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Regulatory news in Brazil's financial and payment systems foster competition and financial innovation
*This article was prepared by the independent Brazilian office NBF|A
The implementation of the Open Banking and PIX in Brazil is creating an ecosystem favorable to competition and financial innovation. This is boosting the fintech and bigtech market in the country, an opportunity to develop new products and services.
Since 2016, the Central Bank of Brazil (BACEN) has been developing a work agenda called “Agenda BC#”, which has as main objectives the restructuring and modernization of the Brazilian financial (SFN) and payment (SPB) systems, in order to foster financial citizenship, cheaper credit to the population and the development of more modern regulatory arrangements.
Concept and implementation steps
In this context, with an aim at improving competitiveness and to offering products and services to consumers, BACEN has been working on the launch of the Open Banking, regulated, among others, by Joint Resolution 1/2020, Circular 4,015/2020 and Circular 4,032/2020.
Following international initiatives, the Brazilian Open Banking will consist in a standardized sharing of data, products and services through the opening and integration of platforms and infrastructures. The Open Banking is based on the premise that the real owner of the data made available and circulated in the SFN and SPB is the customer, not the financial institution that holds them.
Based on this premise and on the principle of reciprocity, BACEN's proposal is that, in a first stage (started in February 2021), the public has access to data of the institutions participating in the SFN and SPB (such as location of their agencies, applicable rates to different services, etc.) and that such institutions share and have access to less complex customer data and services / products from other participating institutions. In later stages, the Open Banking also intends to integrate services such as payment initiation and, in the future, more complex services and products such as foreign exchange operations, insurance and open private pension.
The main players in the Open Banking can be categorized into (i) customers, (ii) data-transferring institutions and (iii) data-receiving institutions.
In general, must participate in the Open Banking (i) institutions of the S1 and S2 conglomerates, which are basically the large and medium-sized banks in the country and (ii) account holders institutions (institution that maintains demand deposit or savings accounts or prepaid payment account) and payment transaction initiators (institution that will provide the payment transaction initiation service, without being holder of the transacted funds), as regards to the sharing of the payment transaction initiation service. The other financial institutions, payment institutions and other institutions authorized to operate by BACEN will have voluntary participation in the Open Banking, but will only be able to access data from other institutions if they provide data to the other participating institutions (principle of reciprocity).
Data sharing steps
The access to customer data must follow three fundamental steps: consent, authentication and confirmation, which must be performed securely, quickly and accurately, carried out exclusively by electronic means and have a duration compatible with their objectives and complexity.
The entity interested in receiving the customer's data (recipient) must obtain his consent, which must be requested in clear language, specify its purposes, have a validity period compatible with such purposes and clarify the entity that will access the data, among others.
Once authorized for sharing the data, the sending institution will provide the receiving institution with the client's data, being responsible for authenticating (verifying and confirming) the client and the receiving entity. Authentication mechanisms must be compatible with the level of risk and the purpose of the sharing. The transferring entity must also request to the client the confirmation of the sharing, indicating at least the receiving entity, the validity of the consent and the data to be shared.
At the end of 2020, BACEN enacted the Resolution 32/2020, which establishes the technical and operational requirements for the implementation of the Open Banking in Brazil, to be complemented by the sector's self-regulation, which will play a central role in defining requirements applicable to the sharing of services and data through the open financial system, including, among other aspects, the technological and operational standard of the system, the layout of data and services, channels for customer demands, dispute resolution methods and the rights and duties of the participants. BACEN will be in charge of supervising the self-regulation, being able to control and veto the sector’s proposals.
Concept, implementation steps and features
BACEN's second major initiative was launched at the end of 2020 and consists of the instant payments system, called PIX.
In a context of about 230 million active smartphones and 29 billion transactions made from cell phones, the PIX is an electronic resource transfer solution in which the payment order transmission and the availability of funds to the user-receiver happen in real time, being available 24x7. In other words, it is a payment system that allows any transfer and payment to be made instantly on any day and time, including weekends and holidays.
