Banks, Financial Services, Fintechs and Digital Assets Newsletter – June and July 2024

REGULATIONS

Brazilian National Monetary Council

CMN approves resolution to expand business models involving credit fintechs

On July 24, 2024, the Brazilian National Monetary Council (“CMN”) published CMN Resolution No. 5,159, which amends CMN Resolution No. 5,050 of 2022 to expand the business models of credit fintechs in Brazil.

As of August 1, 2024, Direct Credit Companies (“SCDs”) and Peer-to-Peer Loan Companies (“SEPs”) can operate under more favorable conditions. So:

• • SCDs can perform loans, financing, and acquisition of credit rights through the sale or assignment of these credits, in addition to using Bank Credit Bills Certificates (CCCBs) as instruments to enable operations.
  • SEPs, in turn, can mediate financing directly to the supplier of goods or services, expanding their business possibilities.

These changes aim to reduce the operating costs of SCDs and SEPs, benefiting small and medium-sized business chains and fostering financial inclusion. SCDs will also have access to programs such as the Brazilian National Support Program for Micro and Small Enterprises (“PRONAMPE”) and the Investment Guarantee Fund (“FGI”), which provide coverage for potential defaults.

These changes create expectations for significant development in the credit market through new opportunities for fintechs and more straightforward access to credit for more people and businesses.

Read CMN Resolution No. 5,159 in full.

Read our client alert on CMN Resolution No. 5,159.

CMN Resolution No. 5,145, dated June 26, 2024

CMN Resolution No. 5,145, of June 26, 2024, amended Resolution No. 4,677, of July 31, 2018, which establishes maximum limits of risk exposure per client and the maximum limit of concentrated risk for financial institutions and other institutions authorized to operate by the Central Bank of Brazil (“BC”).

Under Resolution No. 4,6777, CMN Resolution No. 5,145 excluded securities brokers, foreign exchange brokers, and securities distributors from the scope of the exposure limits.

CMN Resolution No. 5,145 entered into force on July 01, 2024.

Read CMN Resolution No. 5,145 in full.

CMN Resolution No. 5,146, dated June 26, 2024

CMN Resolution No. 5,146, of June 26, 2024, amended CMN Resolution No. 4,966, of November 25, 2021, which provides for the accounting concepts and criteria applicable to financial instruments, in addition to the establishment and recognition of hedge accounting relationships by institutions authorized to operate by the BC.

CMN Resolution No. 5,146 amends rules on accounting concepts and criteria for these financial instruments.

CMN Resolution No. 5,146 entered into force on August 01, 2024.

Read CMN Resolution No. 5,146 in full.

Central Bank of Brazil

BCB Resolution No. 392, dated June 12, 2024

BCB Resolution No. 392 of June 12, 2024, implemented the Financial Assets Catalogue (“CAF”), which lists the types of financial assets subject to registration and centralized deposit services. It also established self-regulation standards for performing these activities depending on each type of financial asset.

The updated catalog should be made available by the registrars and central securities depositories on their respective websites, whether authorized or in the process of authorization by the BC, thus ensuring transparency to the public.

Entities must align their regulations and systems with the CAF within two years of its approval.

BCB Resolution No. 392 entered into force on July 01, 2024.

Read BCB Resolution No. 392 in full.

BCB Resolution No. 395, dated June 26, 2024

BCB Resolution No. 395, of June 26, 2024, amended:

• • BCB Resolution No. 319, dated May 18, 2023
  • BCB Resolution 313, dated April 26, 2023
  • BCB Resolution No. 229, dated May 12, 2022

The goal is to align the resolutions with the calculation of the share of risk-weighted assets (RWA) related to exposures to credit risk of financial instruments classified in the trading portfolio (RWADRC – Default Risk Capital).

BCB Resolution No. 395 establishes new maximum limits for risk concentration that must be complied with by payment institutions that are part of type 3 prudential conglomerates and securities brokers, securities distributors and foreign exchange brokers, and by the leaders of prudential conglomerates or non-members of prudential conglomerates.

