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CMN publishes regulation for online lending fintechs

Banking and Finance

After several discussions with the market, in connection with the Public Consultation No. 55/2017, the National Monetary Council (CMN) issued, on April 26, 2018, Resolution No. 4.656 (Resolution No. 4.656), which created two new categories of financial institutions, usually referred to as “online lending fintechs”, one being an entity for direct loans (sociedade de crédito direto - SCD) and the other an entity for loans between persons (sociedade de empréstimo entre pessoas - SEP).

Resolution No. 4.656 defines the SCD as a financial institution that carries out loan transactions, financing and acquisition of credit rights exclusively through an electronic platform, using its own capital as financial source for such transactions. The SCDs are authorized to assign credits related to their own transactions to (i) financial institutions, (ii) credit rights investment funds (FIDC), or (iii) securitization companies, provided that the quotas of the FIDC and the securities issued by the securitization company are offered exclusively to qualified investors.

The SEP, on the other hand, is defined by Resolution No. 4.656 as a financial institution that intermediates lending and financing transactions between persons, exclusively through an electronic platform. Creditors may be individuals, financial institutions, FIDC, securitization companies or other legal entities, but similarly to the SCD, the quotas of the FIDC and the securities issued by the securitization company can only be offered to qualified investors. The SEP is authorized to purchase, directly or indirectly, subordinated quotas of FIDC that invest exclusively in credit rights derived from transactions carried out by the SEP, provided that such acquisition represents a maximum of 5% of the assets of the investment fund and does not mean undertaking or substantially retaining the transaction’s risks and benefits. This authorization also applies to companies related to or controlled by the SEP.

The new rule limits the exposure of non-qualified investors, as per the Brazilian Securities Commission (Comissão de Valores Mobiliários – CVM) regulation, to R$ 15,000.00 per debtor, for transactions intermediated by the same SEP. It is worth noting that this limit was changed after the Public Consultation No. 55/2017, which had suggested a limit of R$ 50,000.00 for transactions with all SEPs by a same client.

Resolution No. 4.656 also authorizes the SCD and the SEP to: (i) perform credit analysis for customers and third parties, (ii) perform credit collection for customers and third parties, (iii) act as insurance representative in the distribution of insurance related to its credit and financing transactions and (iv) issue electronic currency, in accordance with the applicable regulation.

The SEP is prohibited, among other matters, to provide lending and financing with its own funds, to have equity in financial institutions and to maintain funds of creditors and debtors in its own account and not linked to transactions originated in its platform. Regarding the SCD, in addition to a prohibition to have equity interest in financial institutions, Resolution No. 4.656 also restricts any fundraising from the public, except for the issuance of shares.

Resolution No. 4.656 establishes specific rules for the incorporation, license, transfer of control and corporate reorganization of these new financial institutions.

Resolution No. 4.657

The SCD and the SEP, as well as other institutions authorized to operate by the Brazilian Central Bank, shall comply with operational and prudential requirements suitable to their size and profile. Since these institutions are supposed to have limited activities and restrictions to leverage their capital structure, SCD and SEP may opt for classification in segment S5 for the purpose of proportional and simplified application of prudential rules, which impose lighter requirements, as determined by Resolution No. 4.657, also published by CMN on April 26, 2018.

Resolution No. 4.657 amended Resolution No. 4.606, dated October 19, 2017, which provides for the optional simplified methodology for calculating the minimum requirement of regulatory capital. In order to adapt the rule for online lending fintechs, the amendment implemented by Resolution No. 4.657 allowed institutions included in the S5 segment (i) to expose themselves to securitized assets with lower risk feature and (ii) to perform activities related to custody of debt securities issued by the institution itself. According to the Brazilian Central Bank, the purpose of these changes is “to allow a more adequate cost structure in order to contribute to the increase of efficiency in the credit intermediation sector”.

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