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Financial-Sector Overhaul in Mexico From the Financial Times June 8, 2001
Jun 10, 2001

The Mexican congress approved almost unanimously a major financial-sector overhaul aimed at producing a stronger and more effective corporate-governance structure for securities issuers, banks and other financial institutions. The new framework is expected to enhance transparency and accountability and protect the interests of minority investors.

A survey by McKinsey & Company on corporate governance finds that 90% of potential investors are willing to pay a significant premium of around 22% for a well-governed company in Mexico.

Among the most important elements of the new legislation is the reformed credit-institutions law that strengthens bank surveillance and supervision by increasing the importance of external auditors. The law also introduces prompt corrective actions based on the capitalization levels of banks, and reduces regulatory costs by establishing a clearer definition of financial authorities' responsibilities and avoiding duplication of efforts.

The credit-institutions law updates the framework for banking operations, allowing for the use of new technologies and authorizes banks to offer a wider range of financial products and services.

The law also enhances the corporate-governance structure of credit institutions by allowing shareholders to have greater access to information, introducing independent board members, and creating an audit committee at the board level led by one of the independent board members. Another part of the reforms, the financial-groups law, expands the environment in which credit institutions will operate to include other financial intermediaries.

Regulation that prevents inside trading and market manipulation is enhanced under the new laws by granting additional capacities to the National Banking and Securities Commission to prosecute such felonies.

The financial overhaul also includes a mutual-fund law that increases minority-shareholder protection, and is designed to encourage the development of the mutual funds industry, and thus produce greater retail participation in the securities market. This initiative also requires that one-third of the investment funds' board members be independent from the fund or the mutual-fund manager.

Additionally, neither brokerage houses nor banks can directly act as managers, which means that they will have to set up an independent company to operate mutual funds.

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