BCB Resolution No. 395 entered into force on July 01, 2024.

Read BCB Resolution No. 395 in full.

BCB Resolution No. 397, dated July 03, 2024

BCB Resolution No. 397, of July 03, 2024, amended BCB Resolution No. 352, of November 23, 2023, which provides for:

• • the accounting concepts and criteria applicable to financial instruments, as well as the identification and recognition of hedge accounting relationships by securities brokers, distributors, foreign exchange brokers, consortium administrators, and payment institutions authorized to operate by the BC.
  • the accounting procedures for defining the cash flows of financial assets solely as payments of principal and interest, applying the methodology for calculating the effective interest rate of financial instruments, creating a provision for losses associated with credit risk, as well as disclosing information relating to financial instruments, in explanatory notes, to be followed by financial institutions and other institutions authorized to operate by the BC.

Additionally, BCB Resolution No. 397 repeals BCB Resolution No. 378 of May 13, 2024, effective from January 1, 2025.

The remaining BCB Resolution No. 397 provisions entered into force on August 01, 2024.

Read BCB Resolution No. 397 in full.

BCB Resolution No. 400, dated July 04, 2024

BCB Resolution No. 400, dated July 4, 2024, provides guidelines for establishing the Open Finance governance structure.

As of January 02, 2025, BCB Resolution No. 400 repeals Circular No. 4,032 of June 23, 2020. The remaining provisions of BCB Resolution No. 400 entered into force on the date of its publication.

Read BCB Resolution No. 400 in full.

BCB Normative Instruction No. 485, dated July 04, 2024

BCB Normative Instruction No. 485, dated July 4, 2024, disclosed the classification  of institutions participating in the Open Finance system and the equity ranges that must be used to calculate the contribution to the costing of the Open Finance governance structure.

BCB Normative Instruction No. 485 entered into force on the date of its publication.

Read BCB Normative Instruction No. 485 in full.

BCB Normative Instruction No. 487, dated July 05, 2024

BCB Normative Instruction No. 487 of July 5, 2024, provides for the procedures to request authorization to use the entire methodology for assessing expected losses and calculating and reserving allowances for credit risk-related expected losses, supplied to financial institutions and other institutions authorized to operate by the BC, classified under segment 4 (S4), as stated in CMN Resolution No. 4,966, of November 25, 2021, and BCB Resolution No. 352, of November 23, 2023.

BCB Normative Instruction No. 487 will enter into force on January 01, 2025.

Read BCB Normative Instruction No. 487 in full.

BCB Resolution No. 401, dated July 17, 2024

BCB Resolution No. 401 of July 17, 2024, amended BCB Resolution No. 277 of December 31, 2022, which regulates Law No. 14,286 of December 29, 2021, to raise the limit for foreign exchange transactions with immediate settlement by securities brokers and distributors, foreign exchange brokers and financial brokers. This limit has been raised from USD 300,000 to USD 500,000.

BCB Resolution No. 397 entered into force on September 02, 2024

Read BCB Resolution No. 401 in full.

BCB Resolution No. 402, dated July 22, 2024

BCB Resolution No. 402 of December 07, 2023, amended the regulation attached to BCB Resolution No. 1 of August 12, 2020, which provides for the PIX payment system and approves its regulation to establish the operating rules for the Automated PIX transactions and amend the provisions relating to Scheduled PIX transactions.

In addition, BCB Resolution No. 402 repeals BCB Resolution No. 360 of December 7, 2023.

BCB Resolution No. 402 entered into force on the date of its publication.

Read BCB Resolution No. 402 in full.

BCB Normative Instruction No. 491, dated July 23, 2024

BCB Normative Instruction No. 491, of July 23, 2024, established guidelines for registering access devices for executing PIX transactions and managing PIX keys and set the maximum amount for executing PIX transactions through unregistered access devices.

BCB Normative Instruction No. 487 entered into force on the date of its publication, and its provisions will be effective as of November 1, 2024.

Read BCB Normative Instruction No. 491 in full.

