential, and consumer demand, Mexico has emerged as one of Latin America’s hotspots for these disruptive technologies. Here’s a look at the vibrant business climate in Mexico for FinTech and crypto enterprises.

Mexico’s Favorable Regulatory Landscape

In 2018, Mexico established itself as a regional pioneer by enacting the first FinTech Law in Latin America. This comprehensive legislation provides a regulatory framework for companies in the FinTech space, including crypto businesses, ensuring their operations’ safety, security, and transparency.

Under the law, FinTech companies can operate as Financial Technology Institutions (ITFs), while crypto-related businesses must be authorized by the Mexican Central Bank (Banxico). The law paves the way for increased consumer protection, fosters competition, and encourages financial inclusion.

While there are still aspects of the law that require further clarification, its presence symbolizes the government’s commitment to fostering an environment conducive to FinTech and crypto innovation.

Untapped Market Potential

Despite significant strides in financial inclusion, a substantial portion of Mexico’s population remains unbanked or underbanked. These individuals and businesses, underserved by traditional financial institutions, represent a considerable untapped market for FinTech and crypto businesses.

FinTech solutions, including digital wallets, peer-to-peer lending platforms, and microfinance services, offer a potential route to financial inclusion. Simultaneously, cryptocurrencies, by their decentralized nature, can provide an accessible alternative for individuals who struggle to access traditional banking services.

Consumer Demand

Mexico’s digital economy is growing, with increasing internet and smartphone penetration. The demand for digital financial solutions, from online banking and digital payments to investment platforms, is on the rise.

Furthermore, the younger demographics of Mexico are more open to adopting these new technologies, creating a vast user base for FinTech and crypto businesses. Crypto, in particular, is gaining popularity among millennials and Generation Z due to its potential for quick returns and its decentralized, global nature.

Crypto Climate

Despite regulatory uncertainty in many countries, Mexico’s attitude towards crypto has been mostly positive. While Banxico does not consider cryptocurrencies as legal tender, it acknowledges their use as a medium of exchange, unit of account, and store of value.

Mexico’s crypto market is rapidly growing, with several crypto exchanges operating in the country. Mexicans use cryptocurrencies for various purposes, including remittances, a sector where cryptocurrencies can offer quicker and cheaper cross-border transfers.

However, it’s important to note that crypto businesses must adhere to strict regulations, particularly concerning money laundering and customer protection. Crypto businesses planning to launch in Mexico should prepare for rigorous compliance procedures, including getting authorization from Banxico and implementing robust KYC (Know Your Customer) protocols.

Market Demand for Fintech and Crypto Businesses

The market for FinTech companies in Mexico has grown significantly in recent years, fueled by a convergence of economic, technological, and demographic factors. As of 2021, Mexico is considered the leader in the FinTech ecosystem in Latin America, boasting the largest number of FinTech startups in the region. This has primarily been spurred by the demand for digital financial services, which are more inclusive, efficient, and user-friendly compared to traditional banking methods.

Market Landscape

Mexico’s FinTech market is diverse, with companies specializing in a wide array of services such as digital banking, payments and remittances, insurance (InsurTech), personal finance, crowdfunding, and blockchain technology. Each of these sectors caters to different user needs, from offering unbanked populations access to financial services to providing small businesses with efficient and cost-effective banking solutions.

Significant progress has been made in regulations too, making Mexico an attractive location for FinTech innovation. In 2018, Mexico became the first country in Latin America to enact a FinTech law, aimed at promoting financial stability and defending against money laundering, while also nurturing innovation and competition in the financial sector.

Demand Drivers

A critical demand driver for FinTech companies in Mexico is financial inclusion. A sizable proportion of Mexico’s population remains unbanked or underbanked. Traditional banks often have stringent requirements or high fees that many citizens can’t meet. FinTech companies, with their flexible and accessible solutions, present an opportunity to address this issue by offering services such as mobile banking, microloans, and digital wallets.

Digital remittances have also emerged as a significant market, with Mexico being one of the largest remittance-receiving countries in the world. FinTech solutions for quick, cost-effective cross-border transfers are in high demand, opening up opportunities for startups in this field.

