Governance Rules for the Functioning of the Open Financial System – Open Banking Reaches the Market

Within the scope of the regulation of the Open Financial System (Open Banking) in Brazil, the National Monetary Council and the Central Bank issued Joint Resolution No. 1, which refers to the implementation of Open Banking, and Circular No. 4,015, which establishes the scope of data and services of Open Banking.

In compliance with one of the determinations contained in Joint Resolution No. 1, the Central Bank issued, on June 23, 2020, Circular No. 4,032, which provides for the initial structure responsible for the governance of the implementation process of Open Banking.

The initial structure, which shall be formalized by July 15, 2020 through an agreement signed by associations representing the participating institutions in the Open Banking system, will be replaced by a definitive structure responsible for the governance until October 25, 2021, representing the date of the last stage of implementation of the Open Banking system, according to the implementation schedule adopted by the monetary authority.

The initial structure responsible for governance will consist of (i) a strategic level, made up of a Deliberative Council; (ii) an administrative level, integrated by a Secretariat, and (iii) a technical level, composed of Technical Groups.

The Deliberative Council shall have the following duties: (i) to define the internal regulations of the initial governance structure, (ii) to define the internal schedule of activities, (iii) to decide on the convention to be signed between the participants of the Open Banking system and its amendments, (iv) to approve the budget of the structure responsible for the governance, (v) to decide on the structuring of the Technical Groups, (vi) to define guidelines for the administrative and technical levels, (vii) to decide on contracting services, (viii) to establish a dialogue with regulatory bodies, and (ix) to decide on changes in the organizational structure and other issues related to the implementation of the Open Banking system.

The Council will be composed of seven directors with the right to vote in the deliberative processes. Among the members of the Council, three will be appointed by associations representing institutions that provide services related to deposit accounts or retail credit operations that are classified in Segments 1 to 5 (S1, S2, S3, S4, and S5). Another group of three directors will be appointed by associations representing payment institutions and companies of direct credit and loan between individuals. The last director will be independent and must have a compatible academic background, not be linked to an institution participating in the Open Banking system or be impeded by special law.

Associations or groups of associations that are responsible for appointing directors shall be elected by institutions authorized to operate by the Central Bank. Their terms of office will last for twelve months from the first meeting that follows their appointment.

Council meetings will take place according to the frequency defined by it. Its decisions will be made by a simple majority vote of the directors, except when the decisions are related to the approval of the structure’s budget, to the contracting of services or to the altering of the structure, all of which will be decided by a qualified majority of six directors.

The Secretariat, which will be composed of a Secretary-General and an alternate, appointed by the Deliberative Council, shall have the following duties: (i) to organize work plans and technical proposals for the Technical Groups, (ii) to organize the Council’s agenda, (iii) to propose, execute, and manage the budget of the structure responsible for governance, taking into consideration the demands of the Technical Groups, (iv) to monitor the execution the Technical Groups’ work, coordinating, if necessary, joint actions and keeping the Council informed, (v) to organize the structure’s internal and external communication, (vi) to monitor and manage risks, and (vii) to perform other operational and administrative activities for the functioning of the initial structure.

Finally, it will be up to the Technical Groups (i) to develop the studies and technical proposals to implement the Open Banking system, as well as to propose work plans and technical proposals, (ii) to report to the Secretariat the development of the proposals and (iii) to standardize technical decisions, in order to facilitate Council deliberations and decisions.

The Technical Groups will have a Coordinator and his replacement, and the number of members must be consistent with the complexity of the Group’s subject matter. Representatives of the associations present in the Deliberative Council, of other associations, of the participating institutions in the Open Banking system, of technology companies, among others, may engage in the Technical Groups, in accordance with the composition decided by the Deliberative Council.

The costs of maintaining the initial structure responsible for the governance will be borne by participating institutions, according to a system defined by the Deliberative Council, in accordance with the proportionality between the portion of the costs due by each institution and its net worth.

Demarest’s Banking and Finance practice will continue to monitor these developments, and is available to assist you in any matters related to the topic.