The Mexican Congress has approved a bill regarding promissory notes, negotiable instruments and other financial transactions using electronic means. On March 26, 2024, a decree was published in the Official Journal of the Federation reforming and amending various provisions of the General Law of Negotiable Instruments and Credit Transactions (Ley General de Títulos y Operaciones de Crédito or LGTOC) and the General Law of Auxiliary Credit Organizations and Auxiliary Credit Activities (Ley General de Organizaciones y Actividades Auxiliares del Crédito or LGOAAC).

The bill represents a necessary step forward to encourage and offer greater legal certainty to the execution of credit transactions and to the negotiability of negotiable instruments that are executed through electronic means and other technologies, mainly due to the inclusion of legal presumptions and a general remission to provisions of the Commerical Code that allows a better application of the "functional equivalence" principle. The transfer of promissory notes and other titles through electronic means maintains some challenges in its practical implementation due to the requirement to verify the identity of final holders within the same information system. Nonetheless, the amendments will probably allow for a better use of technologies generating hash functions that document traceable electronic transactions.

The LGTOC regulates the rights and obligations related to the issuance, circulation, endorsement, execution and cancellation of promissory notes and other negotiable instruments, as well as credit transactions in Mexico in general. On the other hand, the LGOAAC regulates the organization and operation of financial institutions other than banks, such as multiple purpose financial companies (sociedades financieras de objeto múltiple or SOFOM), popular financial companies (sociedades financieras populares or SOFIPO), financial leasing companies and credit unions, among others.

The most notable reforms to the LGTOC are the following:

Negotiable Instruments

• The LGTOC now expressly allows for the issuance and transfer of negotiable instruments in electronic, optical media or through any other technology as long as such transactions are made through an "information system" in accordance with the applicable provisions of the Commercial Code.
• Negotiable instruments that require the signature of a person may be signed by electronic, optical or other technology means as long as that signature is attributable to the signatory in accordance with the Commercial Code.
• The endorsement of promissory notes and the electronic transfer of other negotiable instruments is expressly permitted. The identity of the persons who present the title as the last holder and the continuity of the endorsements "must be verified in the information system in which the respective title was issued."
• The validity, legal effects and enforceability of negotiable instruments that appear in electronic, optical or other types of technology are presumed as long as said titles remain "complete and available."
• The LGTOC establishes a presumption of integrity (completeness) and availability when negotiable instruments can be consulted (opened), and their circulation is traceable in the information systems through which they have been issued or circulated.
• Holders of the electronic negotiable instrument may exercise their rights by producing the corresponding digital file.
• The signature of any guarantor signing negotiable instruments "by endorsement" ("por aval") must be made and available in the same information system used to issue the negotiable instrument.

Certificates of Deposit (Issued by Deposit Warehouses)

• The electronic issuance of certificates of deposit is permitted only through cryptographic systems determined by the issuing general deposit warehouses.
• Electronic certificates of deposit may be registered in the Sole Registry of Certificates, Warehouses and Goods in accordance with the LGOAAC.
• Certain rules applicable to certificates of deposit are eliminated and their multiple issuances for identical assets is prohibited.
• The use of digital signatures (not to be confused with electronic signatures) is not permitted.
• Electronic certificates of deposit may be transferred or pledged to the extent the endorsement, transfer of control or pledge is made in the same cryptographic system used to issue the certificate of deposit.

Regarding the amendments to the LGOAAC, the most notable aspects are:

General Deposit Warehouses

• Rules and requirements are established for warehouse cryptographic systems to issue certificates of deposit.
• Rules on investments, leases, auctions and registration procedures in the Single Registry of Certificates, Warehouses and Merchandise are modified and added.
• Power is granted to the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores or CNBV) and the Ministry of Commerce (Secretaría de Economía) to issue general provisions.

The decree entered into force on March 27, 2024, with deadlines for regulatory and operational adjustments by authorities and general warehouses.