The rules of bank correspondents and fintechs

By Manoel Jordão

The Central Bank of Brazil (BC) summarizes as financial democratization society’s desire for long-lasting low interest rates, better financial services and the participation of everyone in the market. For that, it maintains the BC# Agenda, a work agenda centered on technological evolution to develop structural questions of the financial system. In addition to seeking to reduce the cost of credit, modernize the law and make the system more efficient, BC aims at inclusion, competitiveness and transparency. Two other aspects of the BC# Agenda are sustainability and financial education.

In this context, it is worth commenting on the new regulation on the relationship of banks and other institutions authorized to operate by the BC with their correspondents (in the country), aiming at customer service activities, which will come into force on February 1, 2022. CMN Resolution 4,935 was released on July 29, 2021, reforming the regulation on this matter, which dated from 2011, with some subsequent changes. The two main novelties of the standard are (i) to make explicit authorization for the digital service by correspondents and (ii) to formalize the governance of their hiring and performance, making it mandatory for contractors (banks and other institutions authorized to operate by Bacen) to draw up a policy to respect, with specified minimum content.

The digital correspondent, acting as fintechs using new technologies and offering financial products and services via electronic platforms were the main responsible for the growth in the number of correspondent banks in the country: there were about 100 thousand in 2005 and totaled around 220 thousand at the end of 2020. In terms of inclusion, the BC itself recognizes that correspondents provide opportunities to improve the capillarity and reach of the institutions’ performance, including in places where the cost of establishing branches or service stations generate disincentives to do so.

In addition, considering the implementation of Open Banking in Brazil, whose phase 3 provides for the sharing of the service for forwarding a credit operation proposal, the performance of correspondents through an electronic platform will gain even more importance.

The fintechs that act as digital correspondents need to improve their cybersecurity. For example, to service credit and leasing operations, digital correspondents must indicate to the contracting institution a natural person responsible for the electronic platform, trained in the technical aspects of operations, such as applicable regulations, Law No. 13.709/ 2018 (General Law of Personal Data Protection), Law nº 8.078/ 1990 (Consumer Defense Code), ethics and ombudsman. Additionally, in these situations, the electronic platform must have sufficient technical qualification to ensure that the products and services are adequate to the needs, interests and objectives of the customers and that the necessary information is provided for their free choice and decision-making, in a manner clear and adequate to the nature and complexity of credit and leasing operations.

Important points of the previous regulation, which were maintained, concern the responsibility of the contracting party. The correspondent acts on behalf of and under the guidelines of the contracting institution, which assumes full responsibility for the service provided to customers and users through the contracted party. Although the contracting party must designate a director responsible for hiring correspondents and for the service provided by them, adopting a quality control plan, the accountability of the high ranks of the institutions was reinforced. When Res 4.935/21 enters into force, it will be mandatory to institute a Policy of Action and Contracting of correspondents in the Country, approved by the Board of Directors or, in its absence, by the Board of Directors of the contracting party. This policy must contain, at a minimum, the criteria required for hiring, the quality control mechanisms for the performance of the correspondent and the rules for remuneration for the provision of services. Additionally, the contracting institution’s internal audit must assess the effectiveness of these control mechanisms. Although it is a novelty, the Policy of Action and Contracting of correspondents must be aligned and articulated with other documents of the institution, such as those relating to Governance and Operational Risk (Res. 4557/17), Compliance (Res. 4595/17), Internal Controls, Risk Management, Contracting of Suppliers or Service Providers (if any), in addition to those required by Bacen Circular 3978/2020: Policy for the Prevention of Money Laundering and Terrorism Financing (Chapter II), Internal Risk Assessment (Chapter IV), Procedures Manual for Getting to Know Business Partners (Chapter IX).

Thus, in line with the BC# Agenda, Res. 4935/21 endorses the ‘recent’ growth of digital correspondents, opening new market opportunities for fintechs , but modernizing regulation, with emphasis on digital security and institutional governance authorized, which already have a framework of internal policies and rules to guide their practices and conduct.

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