IIEffective Insolvency and Creditor Rights Systems
There is no specific, publicly available information that addresses Mexico's compliance with the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. The legal framework of Mexico's insolvency regime is contained within a body of legislation that includes the 1889 Commercial Code, the 1943 Federal Civil Procedures Code, and the Business Reorganization Act. The latter act enacted in 2000 provides for a two-stage insolvency procedure, beginning with conciliation and moving forward, if required, to liquidation. The goal is to facilitate preservation of the bankrupt firm when possible. This legislation also adopts, with minor changes, the Model Law on Cross-border Insolvency developed by the United Nations Commission on International Trade Law. Most of Mexico's insolvency provisions are harmonized with U.S. bankruptcy law, although there are a few areas of divergence. Principal among these is the prioritization of wage claims over all other creditors. The International Monetary Fund reported in 2007 that improved creditor protections and stronger contract enforcement were being contemplated, possibly through the passage of additional legislation.
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IDInternational Financial Reporting Standards
A 2004 World Bank review of the accounting and auditing environment in Mexico concluded that although Mexican Generally Accepted Accounting Principles (GAAP) have been converging with International Financial Reporting Standards (IFRSs) over a number of years, accounting requirements still differ from the international standards. At the time of the World Bank assessment, the Mexican accounting standards-setter, the Council for Research and Development of Financial Information Standards (CINIF) was contemplating steps to further reduce the differences between Mexican and international requirements. The CINIF has since formalized its convergence plans in a more concrete manner and per the 2009 PricewaterhouseCoopers (PWC) update on global convergence of accounting standards, IFRSs will be mandatory for listed companies starting 2012. In a 2008 press release by the financial market regulator, the National Banking and Securities Commission in Mexico (CNBV), it was announced that the reporting rules for listed entities (except for financial institutions which must follow rules issued by the CNBV) were amended by law and became effective on January 27, 2009. Early application of IFRS is permitted from 2008 pending approval of the CNBV. Meanwhile, non listed companies will continue applying Mexican Financial Reporting Standards (FRSs) which, as mentioned earlier continue to differ from IFRSs. However, as conveyed in a 2008 Action Plan by the Mexican Institute of Public Accountants (IMCP), efforts are ongoing in order to align Mexican GAAP with IFRSs. Furthermore, in order to ensure convergence with IFRSs, the IMCP notes that it will continue working with the CINIF on drafting new FRSs and that the convergence project is likely to be finalized by the end of 2011.
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ENPrinciples of Corporate Governance
The 2006 release of the new Securities Market Law and the revised version of the Mexican Corporate Governance Code, incorporating lessons learned from the implementation of the original 1999 Code as well as international developments, bring Mexico a step closer to a well-developed corporate governance framework. Back in 2003, a Report on Standards and Codes by the World Bank benchmarked Mexico's observance of corporate governance practices against the Organization for Economic Co-operation and Development's Principles for Corporate Governance. According to the World Bank report and a report by the Institute of International Finance released the same year, major progress had been achieved in establishing a successful structure and culture for good corporate governance. The World Bank rated most Principles as either “largely observed” or “partially observed,” indicating either only minor shortcomings or a legal and regulatory framework that complies with the Principles, but suffers from diverging practices and a lack of enforcement. However, both reports cautioned that real progress in Mexican corporate governance has to account for the concentrated ownership and control structure of many Mexican firms. The 2006 Securities Market Law strengthens the responsibilities of directors and boards for publicly traded companies. It addresses minority rights protections and emphasizes the independence of boards vis-a-vis the controlling shareholders. Nonetheless, a 2009 paper by Price, Roman and Rountree notes that despite the positive changes in the regulatory and legal framework, Mexican business environment is still characterized by concentrated ownership, interlocked boards of directors, inadequate insider trading enforcement, and an overall poor protection of minority investors.
