Identity Verification, KYC, and AML Compliance in Mexico

Key Takeaways:
 

With 131 million inhabitants and as Latin America's second-largest economy, Mexico faces critical challenges in identity verification, where Know Your Customer (KYC) processes emerge as a strategic shield against increasingly sophisticated financial risks.

In the first half of 2023, Mexico's Financial Intelligence Unit (UIF) blocked over 3,653 million pesos (approximately $180 million USD) in suspicious transactions, demonstrating that identity verification systems are the first line of defense against financial crimes.

Mexico's KYC and AML regulations, particularly the Federal Law for the Prevention and Identification of Operations with Illicit Resources (LFPIORPI), reflect an unprecedented commitment to international standards set by the Financial Action Task Force (FATF).

Document verification in Mexico presents a unique ecosystem with over 390 different templates, where documents like the INE voter ID card and passports are key tools in the fight against fraud and creating a secure identification system.

With nearly 131 million inhabitants, and positioning itself as the second most important economy in Latin America, Mexico faces critical challenges in identity verification and prevention of financial crimes. Know Your Customer (KYC) processes in Mexico emerge as a strategic shield to protect the economic system against increasingly sophisticated and global risks.

The data is revealing: in the first half of 2023, the Financial Intelligence Unit (UIF) blocked more than 3,653 million Mexican pesos (approximately 180 million dollars) in suspicious operations, demonstrating that identity verification systems are the first line of defense against increasingly complex financial crimes, from deepfakes to elaborate synthetic identity frauds.

The evolution of KYC regulations in Mexico reflects an unprecedented commitment to the international standards of the Financial Action Task Force (FATF). Regulations such as the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin are transforming the way institutions protect the integrity of the economic system.

The Legal Framework of KYC and AML in Mexico: Regulatory Requirements

KYC and AML regulatory frameworks in Mexico have evolved in recent years in response to the need to combat increasingly sophisticated financial crime risks. Mexican regulations aim to address the challenges of identity verification and money laundering prevention faced by local obligated subjects, usually financial institutions.

This radical transformation of regulations is not at all coincidental: it goes hand in hand with the global demand for more transparency, security, and control of financial transactions, where Mexico positions itself as an actor committed to the international standards of the Financial Action Task Force (FATF).

Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin (LFPIORPI)

The Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin (LFPIORPI), commonly known as the Anti-Money Laundering Law (AML Law), represents the cornerstone of the regulatory framework against money laundering in Mexico. Published in October 2012, it was updated in 2021 to prevent and detect irregular financial operations.

The objective of LFPIORPI is to create an ecosystem that truly protects the Mexican economic system against criminal activities. To this end, it establishes an action framework that obliges local obligated subjects to implement rigorous identity verification and transaction monitoring processes.

And who are the obligated subjects according to this regulation? The scope of the regulation is very broad, focusing on what it calls "vulnerable sectors", not just traditional banking. Thus, we can define different obligated subjects in different industries: from real estate or casinos to jewelry stores. Each of these sectors must have specific control mechanisms to identify and report potentially irregular operations.

LFPIORPI proposes very thorough control mechanisms. Obligated subjects in Mexico must implement robust Know Your Customer (KYC) processes, present detailed documentation on operations they consider suspicious, and maintain permanent inter-institutional coordination, so that a secure network is created to investigate possible financial crimes.

What happens if institutions do not comply with Mexican regulations? Sanctions can be very significant: millions of pesos in fines, prohibition of government contracts, and reputational damages, which are difficult to quantify.

Fintech Law: Regulation for Technological Financial Companies in Mexico

The Fintech Law was born in March 2018 and tries to complement LFPIORPI, establishing a specific framework for Mexican fintech and technological financial companies.

Identity verification becomes a critical process for local fintechs. This law obliges companies to carry out a digital onboarding process in which personal information is comprehensively collected, with precise address verification data and verification of identity documents that guarantee the authenticity of the client.

Another fundamental point is the protection of personal data. Digital platforms operating in Mexico must implement security systems that protect users' personal information, as well as guarantee the existence of efficient communication channels.

Cryptocurrencies and other crypto assets find in the Fintech Law a specific regulatory framework for their characteristics. Thus, centralized exchanges must obtain authorization from the Bank of Mexico, comply with international standards for money laundering prevention, and thus subject users to identity verification processes as rigorous as those of traditional banking.

The consequences of non-compliance are clear and go beyond millionaire economic sanctions. We are talking, for example, about revocation of licenses, which will prevent fintechs from operating on Mexican territory, with evident economic losses.

Key Regulators in Mexico's KYC/AML Ecosystem

The regulatory ecosystem of KYC and AML in Mexico is characterized by a complex and multifaceted structure, designed to ensure that financial operations within the country are transparent, secure, and legal. The objective is to prevent financial crimes and protect the integrity of the local economic system.

