Europe's Lesson on Open Banking – What PSD2 Means for the Brazilian Market

The small amount of information that financial institutions have about their customers is one of the reasons why credit in Brazil is so expensive. Platforms that allow the exchange of information between agents like banks and FinTech startups can, however, reduce these costs. This benefits customers and institutions with lower fees and smaller risks respectively. PSD2 can be an example for Brazil, according to Fábio Lacerda Carneiro, Deputy Head of The Central Bank of Brazil, who participated in a panel on regulation at the XP Tech event in Sao Paulo. PSD2 is the new Payment Services Directive, which will enter into force in January 2018 in the European Union. It determines that all banks have "open API," that is, they have open protocols for information exchange.

Here are some of the most important topics discussed by Brazil’s central bank at the event:

On migration to the digital economy, would you mention any international experience that is relevant to Brazil?

Fábio Lacerda Carneiro: The international community of regulators and supervisors is well articulated to discuss this issue. If you are thinking of all the international bodies that bring together regulators and supervisors, like Financial Stability Board, in all of them you have working groups and open fronts to discuss this topic. We talk a lot and we exchange experiences.

From the standpoint of advancing state intervention to regulate and adapt to this world, you have some international benchmarks that are always considered – I am talking fundamentally about England, and about Hong Kong and Singapore in Asia. The European Union is also going in an interesting direction. There are also some experiences in the North American market but bear in mind that each case is unique.

The specifics have to be considered, so we have to continuously participate in conversations both in foreign and domestic markets, speak with industry experts, consider new business models, class entities, take advice from legal consultants, accounting offices – all market players.

Fábio Carneiro, do Banco Central at XP Tech 2017

Does The Central Bank of Brazil have its own technology modernization or RegTech agenda?

FLC: In comparison to other central banks, we have a very positive evaluation in the sense of computerization that we have achieved, both in the collection of information and in the treatment of large masses of data. We have made great strides in our own "big data."

But the Central Bank cannot keep up with developments just by talking. So, in practice, we have our own innovation lab initiatives, such as blockchain-focused, associated with the concept of cashless society.

We have initiatives to think about the Central Bank Digital Currency; we discuss the use of blockchain in the payments system or the prevention of money laundering network with our own technology teams. And there is an effort to bring together the different internal experts to follow the great international seeds and see how this can apply here.

What is the Central Bank's position on the positive credit registry?

FLC: Regulation already allows for a positive credit registry, but regulatory intervention is only an inductor; it does not have the power to make a thing happen.

The availability of information can generate a better decision on lending and pricing. One thing we can come up with when discussing regulatory intervention is something like a PSD2 from Europe in Brazil, discussing an open banking concept and regulating APIs.

What we really need is the conclusion of the national debate on data privacy, and there are bills that are being discussed in Congress, the Senate and the Chamber of Deputies.

By having a greater stabilization of the legal environment, I think it is possible to do some kind of regulatory intervention. The market demands that the Central Bank regulate open banking in Brazil, much like the European regulation (PSD2). Maybe it's a way out of allowing incomers to work the information better. This way, one can have the impact of a positive credit registry that is not necessarily as formal as the current one. [Nowadays three credit-checking companies offer a formal positive registry that the customer may subscribe: Serasa Experian, Boa Vista SCPC and SPC Brasil].