Open Banking in Brazil: recent trends

Fabíola Augusta de OB Cavalcanti

TozziniFreire Advogados, São Paulo

fcavalcanti@tozzinifreire.com.br

Marcus Vinicius Pimentel da Fonseca

TozziniFreire Advogados, São Paulo

mfonseca@tozzinifreire.com.br​​​​​​​

Brazil is seeing a major revolution in its financial and capital markets with the introduction of different technology-based financial products and services. These are changing the way traditional banks have done business in Brazil for the past few decades. The rise of Fintech companies also promises to challenge the long-existing concentration of services and products, which is currently in the hands of a few major banks in Brazil.

This is evident not only from a business perspective, but also from new regulations deriving from an increased interest from the local regulators of the financial and capital markets – namely the Brazilian Monetary Council, the Central Bank of Brazil and the Brazilian Securities Commission (Comissão de Valores Mobiliários) – that aim to foster competition in Brazil by stimulating new participants to create products and services that will benefit clients and promote financial inclusion. 

One major example of this effort is the creation of the Open Banking ecosystem by the Central Bank of Brazil. Also known as the Open Financial System, Open Banking is a system for the sharing of standardised data between financial and payment institutions, facilitating customer access to their banking transactions, fees etc from all accounts that they have in a secured manner. This financial system generates greater competition among institutions, since it is possible to observe the services and fees charged by each, improving the quality of services and their value through new offers.

This ecosystem will require a financial institution to forward its client’s history – at its request – to other institutions that it prefers. In this way, financial services will become increasingly personalised and will feature standardised technology for the provision of data and services.

The regulations currently in force provide that the adherence to the Open Banking system will be mandatory for large institutions (Segments 1 and 2) and optional for other financial institutions. The timetable for implementing this system has four phases:

• In the first phase, which has already started, there is no sharing of customer information; only data, products and services offered by participating institutions, as well as their service channels;
• In the second phase, with prior authorisation from the customers, it will be possible to share their personal data and link their account to other institutions;
• During the third phase, scheduled for August 2021, clients will be able to make payments and transact outside the internet banking or app provided by its bank, which may be accomplished by an intermediary app. It will also be possible to share customer banking history among correspondents in the country;
• In the final phase, it will expand the sharing of other financial data from clients, such as those related to services and products concerning foreign exchange transactions, investments and insurances.

As previously mentioned, the Open Banking system provides for greater freedom for customers to choose among different institutions for specific services. At the same time, it facilitates the transition between these institutions due to the sharing of information that will enable expedited registration procedures, allowing clients to migrate their financial history wherever they wish without the need to start a relationship with an institution.

The facilities provided by Open Banking certainly have several positive points. However, it is important to ensure that users are protected from their data being used for other purposes. For this reason, a regulatory mechanism that prevents situations like these is important, in addition to facilitating the disruption of access to data when it is no longer of interest to the consumer.

In this sense, one of the main concerns from the Central Bank of Brazil when regulating Open Banking was to ensure the confidentiality of users’ information. In addition, the regulations provided for mechanisms that guarantee non-discriminatory access to participating institutions, as well as mitigate conflicts of interest. The regulations are important to address the accountability of institutions and entities, cybersecurity rules and data protection. For that reason, the Central Bank monitors all procedures.

This system should facilitate innovation in financial services and products, thanks to a less bureaucratic process. Consequently, it should generate greater competition in the financial markets to attract clients. Operations will also become faster and less costly for financial institutions and their customers, improving the evolution of the financial sector in general.