Brazil Imposes Stricter FinTech Rules

The Central Bank of Brazil unveiled stricter regulations for FinTech firms Friday (March 11), imposing regulations based on the size and complexity of these companies and creating tougher standards for required capital.

Reuters reports the new rules will begin taking effect in January 2023 and are due to be fully implemented by January 2025.

The rules will extend the requirements now used for conglomerates of financial institutions to encompass financial conglomerates run by payment institutions. The change is likely to impact companies like credit card issuer Nubank , payment firm PagSeguro and digital wallet PicPay.

The regulatory capital calculation will not take into account assets that have little or no value for payment institutions’ functioning, the bank said, thus ensuring companies have a greater capacity to absorb unexpected losses.

The bank adds the changes will make it easier for new competitors to enter the payments sector, “in order to increase competition in the system and financial inclusion.”

Reuters says that Brazil’s traditional banks had pleaded with regulators to establish rules that would have make the country’s fast-growing FinTechs follow the same rules they do.

See also: How 2021’s Digital Coming of Age Changed the LatAm Banking Space for Good

The changes come amid an explosion in digital banking in Latin America, with an increasing number of financial institutions (FIs), as well as digital- and mobile-only FinTechs, competing for consumers’ attention.

Brazil’s five largest banks — Banco do Brasil, Bradesco, Caixa Economica Federal, Itau and Santander Bank — have taken measures to innovate their digital features to keep pace with these emerging digital-first challengers, said Brad Liebmann, CEO and founder of mobile-only Brazilian FI alt.bank.

“All of the big banks — the big five — have been focusing more on their digital [strategies] than they [had] been, to some extent,” Liebmann told PYMNTS last year. “But I think it’s FinTechs like us and the innovation that we’re driving that is forcing these banks to be more digital and improve the [user experience] on their apps.”