Brazil proposes new rules for fintechs, peer-to-peer lending

The central bank headquarters building is seen in Brasilia, Brazil May 16, 2017. REUTERS/Ueslei Marcelino

BRASILIA/SAO PAULO (Reuters) - Brazil’s central bank has proposed allowing financial technology companies to lend money, without taking deposits as commercial banks do, as part of new rules for the fast-growing fintech industry in Latin America’s largest economy.

The rules, which will be assessed in public hearings over the next 2-1/2 months, should not require congressional approval, central bank director Otávio Damaso said on Wednesday. Commercial banks will be allowed to create their own fintechs once the rules are in place, he said.

The new framework could allow fintechs to lend money with their own capital or connect investors and borrowers through a so-called peer-to-peer lending platform.

The approach mirrors that of the United Kingdom’s “sand box,” in which regulators have embraced simplified rules governing fintechs that are being fined-tuned as the sector grows in size and relevance.

The central bank’s proposal follows years of discussions between regulators and the nascent industry. It is designed to provide more access to banking and financial services without putting the financial system at risk, Damaso said.

“The new rules change the notion of risk for the sector as a whole,” Damaso said.

The number of Brazilian fintechs has risen roughly six-fold over the past couple of years, partly due to the success of some smaller players in helping borrowers pay lower interest rates than what traditional banks charge for loans.

Borrowers in Latin America’s biggest country, which is struggling to emerge from a record recession, pay the highest interest rates among the world’s 20 major economies.

Fintechs have already been facilitating the expansion of lending among Brazilians, with some platforms charging interest rates between a quarter and one-half of what banks charge.

Reporting by Silvio Cascione, writing by Guillermo Parra-Bernal; editing by Sandra Maler and Tom Brown