On March 26, 2024, a decree was published in the Mexico’s Federal Official Gazette
that amends the General Negotiable Instruments and Credit Operations Law (“LGTOC”), as well as the Law on Organizations and Auxiliary Credit Activities (“LOAAC”), with the purpose of regulating the granting of certificates of deposit issued electronically by Public Bonded Warehouses.
What does the mentioned amendment consist of?
The amendments to the LGTOC and LOAAC were proposed in February 2023 in the Senate, and after being reviewed by both chambers during that year, they were finally approved and sent to the executive power so that they could become effective the day after their publication.
Even though the reform is generally applicable to any negotiable instrument issued electronically, optically, or by other means, it was proposed with the aim of allowing producers and traders in the agricultural sector to access credit and financing. The above is through the digitalization of operations in public bonded warehouses.
The negotiable instruments issued electronically, optically, or by other means will be considered as data messages according to the commercial code. Likewise, electronically issued negotiable instruments will be recognized with the same validity, veracity, and enforceability as those issued on paper.
On the other hand, the reform also regulates the endorsement of negotiable instruments issued electronically, providing certainty of the equivalence of effects of such transmission as if it were done physically. Such endorsement will be carried out through an information system and will be indubitably linked to the negotiable instruments subject to the endorsement.
The granting of the third-party guarantee (aval) will also be done through the information system when the negotiable instrument has been issued digitally.
As can be seen, a fundamental aspect of the amendment is the incorporation of the information system through which various operations related to electronic negotiable instruments will be carried out, including information and data regarding the issuance, transfer, ownership, encumbrances, circulation, or holding of the instruments.
The system also aims to generate trust for certificate holders as well as for the warehouses and creditors themselves by establishing a system that allows easy identification and tracking of operations carried out within the encrypted system itself.
When certificates of deposit are issued on paper and circulated, the problem of traceability between creditors and debtors may occasionally arise. With the digitization of the certificates, greater certainty will be granted to the public bonded warehouses, as well as to the merchandise depositors and creditors.
Another new feature is the creation of the Sole Register of Certificates, warehouses and Merchandise (RUCAM), run by the department of economy, where certificates of deposit will be registered from their issuance to their cancellation, the deposited goods, preventive notices, judicial or administrative court orders, etc. This registry will help provide certainty to those interested in knowing the status of the certificates of deposit, their holders, and the owners of the goods.
The pledge certificates are eliminated, which, in the opinion of the legislators themselves, have fallen into disuse in commercial practice, and therefore their elimination is justified, since, with the digitalization of certificates of deposit and their exclusive issuance by electronic means, pledge bonds become unnecessary. Since the pledges on the deposited goods will also be subject to formalization through electronic means, without affecting their validity in case they need to be executed.
Currently, when a pledge is established for a pledge-secured loan, the creditor is obliged to provide the debtor with a receipt that indicates the delivery acknowledgment of the goods or titles given as collateral and the necessary information to identify them. When it comes to negotiable instruments issued electronically, it will be regarded that the creditor has received and accepted the negotiable instruments when control of the certificate of deposit is transferred to them through the aforementioned information system.
Regarding the modifications made to the LOAAC, it is established that public bonded warehouses are obliged to guarantee access to the cryptographic system for those legitimately interested and involved in operations with certificates of deposit in order to exercise their rights.
Cryptographic systems must meet minimum security standards that ensure the confidentiality, availability, and integrity of the information contained therein.
What comes next?
The adoption and adaptation of the electronic system where the issuance, circulation, cancellation, and other acts of electronic negotiable instruments will be recorded will be carried out gradually.
The National Banking and Securities Commission (“CNBV”) is the authority responsible for determining the requirements and characteristics that the cryptographic system used by public bonded warehouses for the issuance of their certificates must meet.
Likewise, the public bonded warehouses shall adapt their operations for the issuance of electronic certificates of deposit no longer than September 27, 2025. In the meantime, they will continue issuing paper certificates of deposit to maintain their operations. But once they start issuing certificates electronically, they will no longer be able to continue issuing them on paper.
Even though the amendment impacts not only certificates of deposit but also any other type of negotiable instrument, such as promissory notes or checks, the main new regulation shall apply to certificates of deposit.
However, the decree already stipulates that the issuance and trading of electronic negotiable instruments will be carried out in accordance with the rules established in article 89 of the Commercial Code, meaning that the rules of electronic commerce will apply.
To learn about the decree published in Mexico’s Federal Official Gazette, please consult the following link: https://www.dof.gob.mx/nota_detalle.php?codigo=5721549&fecha=26/03/2024#gsc.tab=0
