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L A W

UNDERSTAND PAYMENT INDUSTRY IN BRAZIL

The technical evolution of the Brazilian society and of payment instruments have required significant changes in the Brazilian payment industry, which is a very dynamic market. Although cash is still the most used payment method by the Brazilian population, other methods, especially electronic ones, are increasingly used. This guide, developed in partnership with FAS Advogados, describes the current regulation of the Brazilian payment industry – as of December 2018 – presenting the different types and models of services that can be offered in the country and also the legal aspects related to the new technologies applied to this industry, such as cryptocurrencies.

Paulo Mertz Focaccia – Partner, Focaccia, Amaral, Pellon e Lamonica Advogados

The American Chamber of Commerce for Brazil, being the largest Amcham outside the United States is serving its members building bridges for Brazilian businesses worldwide. Our foreign investment attraction efforts are a key mission for Amcham. The “How To” guides published by Amcham Brasil are part of this initiative. With the support of some of our members and Brazilian States and cities, we are putting together strategic information on the most various aspects of doing business in Brazil and its opportunities. As part of BRICS (Brazil, Russia, India, China and South Africa) and representing the 8th largest economy of the world, and the 4th largest destination for foreign investment, Brazil has an intrinsic importance for the global market. More than ever it is a strategic time for businesses opportunities in Brazil. We welcome you and hope that the information you are about to read will contribute to your commercial and investment decisions linked to Brazil.

Deborah Vieitas – CEO, Amcham Brasil

CONTENT01

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INTRODUCTION

RELEVANT CONCEPTS AND PREMISES OF THE APPLICABLE LEGAL FRAMEWORK

PAYMENT SCHEMES

PAYMENT INSTITUTIONS

PAYMENT ACCOUNTS

MAIN REGULATORY OBLIGATIONS

MOST RELEVANT CURRENT DISCUSSIONS

ABOUT OUR SPONSOR

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Cash

Debit card

Credit card

Eletronic transfer and automatic debit

Meal vouchers and food tickets

The Brazilian payment industry is very dynamic and has changed significantly over the last 10 years. These changes are closely connected to the technical development of our society, which has

brought the need of using electronic payment methods, in the most

different scenarios.

Although cash is still the most used payment method by the Brazilian

population, other methods, especially electronic ones, are increasingly used, according to studies published by the

Brazilian Central Bank (Central Bank or BACEN) in 2013 and 2018.

01.INTRODUCTION

First, in 2009, anti-trust authorities determined that the exclusivity practice with the acquiring companies should cease. Later that year, the Central Bank determined that all card labels should be transparent regarding their commercial practices, improving other acquirers’ access to information. This allowed other acquirers to have access to the two biggest labels in the Brazilian market, Visa and Mastercard.

In 2013, the Brazilian Government issued a specific legal framework to govern the payment industry through Provisional Measure No. 615/2013, which was later converted into Law No. 12,865/2013, regulated by the National Monetary Council and the Central Bank. Before then, this market did not count on a specific regulation, which created legal uncertainty and doubts among the players of the sector.

The significant increase in the usage of electronic payment methods in the last years relates to a series of interventions from legislators, the Central Bank and the Brazilian Competition Policy System. All these interventions aimed to increase competition in the payment industry, which is a highly concentrated market.

Until 2009, the Brazilian acquiring market consisted of a virtual duopoly. The two main card labels (Visa and Mastercard) – which, together, were responsible for more than ninety percent (90%) of the credit card market and eighty percent (80%) of the debit card – had exclusivity agreements with specific acquirers (Visanet and Redecard, respectively).

Faced with this situation, which had a negative impact over the competition in the payment industry, Brazilian authorities intervened in a way that changed the regulatory payments landscape completely.

Payment methods used (% of the Brazilian population)

Cash

Debit card

Credit card

Eletronic transfer and automatic debit

Meal vouchers and food tickets

Other methods

0 20 40 60 80 100

96100

5239

3911

114

77

4635

2013

2018

02.RELEVANT CONCEPTS

AND PREMISES OF THE APPLICABLE LEGAL

FRAMEWORKLaw No. 12,865/2013 establishes

that payment schemes and payment institutions become part of the

Brazilian Payments System (Sistema de Pagamentos Brasileiros or SPB), subject

to regulation from the Central Bank, according to guidelines established by

the National Monetary Council.

