Fintech Regulation Promotes Invocation In Brazil

Author:Mr Daniel H.C. Alvarenga
Profession:Noronha Advogados

Resolution no. 4.656/2.018 published by the Brazilian Central Bank on 26 April, which regulated credit fintechs in Brazil, opens the door of the highly concentrated banking sector in Brazil, so that financial technology companies can offer products and financial services in the credit market. Today, credit fintechs already operate in the financial market, but always through a financial institution duly regulated by the Brazilian Central Bank (CB).

With this new regulation, two types of financial institutions with different business models were created. They are: the "Sociedade de Crédito Direto" (SCD) ("Direct Credit Company"), which will carry out credit operations only using its own financial resources, and the "Sociedade de Emprésimo entre Pessoas" (SEP), (Peer-to-Peer Loan Company), which will carry out credit operations only as a financial intermediary without retaining risks or using their own resources, known in the market as "peer-to-peer lending". Both institutions, after approval by the Central Bank (CB), will be authorized to operate, only, through an electronic platform.

The aforementioned Resolution no. 4.656/2.018 has great potential to cause bank interest rates to fall and to intensify the supply of loans and financing with lower rates, increasing the competition with the big banks that currently dominate the Brazilian market.

Compared with the initial draft published by the Central Bank in August 2017, the new draft approved by the CMN that led to Resolution no. 4.656/2.018 is clearer, facilitated the process of authorization of the credit fintechs before the Central Bank and also described in more detail how investment funds can collaborate and interact with these technology companies. In the draft approved by CMN, the technical interview and the need for an indication of a "technically qualified professional" to accompany the authorization process before the Central Bank were excluded, both of which were contained in the draft previously made available by the Central Bank through public consultation no. 55/2.017.

According to the new Resolution no. 4.656/2.018, the authorization procedure before the Central Bank is the same for both the "Sociedade de Crédito Direto" (SCD) and "Sociedade de Emprésimo entre Pessoas" (SEP). Both must be constituted as corporations with capital of at least 1 million reais. In order for the request for authorization to be analyzed by the Central Bank, the resolution requires that the credit...

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