In addition, Mexico’s thriving e-commerce market is driving demand for digital payments solutions. Consumers are increasingly turning to online shopping, necessitating secure, efficient payment systems that traditional banking often fails to deliver.

Finally, Mexico’s young, tech-savvy population contributes to the increasing demand. With one of the youngest demographics in Latin America and high smartphone penetration, Mexico’s population is well-positioned to adopt digital financial services.

Conclusion

The combination of a growing need for financial inclusion, increasing digitalization, a thriving e-commerce sector, and a young, tech-oriented population sets the stage for substantial growth in Mexico’s FinTech market. As traditional banks struggle to meet evolving consumer needs, FinTech companies can step in to fill the gaps, leveraging technology to provide more accessible, affordable, and efficient financial solutions. Given these conditions, Mexico’s FinTech market presents considerable opportunities for existing companies and new entrants alike.

Mexico’s burgeoning FinTech and crypto sectors reflect the country’s broader commitment to embracing digital transformation and promoting financial inclusion. The favorable regulatory landscape, coupled with untapped market potential and increasing consumer demand, creates a fertile environment for FinTech and crypto businesses.

While challenges remain, including refining the regulatory framework and improving digital infrastructure, the momentum is clearly with FinTech and crypto. As these sectors continue to evolve, Mexico is well-positioned to be a leader in the FinTech and crypto revolution in Latin America.

For more information on where I recommend you set up a Fintech, financial services, or crypto business in Mexico, please have a read through Where to do Business in Mexico as a Fintech, Financial Services, or Crypto Company. For more on the suggested structure, see Incorporating a Financial Services Company in Mexico – the Mexican SOFOM.I hope you’ve found this article helpful. For more information on setting up a business in Mexico, and on forming a SOFOM, please contact me at info@premieroffshore.com

where to do business in Mexico
Christian Reeves

Where to do Business in Mexico as a Fintech, Financial Services, or Crypto Company

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In this post, I’ll explain why I believe Tijuana is the best business city in Mexico in which to set up a fintech, financial services, or crypto business. I’ve traveled and done business throughout Mexico for over 20 years and can say without a doubt that Tijuana is the most efficient option for setting up a fintech business. Here’s why. 

Mexico’s burgeoning FinTech landscape is diverse, innovative, and geographically rich, with Tijuana emerging as the city of choice for setting up a FinTech business. Here, a confluence of strategic location, global business acceptance, linguistic proficiency, cost efficiency, and regulatory allowances merge to create an environment that is uniquely supportive of FinTech growth. Let’s dissect why Tijuana is the best city in Mexico for FinTech enterprises.

Proximity to the U.S. Borde

Tijuana’s strategic location, sitting just across the border from the United States, renders it a natural nexus between two significant economies. This proximity is not just geographical but also deeply intertwined within the fabric of business and culture in the region, offering enormous benefits to the FinTech sector.

Being adjacent to the United States, Tijuana is ideal for businesses targeting a cross-border audience. With easy access to the U.S. market, FinTech companies in Tijuana can exploit the advantages of both countries, navigating market trends, consumer behaviors, and regulatory landscapes with ease. Furthermore, the proximity enables a seamless flow of knowledge, technology, and talent between the two nations, thereby fostering innovation and growth.

Accepting of International Businesses and Investors

Tijuana’s open-door policy towards international businesses makes it a hotbed for globalization. The city’s economic policies are geared towards attracting foreign investment, boosting its global competitiveness, and enhancing its status as a cosmopolitan city. For FinTech businesses, this translates into a supportive, innovation-driven environment that fosters both domestic and international success.

Moreover, Tijuana is home to numerous international tech conferences and events, encouraging networking and collaboration. Such gatherings generate opportunities for FinTech startups to forge partnerships, secure investments, and enhance their global visibility.

Ease of Finding English-Speaking Workers

With a large percentage of its population bilingual in English and Spanish, Tijuana offers a considerable advantage for FinTech companies. English proficiency is a critical factor in the global FinTech landscape, and having access to a skilled, English-speaking workforce is crucial for businesses that wish to operate on an international level.

Why are there so many English speakers in Tijuana compared to other large cities in Mexico? First, many of the people deported from the Western United States end up in Tijuana. They need jobs and have excellent English skills. Second, many in Tijuana middle class have US visas and families in America. They learned English from a young age and travel to San Diego frequently. 