It also introduces to the Brazilian legal framework a series of relevant

concepts, namely:

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PAY

BANK

1234 5678 1234 5678

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PAYMENT SCHEMES

Set of rules and procedures which regulates the provision to the public of certain payment service accepted by more than one recipient, by means of direct access by end users (payers and recipients);

PAYMENT INSTITUTION

Legal entity, adhering to one or more payment schemes, having as main or ancillary activity1 at least one of the following:

a) providing cash-in and cash-out services of the funds held on payment accounts;

b) performing or facilitating payment instructions related to definite payment service, including transfers originated from or intended for a payment account;

c) managing payment accounts;

d) issuing payment instrument;

e) acquiring payment instrument;

f) remittances;

g) converting physical or book-entry currency into e-money, or vice versa, acquiring the acceptance or managing the use of e-money; and

h) other activities related to the provision of payment services, designated by the Central Bank.

PAYMENT SCHEME OWNER

A legal entity responsible for a payment scheme and, when appropriate, by the use of the brand associated with the payment scheme;

1 It is important to notice that, as per the second paragraph of article 6th of Law no.12,865/2013, payment institutions are not allowed to conduct activities that are restricted to financial institutions (as provided for in applicable laws), in spite of the activities listed above. Thus, they are not allowed to use client’s funds to grant loans to third parties, for example.

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It is possible to better understand these concepts by analyzing a prepaid card Payment Scheme, such as the following:

CLIENT MERCHANT

PAYMENT INSTITUTION THAT ISSUES

THE CARDS

PAYMENT INSTITUTION THAT PROVIDES THE POS TERMINAL

PAYMENT SCHEME OWNER (CARD LABEL)

PAYMENT ACCOUNT: book-entry account, held on behalf of an end user of payment services, used for the execution of payment transactions;

This regulatory milestone also sets forth that Payment Schemes and Payment Institutions shall observe the following principles, in order to ensure the capacity for innovation and the diversity of business models:

a) interoperability within the payment scheme and between different payment schemes;

b) soundness and efficiency of payment schemes and payment institutions, promotion of competition and provision for e-money balances transfer, when applicable, to other payment schemes or institutions;

c) non-discriminatory access to infrastructures and services required for the functioning of the payment scheme;

d) meet end-users needs, in particular with respect to freedom of choice, safety, protection of their economic interests, non-discriminatory treatment, privacy and personal data protection, transparency and access to clear and complete information about the service;

e) reliability, quality and security of payment services; and

f) financial inclusion, in compliance with the standards of quality, security and transparency in all payment schemes.

The Law also establishes that the funds held in payment accounts constitute separate assets, and they do not integrate Payment Institution’s assets. Consequently, such funds (i) cannot be pledged and shall not be subject to any judicial restraint, such as attachment, search and seizure, due to debts undertaken by the Payment Institution; (ii) are not part of the Payment Institution assets, for the purposes of bankruptcy; and (iii) cannot be pledged as collateral for debts assumed by the Payment Institution. This is a very important concept introduced by the law that ensures more reliability to customers of services provided by Payment Institutions.

Law No. 12,865/2013 also introduces to the Brazilian legal framework the following definitions:

PAYMENT INSTRUMENT: device or set of procedures agreed between the end user and his/her payment service provider, used to initiate a payment transaction; and

E-MONEY: resources stored in a device or electronic system that allow the end user to perform payment transactions.

03.PAYMENT SCHEMES

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BILL

$ 150

bank name

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pay

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$

credit card

Schemes Below Operational Limits, those which have not reached any of the following thresholds: (i) BRL 500,000,000.00 (five hundred million Brazilian Reais) in total transaction amount, accumulated in the previous 12 months; and (ii) 25,000,000 (twenty-five million) individual transactions, accumulated in the previous 12 months2.

Circular No. 3,682/2013 created two types of Payment Schemes: Closed-ended Payment Schemes (arranjos de pagamento fechados) and Open-ended Payment Schemes (arranjos de pagamento abertos). The so-called Closed-ended Payment Schemes are those in which the management of electronic currency or, cumulatively, the management of payment accounts, the issuance of payment instruments and the allowing merchants to accept said payment instruments, are carried out: (i) exclusively by one single Payment Institution or financial institution which is also the Payment Scheme Owner, (ii) by a Payment Institution or financial institution which is the controlling shareholder of, or controlled by, the Payment Scheme Owner; or (iii) by a Payment Institution or financial institution which controlling shareholder is the same of the Payment Scheme Owner.

Payment Schemes can also be divided into: (i) Purchase Payment Schemes (arranjos de pagamento de compra), in which payment services are related to the settlement of obligations related to purchases of goods/services; and (ii) Transfer Payment Schemes (arranjos de pagamento de transferência), in which payment services are not solely used for purchase transactions.

