FX in payment institutions: A great revolution is approaching! Are you prepared?

By Luciano Fantin

In Brazil, FX has always been a complex subject. There are countless rules, restrictions, limits, definitions that we get lost. Anyone who works in a bank always hears that “the FX is a bank within a bank”. The nature of operations is very varied, accounting is very specific and the controls and processes involving transactions, being very bureaucratic, require well-prepared systems and qualified personnel.

The history of high FX regulation in Brazil has to do with the strict control of our reserves and the maintenance of the value of our national currency, which has not evolved over time. There is no consolidated legislation for the FX. There are about 40 laws, many of them extremely old.

In this sense, it is important to talk about Bill 5387, which, having already passed through the Lower House, is now awaiting consideration by the Senate. The intention of the proposal, prepared by congressmen, the Central Bank, the Brazilian Securities Commission (CVM), the Federal Revenue Service, banks, fintechs and companies, is to make a major modernization of the FX legislation. The expectation is that the matter will be evaluated in 2021, however, given the current scenario of major political and economic challenges, this agenda is not guaranteed.

On the other hand, the Central Bank of Brazil (BCB) has already gone ahead, within its legal boundaries, and made important adjustments to Circular 3691/13, through Res. BCB 137/21 and Res. BCB 148/21. The aforementioned Circular is the one that regulates the norm published by the National Monetary Council that provides for the exchange market, whose novelties we will deal with in this article.

Digital channels, providing transaction security, good user experience, low cost and high availability, are factors for growing market opportunities. Thus, Circular 3691/13, recently updated, brought the concept of eFX and payment institutions (PI) as new actors in this service provision, as of 9/1/2022.

eFX is defined as an international payment or transfer service that, through an FX transaction or through an international transfer in reais (BRL), allows:

• Acquisition of goods and services, in the country or abroad;
• Unilateral transfer;
• Transfer of funds between an account in the country and an account abroad with the same ownership and
• Withdrawal in the country or abroad.

If we focus only on transfers, estimates by economic analysis and research institutes indicate that the global market, in 2018, would be in the order of US$682.6 billion, with an expected annual growth of 3.9%, reaching US$930.4 billion in 2026 (source: Allied Market Research).

Made up of various operators and channels, such as banks, authorized companies (“money transfer operators”) and electronic platforms (“mobile network operators”), among other means, recent growth has been driven by the internationalization of business and the migration of people.

eFX can be provided by authorized PIs, regardless of authorization to trade in FX. In other words, if the PI is authorized, there is no need for specific authorization to operate in FX. The PIs that can offer eFX are:

• Electronic currency issuers;
• Postpaid payment instrument issuers and
• Acquirers

Payment transaction initiators – PTIs, are out of this possibility.

However, unauthorized PIs may also offer eFX for (i) purchase of goods or services and (ii) withdrawals, without limitation in value, if they do so within an authorized payment arrangement. The purchase of goods or services is limited to US$ 10,000 if the PI is not in an authorized payment arrangement.

Finally, other legal entities can also provide eFX exclusively to enable the acquisition of goods and services, limited to US$ 10 thousand.

It is important to emphasize that the payment institution authorized to operate in the FX market is prohibited from receiving or delivering currency in cash, domestic or foreign, in a purchase or sale of foreign currency carried out with a customer. In other words, everything must happen only in the digital world.

The other institutions that can also offer eFX are universal banks, commercial banks, savings banks, investment banks, development banks, FX banks, development agencies, credit, financing and investment companies, securities brokerage companies , securities distribution companies and FX brokerage companies.

All that said, the enormous potential of these new rules is evident. Let’s imagine a PI, acting in a context of individual or corporate customers, who intermediate imported or exported products, who are travel agencies or their customers, provide services abroad, or receive foreign services from, use games, make international purchases of various natures, have relatives abroad to whom they need to send money (or receive), and everything else that involves FX.

These PIs will be able to offer, in their list of services to their customers, the possibility of closing their transactions without necessarily having to use an authorized financial institution for the registration and settlement of transactions, as is currently done, for example, through a bank or FX brokerage.

The creation of value, a greater offer of services and products, a better customer experience, greater agility and more competitive prices are just some of the many advantages.

We live in times of great leaps in quality in financial services (Pix – instant payment – was one of them, very recently), and eFX promises to be another.

Is your PI ready?

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