With the enactment of BCB Resolution No. 205, effective from April 1, 2022, the Collegiate Board of Directors of the Central Bank of Brazil (“BCB”) amended BCB Resolution No. 81, of March 25, 2021, which regulates the authorization process related to the operation of payment institutions (“PIs”) and the provision of payment services by other institutions authorized to operate by the Central Bank of Brazil. The Resolution updates rules that had restricted investment and the entry of investment funds into the PI segment, in order to promote competition and inclusion in the financial system.
In the explanatory memorandum on amendments to the rule in effect, the monetary authority made it clear that “considering that payment institutions, as well as credit fintechs, are characterized by acting in dynamic operations, especially with regard to innovation in the payment system, I believe that the contribution of capital by investment funds in the condition of qualified participation can support the continued safe and sustainable carrying out of activities in the payment institutions segment“.
BCB Resolution No. 205 established as main modifications the following:
- Qualified participation of Investment Funds in Payment Institutions. The Resolution improves rules that address corporate interest in the capital of payment institutions, so as to allow investment funds to hold qualified participation in capital of payment institutions. BCB Resolution No. 81 of March 25, 2021, determined that the holder of qualified participation in a payment institution must be a natural or legal person – thus excluding investment funds that, despite being registered in the National Registry of Legal Entities (“CNPJ”) – do not have a legal identity.
The new regulatory provision changes this to include investment funds in the definition of qualified shareholder, which is now “a natural or legal person, not controlling shareholder of the payment institution, or investment fund (…)“, and that holds share participation according to the criteria established in BCB Resolution No. 81/2021. Such criteria for qualified participation are (a) direct participation equivalent to 15% or more of the voting capital of the PI; (b) direct participation equivalent to 10% or more of the total capital of the PI, when such capital does not consist entirely of voting capital; (c) control of legal entity holding participation in the capital of the PI, in one of the percentages provided for above; or (d) participation in the capital of controlling legal entity of the PI, in one of the percentages provided above.
In addition, BCB Resolution No. 205/2022 determines that the provisions applicable to the natural or legal person that holds qualified participation – provided in BCB Resolution No. 81/2021 – may be extended to shareholders of the investment fund with qualified participation that effectively hold powers to conduct its activities, under the terms to be established by the Central Bank. In practice, this means that the Central Bank may require information not only in relation to the investment fund, but also in relation to certain shareholders.
- Explicit prohibition of Investment Funds from the control of Payment Institutions. The Resolution prohibits investment funds from being a controller or member of a control group of a payment institution.
BCB Resolution No. 205/2022 and the explanatory memorandum can be read in full here (available in Portuguese only).
Demarest’s Banking and Finance team is available for any further clarifications on this and other related topics.