By Luciano Fantin: June 30th, 2023
Yesterday (6/29/23) we had an important novelty, with the edition, by Bacen, of Normative Instruction (IN) 397, which amends IN 103/21. This document discloses procedures, documents, deadlines and information necessary for processing authorization requests related to the operation of payment institutions (IP).
The relevant novelty contained in this text was the requirement for IPs to present a reasoned justification (JF) that proves the economic and financial viability of the enterprise, in the case of an application for authorization to operate in the FX market.
In this JF, IP must describe, among other things:
- The impacts of a strategic nature, explaining, if applicable, the new strategic objectives and market opportunities that justify the operation;
- The impacts of an operational nature, such as the changes in the standards and structure of corporate governance, internal controls, risk management, and procedures and controls for the detection and prevention of money laundering, as well as
- Impacts of an economic and financial nature, explaining the estimates for the critical variables such as rates and average values of operations, service fees, as well as expected results.This last item deserves a lot of attention, as the IP must be in a position to produce a solid qualitative and quantitative analysis, which demonstrates the economic and financial viability of the exchange rate in its operation, taking into account the impacts on capex and opex, in addition to those arising from the revenues.
IPs must seek to establish a realistic and concrete link with what they foresee in their Business Plan, which must already include an economic-financial feasibility study (EVEF) . The JF has to “talk” like the EVEF, as the latter brings all the revenue and expense bases, as well as equity positions and cash flow. In other words, JF cannot become a “loose” piece that is not tied to the strategy already designed by the institution and translated into its PN.
Another very relevant aspect concerns the opportunities and challenges that the FX market brings.
As much as excellent opportunities are envisioned for clients and the institution itself, in terms of business, IP has to make a deep reflection on the risks it will attract in-house, such as the significant increase in operational and market risk, with regard to currency fluctuations and possible unintentional mismatches.
It is important that, before moving forward, the minimum governance and control structures are created for this new and promising market for IPs and that all relevant areas of IP are heard, to say whether they are prepared or not.
Luciano Fantin
Partner at The Sharp Fintech Consultoria
