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Fintech Regulations | 9 Months Ended
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Sep. 30, 2022
Fintech Regulations [Abstract] |
Fintech Regulations | 16. Fintech Regulations Regulation issued by Central Bank of Argentina (“CBA”) In January 2020, the CBA enacted regulations related to payment service providers that applies to fintech companies that are not financial institutions, but nevertheless provide payment services in at least one of the processes of the payments system and offer a payment account to its customers. On July 7, 2020, the CBA approved the registration of the Argentine subsidiary in the registry for payment service providers who offer payment accounts (“PSPOCP” according to its Spanish acronym). These regulations set forth certain rules that require PSPOCP to, among other things, (i) deposit and maintain users’ funds in specific local bank accounts, payable on demand; (ii) implement a monthly reporting regime with the CBA; (iii) segregate information related to users’ investments funds; (iv) segregate the Company’s funds from users’ funds; and (v) to comply with transparency provisions regarding PSPOCP’s advertising material and documents. As of September 30, 2022, in accordance with the regulation, the Company held customer’s funds for the amount of $384 million representing the total amount of funds in payment accounts of customers, payable to them on demand. On December 30, 2021, the board of the CBA issued a regulation by which financial institutions must set up a reserve of 100% of the customer funds deposited by payment service providers that offer payment accounts. According to this new regulation, from January 1, 2022, 100% of the customer funds that have not been invested by users in Mercado Fondo, have to remain deposited at the CBA and available for users. On January 13, 2022, the Company challenged such regulation, and sought an injunction to suspend the effects pending resolution of the challenge. On March 22, 2022, the CBA rejected the Company’s challenge. On April 22, 2022, the Company sought a new preliminary injunction with the courts, in order to suspend the effects of the regulation until a final decision on the merits is granted on the case to be initiated within 90 days following that request, which was rejected by the court. The Company appealed such decision and also filed a motion to vacate the regulation issued by CBA. On September 22, 2022, the CBA modified the aforementioned resolution and established that a percentage of the customer funds deposited in financial institutions by payment service providers that offer payment accounts may be invested in Argentinian treasury bonds and do not necessarily have to remain deposited at the CBA. Under the amended regulation, financial institutions in which the Company deposits customer funds may invest up to 45% of funds that have not already been invested by users in Mercado Fondo in Argentinian, peso-denominated treasury bonds due May 23, 2027. As a result of the amended regulation, the Company withdrew on September 5, 2022 the cases it had originally filed challenging the December 30, 2021 regulation. ‎ Regulation issued by Central Bank of Brazil On November 1, 2018, the Company obtained approval from the Central Bank of Brazil to operate as an authorized payment institution. With this authorization, Mercado Pago in Brazil is subject to the supervision of the Central Bank of Brazil and must fully comply with all obligations established by current regulations. Among other obligations, the regulations require authorized payment institutions to hold any electronic balance in a payment institution account in either a specific account of the Central Bank of Brazil that does not pay interest or Brazilian federal government bonds registered with the “Sistema Especial de Liquidacao e Custodia.” 100% of electronic funds were required to be deposited as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, in accordance with the regulation, the Company held $1,013 million deposited in Brazilian federal government bonds as a mandatory guarantee (the “Central Bank of Brazil mandatory guarantee”). During March 2022, the Central Bank of Brazil announced new prudential rules for payment institutions based on their size and complexity and raising standards for required capital. The new framework, which will be effective starting in January 2023 with full implementation by January 2025, will extend the application of the rule regarding proportionality of regulatory requirements (currently applicable to conglomerates of financial institutions) to financial conglomerates led by payment institutions. The Company is assessing the effects that the new rules may have on its regulated Brazilian subsidiaries. Chilean subsidiaries regulated by Financial Market Commission On November 5, 2021, by means of exempt resolution No. 6312, the Financial Market Commission (Comisión para el Mercado Financiero – “CMF”) authorized Mercado Pago Emisora S.A. to carry out the exclusive business of non-bank issuer of payment cards with provision of funds. Mercado Pago Emisora S.A. became an institution regulated by the CMF, being obligated, among other things, to: (i) deliver information on its financial and operational management on a regular basis; (ii) maintain certain minimum capital required; (iii) to set up a determined liquidity reserve; and (iv) to deposit and maintain users’ funds in specific banks’ accounts. On November 9, 2021, by means of exempt resolution No. 6358, the CMF authorized MercadoPago S.A. to carry out the exclusive business of payment card operator. With this authorization, Mercado Pago S.A. became an institution regulated by the CMF, being obliged, among other things, to: (i) provide information on its financial and operational management on a regular basis: (ii) maintain certain minimum capital required; and (iii) to constitute a determined liquidity reserve. As of September 30, 2022, in accordance with the regulations, the Chilean subsidiaries held $44 million as restricted cash and cash equivalents related to liquidity reserves. Mexican subsidiary regulated by National Banking and Securities Commission On April 29, 2022, MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico, a Mexican subsidiary obtained the final approval by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or the "CNBV") to operate as an Electronic Payment Institution (Institución de Fondos de Pago Electrónico or “IFPE”, as referred to by the Financial Technology Institutions Act) which enables that entity to issue, manage, redeem and make electronic transfers of money on behalf of its clients, through computer applications, interfaces, web sites or any other means of electronic or digital communication. MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico thus became a regulated financial entity, effective on July 1, 2022, and is subject to the supervision and jurisdiction of the relevant Mexican financial regulators, including but not limited to the CNBV and the Central Bank. Amongst the regulatory obligations to which Electronic Payment Institutions are subject, the following are noteworthy: a) maintain minimum capital requirements, b) maintain sufficient reserves in high-quality liquid assets (e.g. cash, treasury bills, etc.), so as to be able to redeem, on par, the funds held on behalf of the clients, c) maintenance of compliance, anti-money laundering and countering of terrorism financing, d) development and maintenance of sound cybersecurity and information security policies, including but not limited to the performance of recurrent vulnerability tests and the deployment of strict infrastructure controls. As of September 30, 2022, in accordance with the regulations, the Mexican subsidiary held $173 million as restricted cash and cash equivalents related to liquidity reserves. ‎

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