- The move is expected to affect companies such as credit card issuer Nubank, payment company PagSeguro, financial technology solutions firm StoneCo and digital wallet PicPay;
- The calculation of regulatory capital will now disregard assets that have little or no value for payment institutions functioning, said the central bank, noting that this will ensure companies have a greater capacity to absorb unexpected losses.
Brazil‘s central bank announced on Friday tougher rules for fintechs, saying that payment institutions will now be subject to regulations based on their size and complexity, and it also increased the standards for required capital.
The new framework, which will start taking effect in January 2023 with full implementation by January 2025, will extend the proportionality of regulatory requirements currently used for conglomerates of financial institutions to include financial conglomerates led by payment institutions.
The move is expected to affect companies such as credit card issuer Nubank, payment company PagSeguro, financial technology solutions firm StoneCo and digital wallet PicPay.
In the case of LatAm’s largest neobank, however, analysts at Citi have already said that the impact will not be significant. According to them, the short-term impact should be limited, as Nubank has excess deposits and already remunerates depositors at 100% of the interbank rate.
Regarding minimum capital adequacy, Citi says it does not see any major impacts for Nubank, especially given that the digital bank is well-capitalized after its initial public offering (IPO) in December. Citi believes that Nubank will be classified as a “type 3” institution in the “S2” segment based on the new classifications made available by the BC, as its assets represented around 1% of the country’s GDP.
The BC created a new classification with three types of financial conglomerates. Type 3 is defined as a prudential conglomerate led by a payment institution and integrated by a financial institution. Within it, there is segmentation from S2 to S5 depending on the size of the conglomerate as a proportion of Gross Domestic Product (GDP).
The calculation of regulatory capital will now disregard assets that have little or no value for payment institutions functioning, said the central bank, noting that this will ensure companies have a greater capacity to absorb unexpected losses.
The changes, which the sector has been waiting for since a public consultation was opened on the subject in late 2020, will preserve easier entry for new competitors in the payments sector, “in order to increase competition in the system and financial inclusion,” the central bank said.
Traditional banks in Brazil were urging the regulator to bring rules for highly successful fintechs into line with their own, saying that many such firms have grown at a dizzying pace amid loose regulation.
The central bank views the new rules as necessary given the diversification and sophistication of payment institutions since 2013, when it put them under its supervision, paving the way for the nascent industry of financial start-ups using technology to simplify payments, transfers, and borrowing.
“In this process, part of the segment created financial subsidiaries and started to assume new risks, without proportional prudential requirements,” the central bank said.