NEWS

Central Bank of Brazil updates DREX pilot plan

On May 22, 2024, the Central Bank of Brazil approved BCB Resolution 382, which updates the DREX Platform regulation.

According to the Central Bank of Brazil, this update significantly improves the platform by enabling the incorporation of new assets and services to the DREX pilot. In addition, businesses involving assets outside the Central Bank’s regulatory competence can now be tested in cooperation with other regulators.

The Distributed Ledger Technology (DLT) developed for the DREX pilot was deemed adequate by the BC to conduct transactions with the assets tested. However, to continue structuring the project, assessing the viability of implementing smart contracts created and managed by third-party platform members will be necessary. The goal is to ensure that such “smart contracts” provide greater transaction security.

It is important to highlight that privacy is crucial. Technological solutions evaluated so far have yet to fulfill all legal requirements related to the protection of privacy and personal data. The BC will continue to explore privacy alternatives in the next step of the project.

It is still impossible to determine when DREX will be tested with the general public, given that privacy criteria have yet to be established. These challenges are part of the continuous development of this technology and innovation environment.

Read the article in full.

Central Bank of Brazil publishes statistics on retail and card payments in Brazil for 2023

On June 04, 2024, the BC published statistics on retail and card payments in Brazil for 2023.

• • The report highlighted significant growth in payment transactions, mainly due to PIX transactions, totaling 108.7 billion.
  • Trade volume within these transactions amounted to BRL 99.7 trillion, representing a 31% increase in the number of transactions and a 9% increase in the transaction volume compared to 2022.
  • PIX transactions increased 75% in 2023, representing 39% of transactions, while credit, debit and prepaid cards also increased.

In addition, the report showed that mobile phones were the main access channel to execute transactions, representing 82% of the total.

The average value of transactions varied, with the Electronic Available Transfer Available (TED) registering the highest average value per transaction (BRL 45,625), while PIX transactions registered an average of BRL 409.

The payment cards market also expanded, with prepaid cards growing 36% and representing 23% of card transactions.

These statistics reflect the growing digitization of payments in Brazil and consumers’ preference for faster and more convenient payment methods.

Read our Client Alert on this topic.

Superior Court of Justice sets precedent on acquiring and sub-acquiring in the payments market

In an unprecedented case, the Brazilian Superior Court of Justice (“STJ”) dismissed the joint liability of a credit card acquirer entity (credenciadora) regarding unpaid debt by a sub-acquirer entity (subcredenciadora) against a commercial establishment.

The context involved the bankruptcy of the sub-acquirer– the acquirer mediated payment transactions with credit cards between the establishment and consumers.

The commercial establishment claimed that the acquirer should be held responsible for the losses resulting from the bankruptcy of the sub–acquirer. However, the STJ ruled against holding the acquirer liable, which has set an important precedent for payment disputes.

The decision is paramount to the payments market, given that it directly influences litigation involving sub-acquirer entities’ default in credit card transactions. The dismissal of joint liability implies the recognition of the autonomy of the contracts entered into by the acquirer and sub-acquirer entities, consequently ensuring greater protection for the referred entities.

Read the STJ decision in full.

Open Finance: Central Bank publishes rules for PIX through NFC and defines new governance structure

The BC and the CMN have published rules to improve Open Finance regulations.

The goal is to simplify user payment, reducing steps for completing transactions.

The newly published regulations expand functionality and advance the discussion of new features. In this regard, a new governance structure for participating institutions and payments without redirection to an app has been created.

According to the Central Bank of Brazil, the updated system will be accessible starting February 28, 2025.

Read the article in full.

Central Bank improves PIX security mechanisms and announces new release date for Automatic PIX

The BC has updated PIX regulation to combat fraud and scams and, consequently, ensure more security for PIX transactions.

Within this context, starting November 1, participating institutions must implement several measures to foster the development of security mechanisms against financial crimes.

In addition, the BC approved the new Automatic PIX mechanism, which will be launched on June 16, 2025. This method should result in faster payments and reduce steps and costs for collection procedures.

Read the BC article in full.