The ABC’s of Know Your Customer Compliance: for Latam Builders

Know Your Customer - LATAM
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When you hear Latin America, you probably think of warm people, good weather and beautiful beaches, and you’re right: honestly, who wouldn’t want some downtime here. But what if we told you, Latam is actually as exciting for work as it is for play—especially if you’re an ambitious entrepreneur or operator looking to build and scale a next-generation FinTech company.

No, we’re not kidding. Latam is indeed one of the fastest-growing regions in the world with regards to the FinTech industry.: In the last six years, FinTech funding has grown from less than $50M to over $2.1B, and even local governments are finally catching on, competing to attract more domestic and foreign investors through preferential regulatory treatments

So what explains the FinTech boom? The reasons are numerous, from the penetration of mobile devices to the difficulty of opening traditional bank accounts for certain thin-file populations. Given these constraints and opportunities, it’s a no brainer that the preferred companies of the Latam ecosystem are Neobanks and new lending businesses. Together, they hold the promise to bring those neglected by traditional banking and lending services into mainstream finance.

This golden promise, however, isn’t without consequences, the good and the bad. Disrupting and rebuilding entire industries with a flood of new players in the market creates opportunities but also challenges around compliance, regulation, privacy, and security. When you think of Latam, you also undeniably think of corruption and drug trade (especially if you binge-watched the latest Narcos season on Netflix in confinement). 

This explains why local governments are being proactive in building regulatory frameworks to monitor and supervise this upcoming market. Because practice makes perfect, Latam has ironically become a beacon in the world in terms of FinTech regulations. Mexico is the definition of progress as a true pioneer in the field, being one of the only countries in the world, and the first in Latam, to implement sector-specific FinTech laws since March 2018.

Mexico may have led the charge, but countries like Brazil, Colombia, Argentina, and Chile are not far behind. They are reviewing their current regulatory frameworks, borrowing from the Mexican laws to create more sophisticated laws for FinTech (pro tip: if you operate in these countries, get ahead of the curve by getting up to speed on the Mexican FinTech laws).

Mexican FinTech laws regulate 3 main verticals: crowdfunding, crypto, and payment methods (which include Wallets and Neobanks). The laws are based on a few key principles, like financial inclusion and innovation, as well as the promotion of competition. The big boys here are the CNBV, which supervises and regulates Mexican financial entities, and Banco de Mexico (Banxico), which facilitates credit flows and injects liquidity into the Mexican financial system.

As forward-looking as Mexico may be for FinTech laws, it is still catching up on other critical financial services regulations such as Know Your Customer (KYC). The good news though, is when enforced, these regulations are unlikely to differ that much from their U.S. or European counterparts considering Know Your Customer regulations are somewhat generic (wait but, what is KYC and why should you care?). If you’re building or scaling your operations in the region, a good rule of thumb to apply is using international standards (FATF guidelines) since they regularly exceed Latin American standards. 

Nevertheless, based on our experience and engagement with local authorities in Latam, we recommend that you cover your bases by ensuring that you:

  1. Verify your customers’ identity  ✅
  2. Manage their risk factors consistently  ⚖️
  3. Monitor their accounts on a continuous basis 🔍

In Mexico, these 3 steps are already foundational to operating as a FinTech. Chances are that Colombia, Brazil, Chile, and other Latam countries will adopt similar regulatory structures soon. You can’t say we didn’t warn you! 

And regulators, if you happen to come across this, a request on behalf of the community of FinTech entrepreneurs in Latam: while it is incredibly important to have these regulations in place as the FinTech sector takes off in Latam, please be careful to stay in touch with the reality of the ability of startups to comply with legislation. Starting a company in the space is challenging and expensive enough without compliance costs (like hiring a good Compliance Officer), let alone being on top of all things compliance and Know Your Customer.

For FinTech founders and operators: find an ally that will help you remain compliant in the region without massively draining your bank account. Don’t know where to start? Our KYC consultants are here to help.

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