Cost of Labor Compared to the U.S.

Labor costs in Tijuana are significantly lower than in the United States, even though the level of skills and expertise can be comparable. This cost advantage makes Tijuana an attractive location for FinTech startups looking to operate lean while maintaining high-quality services. By reducing the labor cost burden, companies can invest more in product development, marketing, and other critical areas to boost their competitiveness and growth.

Ability to set up a SOFOM (Sociedad Financiera de Objeto Múltiple)

In Mexico, FinTech companies have the option to establish themselves as a SOFOM – a non-bank financial entity that can operate in Baja and the rest of Mexico. This legal entity, dedicated to providing loans and credit, offers the opportunity to conduct financial operations without the need for a traditional banking license.

Setting up a SOFOM in Tijuana means your FinTech business can operate across Baja California and Mexico as a whole, delivering financial services and innovative solutions to a broad and diverse market. Additionally, the ability to set up a SOFOM underscores the flexibility and supportiveness of Mexico’s regulatory landscape towards the FinTech sector.

About Tijuana

Tijuana, an eclectic border city that melds Mexican culture with a dynamic international influence, is a bustling metropolis that attracts people from across the globe. Known for its vibrant cultural scene and burgeoning economic potential, Tijuana is a fascinating city that holds promise for the future. Here’s an overview of Tijuana’s size, population, and demographics.

Size and Location

Tijuana is situated in the Baja California Peninsula, the second-longest peninsula in the world, right at Mexico’s border with the United States. It is the largest city in the state of Baja California and covers an area of around 637 square kilometers.

The city’s strategic location on the U.S.-Mexico border plays a significant role in shaping its economic, cultural, and demographic makeup. Its proximity to San Diego, with which it forms an international metropolitan area, gives it a unique cross-border characteristic.

Population

As of 2023, the estimated population of Tijuana is over 1.8 million people, making it the sixth-largest city in Mexico. The population has seen substantial growth over the past few decades, largely fueled by internal migration from other parts of Mexico and an influx of international immigrants, particularly from the U.S., China, and the rest of Latin America.

The city has a high population density due to its role as a regional hub for employment, culture, and commerce. It also serves as a magnet for individuals and families seeking opportunities in the bustling border economy.

Demographics

Tijuana boasts a diverse demographic makeup, contributing to its rich cultural fabric. The majority of Tijuana’s inhabitants are of Mexican descent, but there’s a significant presence of residents with international roots, primarily from the United States, China, and other Latin American countries.

The age distribution of Tijuana tends to skew younger, aligning with the general trend in Mexico. The city’s median age is in the late twenties, a testament to the youthful energy that drives Tijuana’s economic and cultural dynamism. This young demographic is critical to the city’s labor force and its potential for innovation and growth.

Given its border location, a significant proportion of Tijuana’s population is bilingual, with proficiency in both Spanish and English. This linguistic capability is a valuable asset, particularly in the business and service sectors, fostering cross-border commerce and cultural exchange.

In terms of socioeconomic status, Tijuana exhibits a broad spectrum. The city houses affluent neighborhoods with high-income households, alongside areas characterized by lower income levels. Over the years, economic development efforts have been aimed at addressing these disparities and promoting inclusive growth.

The Bottom Line

Tijuana’s unique blend of size, population, and demographics creates a lively and dynamic city that serves as a nexus of cultures, economies, and opportunities. With its strategic border location, youthful population, and rich cultural diversity, Tijuana offers a vibrant environment ripe for economic growth and international collaboration. As Mexico continues to progress, the city of Tijuana is poised to play a significant role in the nation’s journey toward a prosperous future.

Conclusion

Tijuana’s strategic location, supportive environment for international business, English-speaking talent, competitive labor costs, and legal flexibility make it an ideal setting for a thriving FinTech business. By harnessing these attributes, FinTech entrepreneurs in Tijuana are well-positioned to drive innovation, foster growth, and pave the way for a robust, future-proof financial landscape in Mexico.


I hope you’ve found this article helpful. For more on setting up a fintech, financial services business, or crypto company in Tijuana, or on incorporating a SOFOM, please contact me at info@banklicense.pro