In accordance with the PIX Regulation (Resolution 1 of August 12nd, 2020), the PIX is a neutral, open, interoperable, non-discriminatory and efficient infrastructure, maintained by BACEN, by means of which private entities, financial or not, can operate and offer payment solutions that will be instantly cleared. The PIX can be carried out through checking, savings or prepaid payment accounts and seeks to encourage financial democratization, ensuring speed, availability, versatility, simplicity, cost reduction, security and convenience for payments made in the country.
The tariffs charged to customers will be defined by the participating institutions themselves, which may establish gratuities, in addition to those the law already grants to individuals (in the case of sending funds for the purpose of transfer and purchase and in the case of receiving funds, with transfer purpose). In addition, to mitigate the risks of fraud and breach of the regulation to prevent money laundering and terrorism financing, institutions are authorized to establish maximum amount limits for initiating a PIX, per user, per transaction, day and month, taking into account the reference table provided by BACEN.
During the first stage of its operation (already started), QR code / link, key insertion and data manual insertion will be available. In the future (between 2021 and 2023), it will also be possible to do PIXs through approximation; paying QR code; payment request; automatic debit; and payments with documents.
It is expected that the PIX will be integrated with the Open Banking soon (specifically, during the third phase of the Open Banking implementation schedule, that is, when instant payment services are integrated into the open financial system).
Participants and requirements
As the Open Banking, the participation of large financial and payment entities is mandatory in the PIX and is optional for the others. In this sense, financial institutions and payment institutions with more than 500,000 active customer accounts are obliged to participate in the PIX, considering both deposit, savings and prepaid payment accounts.
Payment institutions that choose to voluntarily join the PIX and that do not meet the criteria provided for in the regulations in force to be authorized to operate by BACEN, will be considered members of the SPB as from the moment they submit a request for joining the PIX and must comply with a minimum regulation regarding, among others, structure and management of operational and liquidity risk, cyber security policy, policy for the prevention of crimes of laundering or concealment of assets.
The PIX provides for the following types of participation:
(i) transactional account provider, which is the financial institution or payment institution that offers a prepaid deposit account or payment account to the end user;
(ii) governmental entity, the National Treasury Secretariat, with the sole purpose of collecting and making payments related to its core activities; and
(iii) special liquidator, which is the financial institution or payment institution authorized to operate by BACEN that (a) within the scope of the PIX, has the exclusive purpose of providing clearance services to other participants, without offering the sending or receiving of a PIX to end users; (b) meets the requirements to act as a clearance participant in the SPI (instant payment system), pursuant to the regulation of that system; (c) offers deposit account or prepaid payment account, but do not meet the criteria of mandatory participation in the PIX.
As for the requirements for participation, only entities that adhere to the rules and conditions of the PIX Regulation, who have technical-operational capacity to meet all the obligations provided for in the Regulation and who participate and meet all the requirements of the registration / approval process, may join the PIX. Also, in the case of payment institutions not subject to the operating authorization or in the process of having operating authorization by BACEN, they must: (i) have a contract signed with a responsible participant (transactional account provider or special liquidator participating in the PIX and that is responsible for the performance of the contracting participant in aspects related to the arrangement) and (ii) to prove the payment and maintenance of, at least, BRL 1,000,000.00 (one million reais) of share capital.
In addition to the BACEN regulation, the PIX will have the PIX Forum, a permanent advisory committee, coordinated by BACEN, whose objective is to support BACEN in defining the rules and procedures that govern the operation of the system.
Said forum will be integrated by participants of the arrangement, individually or through representative associations of national scope; providers and potential providers of information technology services; paying and receiving users, through representative associations nationwide; and clearing houses and providers of clearing and settlement services that offer mechanisms for providing liquidity within the PIX.
The implementation of the Open Banking and the PIX tends to transform the Brazilian SFN and SPB, by creating an ecosystem favorable to competition and innovation.
Indeed, such initiatives will allow, in a non-discriminatory, neutral and interoperable manner, the exchange of information and services between the different agents of the financial and payment markets, stimulating thw competition and the development of innovative solutions.
All of this tend to foster the fintech and bigtech market in Brazil, which will have numerous opportunities to develop new products and services to end customers and financial and payment institutions participating in the new systems.
 As defined in the BACEN Resolution 4,553/2017