National Banking and Securities Commission (CNBV)

One of the most important bodies in the Mexican financial ecosystem is the National Banking and Securities Commission (CNBV). Its role is fundamental in KYC processes in Mexico, acting as the main supervisory and regulatory body for the country's financial institutions.

The main task of the CNBV is to monitor the proper functioning of the country's financial obligated subjects. Mainly, we are talking about complying with regulations and ensuring the implementation of identity verification and risk prevention processes, as well as periodic evaluation of institutions' internal control systems, among other tasks.

Financial Intelligence Unit

The Financial Intelligence Unit (UIF) is an agency dependent on the Ministry of Finance and Public Credit and represents the most dynamic operational arm in the fight against money laundering and terrorist financing in Mexico.

With a proactive approach, the UIF develops sophisticated financial intelligence systems that allow it to identify suspicious patterns, perform predictive analysis on irregular operations, generate reports, or keep the high-risk operations database updated.

In fact, in the first half of 2023, the UIF blocked more than 3,653 million Mexican pesos linked to illegal operations, thus demonstrating the effectiveness of its monitoring systems.

One of the most notable aspects of the UIF is its ability to work and coordinate with different national and international authorities. Good work that allows real-time information exchange, joint investigation of financial crimes, and implementation of coordinated prevention strategies.

Identity Verification in Mexico: The Need for Advanced Solutions

Identity verification in Mexico has become a key aspect for the security and efficiency of the financial ecosystem. However, the current situation shows a complicated aspect: fragmented identification system, continuously evolving regulations, and a growing demand for technological solutions that guarantee the integrity of financial operations. This way we understand why KYC processes have gone from being a mere bureaucratic requirement to a fundamental line of defense against fraud and financial crimes.

The challenges are on the table. Traditional documents such as the Federal Taxpayer Registry (RFC) and the National Electoral Institute (INE) card can make it difficult for traditional identity verification systems. That's why more and more organizations need advanced solutions, with document verification and biometric recognition, powered by artificial intelligence, to help ensure the authenticity and security of processes.

Challenges in Document Verification in Mexico

With more than 390 different templates in circulation, document verification in Mexico is a challenge for identity verification systems. A complicated terrain in which innovation and security must respond to high regulatory complexity.

The great variety of documents in Mexico is a characteristic of its system. Each official document, from the National Electoral Institute (INE) credential to passports, are unique pieces in the fight against fraud and the creation of a secure system. That's why verifying identity in Mexico is much more than a simple data review.

Key Documents in Mexico

The National Electoral Institute (INE) card has become the most emblematic and recognizable document in Mexico. This document allowed people over 18 years old to vote in the country's elections, although now it has also become a multifunctional official identification tool.

It has an algorithmic code of 18 characters, biometric information, and is widely accepted, both in public and private services. Having the CURP (Unique Population Registry Code) makes it a fundamental piece within the Mexican identification system.

Mexican passports represent national identity in the international context. With biometric and traditional versions, these documents reflect the technological evolution of official identification, including documents in multiple languages, implementation of RFID chip, and special information for minors.

Driver's licenses are one of the most difficult Mexican documents to verify. It has different formats in each federal entity, three versions of federal license, and a progressive migration towards digital formats.

Didit: Transforming Identity Verification and KYC and AML Compliance in Mexico

Identity verification in Mexico, hand in hand with KYC and AML regulatory compliance, poses an insurmountable challenge for many companies that intend to operate in the country. Faced with this situation, Didit arrives to turn this problem into a competitive advantage.

Didit is a digital identity company that offers a free, unlimited, and forever KYC solution. By democratizing access to this technology, we are redefining the game of identity verification in Mexico.

How does Didit work? How can we offer this service at no cost while other providers charge between 1 and 3 dollars, minimum, for each verification? Our technology is based on three pillars that respond to the specific needs of the Mexican market:

Document verification: We use artificial intelligence algorithms capable of validating more than 3,000 types of documents from more than 220 countries and territories. Our system detects inconsistencies and extracts information with unprecedented precision, adapting to the complex documentary reality of Mexico.

Facial recognition: We implement customized AI models that go beyond simple comparison. Our passive liveness test and advanced detection ensure that who is identifying themselves is really who they say they are, overcoming the document fraud challenges characteristic of the Mexican market.

AML Screening (optional): We perform real-time verifications against more than 250 global data sets, covering more than a million entities on watchlists, laying the groundwork for companies to comply with LFPIORPI, the Fintech Law, and other regulations.

What official documentation does Didit verify in Mexico?

While traditional identity verification systems may have problems, Didit is able to navigate local documentation: we're talking about identity documents, passports, driver's licenses, and residence permits.

In this way, thanks to Didit, you can verify the identity of your users in Mexico without complications, overcoming the challenges presented by having more than 390 different documentation templates.

What does this mean for the Mexican market?

• Full compliance with regulations (LFPIORPI or Fintech Law)
• Decrease in operational costs by up to 90%
• KYC processes completed in seconds

If you want to transform identity verification challenges in Mexico into a competitive advantage, click on the banner below.