The Central Bank (BC), on Friday (28/11), banned payment institutions and fintech companies from using expressions such as “bank” or “bank” in their names if they do not have an official license to operate as a bank, a regulatory change that directly affects companies such as Nubank and PagBank, which are only officially licensed as a payment institution.
The standard requires affected companies to submit, within 120 days, an adaptation plan. Full implementation is expected to be completed within one year.
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For companies already regulated by British Columbia such as banks, the new rule does not change anything, and operations continue as normal, explained lawyer from Veirano Advogados’ Public Law and Regulatory team, Fernando Stivale.
In the case of financial institutions, it will be necessary to adapt the nomenclature, as required by the BC.
“Institutions will be prohibited from using terms that indicate the activity or type of institution, in Portuguese or in a foreign language, for which they do not have a specific operating permit,” the monetary authority said.
According to British Columbia’s Director of Regulation, Gilneo Vivian, many business models have emerged in recent years, and sometimes the name a financial institution uses is not entirely appropriate for the service that financial institution is authorized to provide.
“This way, it is not clear to the customer what kind of service they can get and what level of service they will get,” he said.
He also stated that a financial institution should not use in its nomenclature and in the way it presents itself to the public the name of activities for which it does not have a licence.
“We are making clear that even in these cases, whatever the institution, intermediary, distributor or financial institution is, it must be clear that it is a financial institution and it must be clear that it is an intermediary,” explained the head of the Central Bank’s Financial System Regulation Department, Mardelson Quiroz.
In a memo issued after the action, Nobank stated that he was “analyzing the new rule” and stressed that it “does not impact operations or services.” According to the fintech company, it has all the necessary licenses to offer the currently available products.
Stival stated that the change affects the name and the way the company can present itself to the public, not the way it operates or the services provided to customers.
The BC advised that all payment institutions that use terms such as “bank” or “bank” must regulate themselves, whether by rebranding, amending their trade name, or even corporate restructuring, so as not to risk regulatory penalties.
The tax authorities justify this rule with the aim of avoiding consumer confusion and preventing fintech companies that do not have a banking license from presenting themselves in a way that misleads the public into believing that they have the same rights and guarantees as a traditional bank, such as coverage by the Credit Guarantee Fund (FGC).
Furthermore, this measure is part of a broader regulatory tightening on fintech companies and payment institutions. Recently, the Bank of Colombia also raised the capital requirements required for these companies, a move aimed, according to the agency, at strengthening the resilience of the financial system.
Fintech and banking
The Federal Revenue Service (RF) has once again equated fintechs with banks regarding the obligation to provide financial information, sending data via the e-Financeira system on balances, movements and applications.
The change came in the wake of major police operations, which revealed the use of financial technology and payment institutions as channels for money laundering, asset laundering and asset hiding by criminal organisations.
According to the IRS, these companies are now part of the same compliance and inspection system as traditional banks, which, in the government’s opinion, is necessary to provide transparency to transactions and makes it difficult to use the financial system for illicit purposes.
ABFintechs, the association representing the sector in the country, issued an official note stating that the BC standard reflects what was already discussed in the public consultation, that is, it did not bring any surprises beyond what was expected.
The entity assessed deadlines of 120 days for submission of the adaptation plan and up to one year for implementation as “reasonable and sufficient.” Depending on the institution, the rule helps provide greater regulatory clarity and avoid misinterpretations about the type of institution.
Bagh Bank was contacted to obtain the report, but there was no response.