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IDInternational Standards on Auditing
The World Bank in a 2004 assessment of the Mexican accounting and auditing environment observed that Mexican Generally Accepted Auditing Standards (GAAS) are "broadly comparable" with International Standards on Auditing (ISAs) promulgated by the International Auditing and Assurance Standards Board. Although acknowledging the progress made by Mexico in moving towards convergence with international standards, the World Bank made a number of recommendations to improve existing practices. Most importantly, it recommended a complete elimination of differences between Mexican GAAS and ISAs. In a more recent update provided in a 2008 Action Plan, the IMCP lays out its plan for further convergence noting that the IMCP will issue a new set of local standards fully converged with ISAs by December 2011. Per the Action Plan, these standards will be effective for audits performed after December 31, 2011. Furthermore, the financial sector regulator, the National Banking and Securities Commission in 2008 announced the mandatory adoption of IFRSs for listed entities starting December 2012. Early application of IFRSs is permitted from 2008 and IFRS-compliant financial statements must be audited in accordance with ISAs as noted by the 2009 PricewaterhouseCoopers country compliance report. Among other issues, the World Bank also recommended establishing an independent oversight body for audit practitioners and strengthening enforcement mechanisms and educational requirements.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
In 2008, the IMF assessed Mexico’s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime against the Financial Action Task Force’s (FATF) 40 recommendations (R) and 9 special recommendations (SR). The IMF released its findings in a report published in January 2009. Overall, the report points out that Mexico has made progress in its efforts for combating money laundering and the financing of terrorism since its last FATF assessment in 2004. However, the country's AML/CFT regime is still lacking as reflected in its ratings. Mexico was found non-compliant or partially compliant with 25 of the 49 FATF recommendations and special recommendations. Moreover, Mexico is rated partially compliant with five of the six core recommendations as stipulated by the FATF, R 1, R 5, R 13, SR II, and SR IV. As required by the FATF, a country needs a largely compliant or compliant rating on the core recommendations to be considered to have an effective AML/CFT regime. The assessors find that on R 1 on the criminalization of money laundering, the Mexican provisions do not fully meet international standards, and there is scope to significantly improve implementation. As for SR II on criminalization of terrorist financing, the legal provisions do not fully comply with the United Nations (UN) Convention for the Suppression of Terrorist Financing. Also, criminal liability for money laundering or financing of terrorism, at the time of the assessment did not extend to legal persons. According to the IMF report, a proposed legislation would address this gap. However, initiatives at different levels were ongoing at the time of the IMF assessment to address some of these weaknesses. For instance, relevant federal agencies were drafting an AML/CFT National Strategy and other constitutional amendments with regards to judicial reform. Also, the FATF, in its 2008-2009 Annual Report, names Mexico as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.
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ENCore Principles for Systemically Important Payment Systems
The three systemically important payment systems (SIPS) in Mexico, as designated by the Mexican central bank (Bank of Mexico, or BdM), are the Electronic Interbank Payment System (SPEI), the Banco de México Account Holders Service System (SIAC), and the Securities Deposit, Administration, and Settlement System (DALI). In 2001, the IMF assessed the SIAC and the Extended Electronic Payments System (SPEUA, the predecessor of the SPEI), and concluded that Mexico did not fully comply with the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS). However, the IMF assessment acknowledged that reforms were underway in Mexico at the time, with the aim to make Mexican SIPS compliant with the CPSIPS. Subsequently, several reforms have been implemented such as the adoption of the 2002 Payment Systems Law and the replacement of the SPEUA with the SPEI. A Financial Sector Assessment Program (FSAP) Update released by the IMF in 2007 did not reassess the SIPS in Mexico but did review the reforms undertaken. According to the Update, most deficiencies reported by the IMF in 2001 related to the legal framework and the management of credit and liquidity risks were eliminated through reforms undertaken after 2001. The 2002 Payment Systems Law addressed the issue of finality of payments in SIPS and gave the BdM more explicit powers to regulate the SIPS in accordance with the CPSIPS. Furthermore, the BdM indicates on its website that it undertook several operational and legal modifications that have enabled the Mexican SIPS to comply with international best practices. However, since the 2001 IMF assessment, there has been no comprehensive assessment of Mexico's payment systems against the CPSIPS and neither has there been an assessment of the new SIPS, SPEI. A 2008 report based on the World Bank’s Global Payment Systems Survey of the same year evaluates Mexico’s compliance with various sub components broadly based on the CPSS' CPSIPS and concludes that Mexico's payment system architecture, in general, is fairly well developed.
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