Payment Schemes may also be classified in relation to the jurisdictions in which they operate: (i) Domestic Payment Schemes (arranjos de pagamento domésticos), those involving payment instruments that issued and used exclusively within the Brazilian territory; and (ii) Cross-border Payment Schemes (arranjos de pagamento transfronteiriços), Schemes involving payment instruments issued within the Brazilian territory and used abroad, or vice versa.

DIFFERENT TYPES

Payment Schemes are specifically regulated by Circular 3,682/2013, that initially divides them into two categories: (i) schemes that are considered part of the SPB, which require a license from the Central Bank, and (ii) schemes that are not part of the SPB and therefore do not need a license.

The following types of Payment Schemes are not considered part of the SPB:

Limited Purpose Schemes, such as those in which the relevant payment instrument: (i) is accepted exclusively by a chain of merchants of a certain company, even if not issued by such company (i.e. private label cards); (ii) is accepted exclusively by a chain of merchants which clearly presents the same visual identity, such as franchisees; or (iii) is destined for the payment of specific public services such as public transportation;

Benefit Program Schemes, as those in which the relevant payment instrument is offered in the scope of benefit programs for individuals resulting from work, services or similar relationships and which have been instituted by the municipal, state or federal executive power; and

2Although Payment Schemes operating under such operational limits are not considered part to the SPB and, therefore, are not subject to Central Bank’s regulation and license, they still must report certain information to the Central Bank, on an annual basis. Besides, the owners of these schemes must monitor the evolution of the limits established and, once any of them has been met, they must: (i) submit an authorization request to the Central Bank; and (ii) communicate the fact to the Payment Institutions that participate in the scheme, through letters and publication in newspapers, about their obligation of requesting an authorization to the Central Bank, as applicable.

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PARTICIPATION REQUIREMENTS

The Central Bank has determined that, in order to participate in Payment Schemes, Payment Institutions, financial institutions and service providers in Payment Schemes must be authorized to operate by the Central Bank (applicable only to Payment Institutions and financial institutions, as established by the specific regulation) and comply with the requirements set forth in the rules of said Payment Scheme.

3 Considering the breadth of the definition set forth by Circular No. 3,682/2013, not only payment facilitators but also some marketplaces may be considered Subacquirers (those that receive all payments and afterward splits them between merchants), while others do not fit the definition (those that use third party payment splits).

CENTRALIZED SETTLEMENT

Upon the enactment of Circular No. 3,886/2018, which amended Circular No. 3,682/2013, entities operating as subacquirers (subcredenciadores) or payment facilitators (facilitadores de pagamentos) officially became participants of Payment Schemes. As provided in item VIII, article 2 of the Regulation attached to Circular No. 3,682/2013, Subacquirer may be defined as an entity that, without managing payment accounts, (i) is responsible for allowing merchants (individuals or legal entities) to accept payment instruments issued by Payment Institutions or by financial institutions that participate in the same Payment Scheme, but (ii) does not participate in the settlement process of payment transactions, as creditor against the issuer of payment instruments, pursuant to the rules of the respective Payment Scheme (they participate as creditors of acquirers)3.

Circular No. 3,886/2018 also introduced the obligation of centralizing in a neutral agent the clearing and settlement of transactions arising under a Payment Scheme. This requirement is applicable to Payment Schemes participating in the SPB, in which the settlement between end users implies transfers of funds between different financial institutions or Payment Institutions.

BILL

4The list of entities connected to CIP is available at https://www.cip-bancos.org.br/Monitoramento/Participantes%20Homologados.pdf. Settlement institutions are identified as “Liquidante”.

According to art. 26 of said Regulation, the clearing and settlement of credit/debit electronic orders between financial institutions and/or Payment Institutions which are part of a certain Payment Scheme that participates in the SPB must be performed: (i) in a centralized form, through a system duly authorized by the Central Bank; and (ii) integrate, in a single grid, the position of all of the participants of such Payment Scheme which are involved in the cash flow of the payment transactions, that render payment services directly to the final users of said transactions.

The system chosen by the applicable entities was Câmara Interbancária de Pagamentos (CIP), a non-profit organization that operates as a clearing house for the SPB. It is engaged in creating, developing and operating systems for the transfer of funds and other financial and information assets, as well as processing and settling electronic payments. It was founded by financial institutions that comprise the Brazilian banking market and provides services for banks, credit card issuers, registry offices, funds, database system managers, public agencies and others.

