A new regulatory framework for the payment card industry

By Luciano Fantin – This article deals with the new regulatory framework introduced in 2013 for the payment card industry as a whole.

A new regulatory framework has been introduced in the Brazilian National Financial System thorough the Monetary Council Resolution 4282 and 4283, both as of November 4, 2013, in conjunction with Brazilian Central Bank (BCB) Circular Letters 3680, 3681, 3682 and 3683, which aim at regulating the payment schemes and the payment card industry, based on Federal Law 12865 as of October 9, 2013.

The growing utilization of payment cards and payment schemes in Brazil (electronic processes, which are utilized for payment transactions instead of money and checks) ended up triggering the necessity of an enhanced regulatory framework. This is due to legal aspects (especially the anti-money laundering processes), consumption relations (the quality of services offered to the general public) and the necessity of systemic risk reduction (through the integration of such payments into the Brazilian Payment System).

The payment card industry was under the regulatory and supervisory competence of the Brazilian Central Bank as long as the card issuers were banks. This created an important regulatory asymmetry due to the relevant role of the non-financial vehicles in this market. As regards to the owners of payment schemes (“brands”), there had been no regulatory oversight from the BCB.

The recently issued regulations discipline (i) the classification, authorization and oversight process of the payment schemes, (ii) the nature and authorization for functioning of the payment institutions, (iii) the payment accounts, (iv) the risk management process as well as the governance around liquidity which is maintained in the payment accounts and (v) aspects concerning suitability, clear communication and relationship, rights and obligations and others connected to products and services offered to the clients. The brands as well as the payment institutions will have to observe similar rules to those applied to financial institutions, related to their incorporation, authorization for functioning and operation, being now subject of supervision and control by the BCB. These companies will also have to follow certain demands, as e.g. minimum equity levels, new regulatory reporting as well as adaptation or creation of new governance policies on risk avoidance, equity management and value and liquidity management of the electronic assets. The BCB has been empowered to determine which businesses or payment schemes will be entitled to function without its authorization, when considering its size and characteristics.

Even the already existing companies, which have processes, controls and a good governance in place, as far as non-financial vehicles, will suffer a deep impact since all their internal rules and regulations, as well the existing processes will have to be reviewed under these new rules.

Due to the fact that these companies are now compared to financial institutions, the degree of quality, maintenance of internal rules and processes will change level completely. The impact on the operational cost has to be well gauged and will be probably relevant (transaction cost). The risks for directors and officers of payment schemes and payment institutions has also been raised, since they will now bear the full legal and regulatory responsibility of statutory members of financial institutions.

The owners of payment schemes will have 360 days as of publishing date of the new rules (November 4, 2013) to adapt themselves i.e. 180 days of the enforcement of the new rules, which happens 180 days after its publishing. The already operational payment institutions on the other hand will have 270 days (90 days to file the authorization request, after 180 days of publishing) for its complete adaptation.

According to market sources, further aspects will be ruled and the BCB is working on that.

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