Fintechs: peer 2 peer lending model moves forward in Brazil with new regulations
The Brazilian National Monetary Council (CMN) approved last week a resolution that enables technology finance companies (fintechs) to grant loans without the need for bank intermediation.
Nowadays, fintechs must be banking correspondents in order to intermediate the granting of loans. Under this framework, digital platforms only bridge the gap between borrowers and banks, who effectively lend the funds.
The new Resolution 4,656/2018 contains rules on the direct credit company (SCD) and the peer to peer lending company (SEP), as well as regulates loan and financial transactions between persons through an electronic platform and establishes their requirements and operating procedures, among other matters.
SEP acts as an intermediary in the relationship between investor and borrower in a transaction known as peer 2 peer lending. In other words, the investor (individuals, financial institutions, credit investment funds, securitization companies or non-financial corporations) deposits the funds at SEP’s bank account and, within 5 business days, the funds must be made available to borrower. After the payment of each installment by the borrower, including in the event of advance payment, SEP shall transfer the applicable funds to investors, within 1 business day.
Furthermore, as per the terms of the resolution, SEP can perform the following activities: (a) credit analysis for customers and third parties; (b) collection of credit from customers and third parties; (c) acting as insurance representative in the distribution of insurance related to previous activities; and (d) issuance of electronic money, in accordance with the regulations in force.
Important points that must be observed:
Prohibitions: among many items listed in the regulation, SEP cannot grant loans/financial transactions with its own funds, hold equity of financial institutions, as well as hold funds of creditors and debtors in its own account not related to a specific loan/financial transaction.
Limits: except in the case of qualified investors, as established by the Brazilian Securities and Exchange Commission (CVM), the investor may not grant a loan to the same borrower, within the same SEP, whose nominal value exceeds the maximum limit of R$15,000.00 (fifteen thousand reais).
Execution of Agreements: SEP shall execute an instrument of credit with borrower and a related instrument with investors. Specific terms and conditions must be observed.
Provision of information: SEP must provide information to its clients and users about the nature and complexity of the contracted transactions, including the risks of this type of transaction, maintaining such information visible on the platform. SEP should also disclose, on a monthly basis, the average default, by risk classification, of loan/financial transactions related to the last 12 months.
Fees charged by SEP: the resolution does not establish tariff limits, but emphasizes that SEP must adopt a tariff policy that is consistent with the economic viability of loan and financial transactions, in order to foster the convergence of its interests and the clients’ interests.
SEP Constitution: SEP must be a corporation (sociedade anônima) and permanently observe the minimum limit of one million reais (R$1,000,000.00) in relation to its paid-up corporate capital and net worth. Investment funds may hold SEP’s control. SEP’s operation depends on prior authorization from the Brazilian Central Bank.
Credit risk: transactions must be carried out without the assumption of credit risk, directly or indirectly, by SEP.
Such digital platforms can negotiate interest rates in direct transactions, increasing the competition of credit offers and allowing a reduction of interest rates.
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