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Brazil’s central bank increases operational costs for country’s leading fintechs

The rule change will be phased in, but shares in publicly listed fintechs dip.

Photo: iStock

The Central Bank of Brazil (BCB) has bowed to pressure from the country’s leading banks and announced a more capital-intensive regulatory code for fintechs operating in the country.

On March 11, the BCB said it would phase in an increase in the capital requirements for companies operating in the payments category of financial institutions. Although the new regulation does not require material changes to fintechs’ operating models in the short term, in the longer term it will likely weigh on profitability by requiring these fintechs to hold higher capital against operational risks.

The BCB said that the move was meant to reflect the recent strong growth of many Brazilian fintechs and that they had begun to take “new risks without proportional prudential requirements… given the fast growth and sophistication of the sector”.

The previous regulation stated that payment institutions’ capital requirement was 2% on the transactions carried out in the last 12 months. The new rules – which will require a gradual increase in capital at the larger fintechs until 2025 – will peak at a minimum capital level of 8%, plus a capital conservation buffer of 2.5%,