Scheme Owners, issuers of payment instruments, acquirers and financial institutions that operate as deposit institutions had to adapt to this new obligation until November 20th, 2017, and other participants through which the cash flow transits (such as Subacquirers) had until September 28th, 2018, to comply with such requirement.

The current wording of Circular No. 3,682/2013 establishes that, in order to operate as a recipient of payments, a Subacquirer is required to connect with CIP (regardless of the amount of such transactions), hiring a settlement institution duly authorized to operate in the CIP system4.

When a Subacquirer sends a payment to a merchant it may opt for connecting or not to CIP, if in the last 12 months it has processed less than BRL 500 million in total transactions

BILL

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It is important to notice that the centralized settlement obligation is not applicable to schemes that are not part of the SPB and to close-ended schemes. However, such exemption does not apply to close-ended payment schemes that act as participants of open-ended payment schemes.

SALE

$

$

1234 5678 9012 3456

1234 5678 9012 3456

WHAT DOES IT MEAN TO BE CONNECTED TO CIP?

All players connected with CIP must inform the amounts due to their respective creditors. Thus, CIP shall receive information about the amount owed by card issuers to acquirers, by acquirers to merchants and Subacquirers, and also by Subacquirers to merchants.

After receiving such information, CIP shall cross them in order to validate them and to obtain the plurilateral result of the operations, which is informed to the players.

Once players receive this information, each of them transfers to CIP the total due amount and subsequently CIP transfers the amounts due to each creditor, completing the settlement process.

INTEROPERABILITY

Interoperability is one of the principles that must be observed by Payment Schemes and Payment Institutions, as per Law No. 12,865/2013.

More recently, in 2016, the Central Bank launched a work agenda (BC+), which intends to review structural points of the market, in order to generate sustainable benefits for society. As part of this agenda, in March 2018, a public hearing was launched, presenting a proposal to regulate how Payment Schemes must interoperate.

At the time, two scenarios coexisted: (i) interoperability through participation, in which the Owner of a certain Payment Scheme participates in a second Payment Scheme, adhering to its rules; and (ii) interoperability through specific bilateral agreements, in which the Owners of each Payment Scheme jointly set forth the rules, obligations and responsibilities for each of them.

The aforementioned Public Hearing suggested that the interoperability between closed-ended and open-ended Schemes should be implemented solely through participation: according to the justification presented by the Central Bank, interoperability by means of bilateral agreements could have negative impacts over competition, representing, in many cases, a discriminatory treatment regarding certain players, and also a high social cost.

Several entities have presented their considerations regarding this proposal – many of them contrary to it, arguing that the interoperability through participation could harm competition. After analyzing such considerations, on December 2018, BACEN issued Circular no. 3,925/2018, which, among other things, establish that open-ended Payment Scheme Owners must allow Closed-ended Payment Schemers to interoperate through bilateral agreements, which must be formalized using a standardized draft, in order to prevent possible disparities caused by divergent bilateral agreements.SALE

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PAYMENT INSTITUTIONS

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Pursuant to BACEN Circular No. 3,885/2018, which regulates Payment Institutions, such entities can be divided into three categories5:

5 Depending on the activities to be performed by a certain Payment Institution, it may fall into more than one category.

6 According to Circular No. 3,885/2018, “electronic currency” can be defined as BRL-denominated funds stored in electronic systems or electronic devices (such as prepaid cards) allowing end-users to make payment transactions.

7 Prepaid card issuers and mobile payments classified as Electronic Currency Issuers.

8 Credit card companies (administradoras de cartões de crédito) classified as Postpaid Payment Instrument Issuers.

9 This type of Payment Institution includes merchant acquirers (credenciadores de cartões), such as Cielo, Rede and Stone. Gateway-only service providers would not be considered Acquirers for purposes of this rule, since for an entity to be considered an Acquirer, it has to be creditor of the issuers and participate in the settlement of transactions – such companies could be considered Subacquirers, as mentioned in section Centralized Settlement above.

Electronic Currency Issuers: Payment Institutions issuers of electronic currency (or e-money)6, managing Prepaid Payment Accounts (as defined below) and providing services related to payment transactions carried out with electronic currency previously allocated in such accounts. This type of Payment Institution may also convert physical or book-entry currency into electronic currency or vice versa and enroll the acceptance of electronic currency by merchants with settlement in payment accounts managed by the Payment Institution7;

Postpaid Payment Instrument Issuers: Payment Institutions issuers of postpaid payment instruments, managing Postpaid Payment Accounts (as defined below) and providing services related to payment transactions registered in such accounts8; and

Acquirers: Payment Institutions that, without operating Payment Accounts, (i) are responsible for allowing merchants (individuals or legal entities) to accept payment instruments issued by Payment Institutions or by financial institutions that participate in the same Payment Arrangement of the relevant Acquirer, and (ii) participate in the settlement process of payment transactions, as creditor against the issuer of Payment Instruments (such as credit card issuers), pursuant to the rules of the respective Payment Arrangement9.

