Brazilian Central Bank regulates credit fintechs

New rules enable startups to provide loans without the intermediation of banks under direct or peer-to-peer models.

The Brazilian Central Bank created a new regulatory framework for fintechs providing credit services to end consumers.

Introduced yesterday (26), the new regulation cuts the middlemen - that is, banks - from credit provision processes performed by fintechs, who up until now played the role of intermediaries.

Under the new rules, Brazilian fintechs will be able to act as direct credit providers in case they are using own resources, or lending platforms under the peer-to-peer model.

However, the fintechs will have to comply with a series of operational and technology-related requisites according to their size and area of focus. The Central Bank also wants these companies to adhere to a series of cybersecurity-related requirements by May 2019.

The introduction of the regulations represent a significant milestone for the startup community operating in financial services, since the new companies will now be operating under a legal framework.

As well as a predicted reduction in interest rates to end consumers, another upside of the regulation is the likely increase in competition from new fintechs in a segment that has been traditionally concentrated around four large banks.

Local players tend to see the Brazilian Central Bank as open to supporting and regulating fintechs, both as a mechanism to drive economic growth and also to address issues in areas such as financial inclusion.

The president at the Central Bank, Ilan Goldfajn, told delegates at an industry event in São Paulo today (27) that fintechs have a "fundamental role in driving change" in the financial system and that the institution is working to "empower" these new companies.