Amendment to the Governance Rules Regarding the Functioning of Open Banking

On July 15, 2020, the Brazilian Central Bank issued Circular No. 4,037, with the purpose of amending Circular No. 4,032, of June 23, 2020, which provides for the initial structure responsible for the governance of the implementation process of the Financial Open System (Open Banking).

Circular No. 4,037 postponed, from July 15 to July 24, 2020, the deadline for completion of the fomalization process of the initial structure responsible for governance by means of an agreement to be entered into by the eligible associations that represent financial institutions and other institutions authorized to operate by the Central Bank.

As announced by the Central Bank on July 10, through Communiqué 35,922, the associations or groups of associations elected were:

i. the Brazilian Federation of Banks (Febraban);

ii. the Brazilian Association of Banks (ABBC);

iii. the Organization of Brazilian Cooperatives (OCB);

iv. the Brazilian Association of Credit Card and Services Companies (Abecs);

v. the group comprising the Brazilian Association of Payment Institutions (Abipag), the Brazilian Internet Association (Abranet) and the Brazilian Chamber of Electronic Commerce (Câmara-e.net); and

vi. the group comprising the Brazilian Digital Credit Association (ABCD) and the Brazilian Fintech Association (ABFintechs).

The content of the agreement that these associations and groups of associations shall enter into will be, in whole or in part, incorporated by the Central Bank into its specific regulation or there will be, as appropriate, a proposal for incorporation into the regulation within the competence of the National Monetary Council, providing for the Open Financial System.

In addition, Circular No. 4,037, amending the Regulations Attached to Circular No. 4,032, stipulates, as the duty of the Deliberative Council, at the strategic level of the initial structure responsible for governance, the approval of proposals for technological standards, operational procedures and other aspects necessary for implementation of Open Banking.

There was also an alteration to the composition of the members of the Deliberative Council, which will consist of up to seven directors, organized as follows: group 1 will comprise up to three directors appointed by associations that have a significant representation of institutions that provide services related to deposit accounts or retail credit transactions; group 2 will comprise up to three directors appointed by associations or groups of associations that have a significant representation of payment institutions, direct credit companies and loan companies between individuals; and group 3 will include an independent member.

In accordance with the changes introduced by Circular No. 4,037, an elected association or a group of associations may formally express their withdrawal from participating in the Deliberative Council, leaving the representation of their subgroup vacant and not counting in the definition of a majority in the deliberative processes.

The Circular also altered the requirement of a minimum advance notice of five to two business days to notify the Secretariat of the replacement of appointed and alternate members of the Council. In addition, it also reduced the number of absences that may justify the removal of associations, groups of associations and the independent director of the Deliberative Council: the absence from two consecutive meetings or three non-consecutive meetings will be grounds for removal.

Finally, Circular No. 4,037 amends the Regulations Attached to Circular No. 4,032, establishing:

i. the need for the consent of at least three directors to call extraordinary meetings of the Deliberative Council; and

ii. new qualified majority quorum of directors, considered as the total number of directors reduced by one, for approval of resolutions regarding the approval of the structure’s budget, contracting of services and alteration of the structure responsible for governance.ew qualified majority quorum of directors, considered as the total number of directors reduced by one, for approval of resolutions regarding the approval of the structure’s budget, contracting of services and alteration of the structure responsible for governance.

Demarest’s Banking and Finance team is closely monitoring these and other measures and is ready to assist you in any matters regarding this topic. For more information, please feel free to contact us.