March 3, 2017 / 4:47 PM / 2 years ago

Brazil's fast-growing fintechs form groups to discuss regulation

SAO PAULO (Reuters) - Financial technology firms in Brazil are grouping to discuss with local watchdogs how to regulate the fast-growing sector, in which the number of players has risen roughly six-fold over the past couple of years.

Both the central bank - which oversees the banking sector and non-bank financial industries - and securities industry watchdog CVM have shown a preference for discussing regulation with industry groups rather than individual players, people familiar with the matter said.

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

Brazil currently has no specific rules for fintechs, with the central bank trying to adjust the activity to the existing banking and financial regulatory framework.

As a result, the number of lobbying groups representing the thriving sector has blossomed over the past year, with the creation of the Associação Brasileira de Crédito Digital, or ABCD, FintechBrasil and another three groups.

There are about 250 fintechs in Brazil, compared with about 40 two years ago, a survey from consulting firm Fintechlab showed.

The way regulators are handling the issue “seems the most appropriate to avoid making the business too rigid and paralyzing innovative solutions that could be helpful for the financial system as a whole,” said Rafael Pereira, president of the ABCD.

Central bank policymakers have engaged in talks with lawyers and startups over the past two years to design a regulatory framework for fintechs and oversee the proper functioning of peer-to-peer lending, the payment and clearing systems, as well as personal financial advisory, sources have told Reuters.

Fintechs could help spur competition and facilitate the expansion of formal banking among Brazilians, with some platforms charging interest rates between one-fourth to one-half of what banks charge.

Borrowers in Latin America’s biggest country pay an average 190 percent a year for the riskiest type of unsecured loans, the highest among the world’s 20 major economies.

The slow progress in designing a framework underscores fintechs’ concern not to circumvent or breach existing banking laws.

The central bank and Banco Original SA worked for four years on a framework to regulate the opening of digital accounts, with Original launching the service a year ago.

For its part, watchdog CVM sees no need for specific rules for fintechs at this point and is likely to issue rules this year on crowdfunding - a common practice in which a project raises money from a large number of people, typically via the internet.

“Activities such as personal financial advisory... require the same certifications for traditional players and fintechs alike,” said Antonio Berwanger, head of market development at the Rio de Janeiro-based watchdog.

Writing by Guillermo Parra-Bernal; Editing by Dan Grebler

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