Marcela Ayres & Aluisio Alves

BRASILIA/SAO PAULO – Brazil’s central bank pulled a draft proposal from the top financial policy-making agency, which was due to be voted upon last month, according to four sources.

The central bank suggested that regulations should be reviewed at an extraordinary meeting (CMN), on Nov. 18. However, sources claim the new rules, which aim to equalize the playing field between traditional and fintech banks, were not voted upon.

The central bank did not comment.

Although it is not clear why the central banks chose to defer the passage of regulatory changes, the move has left an industry worth multi-billions in turmoil.

These proposed modifications would increase the capital minimum requirements for payment institutions based on their size, transaction volumes and risk-weighted asset.

The sector has been expecting them in some way since late 2020’s public consultation.

Both sources spoke under condition anonymity and said that delay does not indicate that rules will be lowered.

Another source claimed that the central bank’s department is responsible for regulatory adjustments and has taken the decision to perform a review in order to avoid unnecessary burdening the sector.

Brazil’s central banks have been quietly reforming Brazil’s payment system for over a decade. They now oversee them and are paving the path for financial start ups, which use technology to make payments easier, transfer money, and borrow.

These regulations are designed to increase competition in a stagnant banking sector that is dominated only by few traditional banks and to break the cycle of Brazil’s historically high borrowing rates.

Brazil’s fintech market is growing partly because of these changes. Nubank is a Latin America’s largest financial institution and credit card issuer. It was listed recently on the New York Stock Exchange.

While it was launched last month without any significant changes, Nubank stated in its IPO Prospectus that they would have to adhere to a minimum regulatory capital of 2.1 million reais ($367.55million) under new rules.

The impressive IPO of Nubank follows other Brazilian players like Stone, PagSeguro and PicPay, which all have millions of customers, have raised venture capital funding, and either have their operations listed or are planning to.

Many traditional banks are calling for the regulator’s intervention to ensure that successful fintechs have equal protection.

However, one problem with any regulatory action such as that of the central bank is the divergence of fintechs. These are more than 1,000 in Brazil.

According to industry professionals, using only customer base size and financial volume as criteria for setting new requirements can lead to more problems than solutions.

SumUp’s president Fabiano Camperlingo said, “If the dosage is incorrect, the central bank could create barriers to entry, and even make it impossible for business to be viable.”

($1 = 5.7135 reais)