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It is possible to better understand these concepts by analyzing a card Payment Scheme, such as the following:

CLIENT

PAYMENT INSTITUTION THAT ISSUES

THE CARDS

ACQUIRER - PAYMENT INSTITUTION AUTHORIZED BY CARD LABEL TO ALLOW MERCHANTS TO ACCEPT CARD. IT IS THE CREDITOR AGAINST THE ISSUER.

SUBCQUIRER - COMPANY WHICH IS NOT CONSIDERED A PAYMENT INSTITUTION, AUTHORIZED BY ACQUIRER TO ALLOW MERCHANTS TO ACCEPT CARD. IT IS THE CREDITOR AGAINS SAID ACQUIRER.

PAYMENT SCHEME OWNER (CARD LABEL)

MERCHANT

Payment Institutions may also perform additional activities, provided that they have the purpose of enabling the rendering of payment services or add value to the payment services provided to the user, at Central Bank’s discretion.

Also, as set forth in art. 30, licensed Payment Institutions are required to have an initial paid-in corporate capital of BRL 2,000,000.00 (two million Brazilian Reais) for each category of payment activity they carry out. Such initial capital shall be paid-in in cash. It is also worth mentioning that licensed Payment Institutions participating exclusively in a Closed-ended Payment Arrangement and rendering services as Electronic Currency Issuer or Postpaid Instrument Issuer are required to have an initial paid-in corporate capital of BRL 3,000,000.00 (three million Brazilian Reais).

Besides, Circular No. 3,885/2018 establishes that the appointment of officers and members of the board of directors, as well as some changes to the corporate documents of authorized Payment Institutions, are subject to prior approval by the Central Bank.

Circular No. 3,885/2018 also establishes that Payment Institutions that, in the last twelve (12) months, surpasses BRL 500,000,000.00 (five hundred million Brazilian Reais) in payment transactions, or BRL 50,000,000,00 (fifty million Brazilian Reais) in funds held in Prepaid Payment Accounts must file an authorization request before the Central Bank, within ninety (90) days from the date on which such surpassing has occurred.

If the Payment Institution operates in more than one of the categories listed above, it must request authorization for each category it operates in. Besides, if a certain authorized payment Institution decides to operate in a category for which it has not been authorized by the Central Bank, it must request a specific authorization for such category.

In addition to that, Circular 3,885/2018 provides for several requirements concerning the organization and operation of Payment Institutions.

For instance, a Payment Institution must be incorporated as a limited liability company or a corporation and has as main corporate purpose at least one of the activities listed in art. 6 of Law No. 12,865/2013, also mentioned in this guide’s Chapter 2.

PAYMENT ACCOUNTS

05.

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RECEIPRECEIPRECEIRECEI

TOTAL

RECEIPT

Payment Accounts can be divided into two categories, pursuant to BACEN Circular No. 3,680/2013:

10 Note that Payment Institutions qualified as Electronic Currency Issuers (and therefore operating Prepaid Payment Accounts) must ensure that the end user is able to redeem the total amount deposited in any such account at any time.

11User identification requirements are different depending on the amounts to be deposited in the Payment Account.

Prepaid Payment Accounts, designed for payment transactions performed with BRL-denominated funds pre-allocated in such accounts10; and

As per this Circular, all Payment Institutions operating Payment Accounts must appoint an officer to be in charge of payment accounts and oversee the compliance by the institution with applicable legal requirements related to these accounts; and identify the end-user of each payment account11.

Circular No. 3,680/2013 also establishes that Electronic Currency Issuers and Postpaid Payment Instrument Issuers must comply with the rules and procedures applicable for money-laundering prevention, as provided for in Law No. 9,613/1998, as amended (“Money Laundering Law”), and BACEN Circular No. 3,461/2009, except for the collection and storage of clients’ information, which must follow the requirements of Circular No. 3,680/2013.

Postpaid Payment Accounts, designed for payment transactions independent of pre-allocated funds.

MAIN REGULATORY OBLIGATIONS

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Please notice that not all of the obligations listed above are applicable to all types of institutions which are part of the payment industry, since some of these institutions are exempt from complying with certain of the obligations aforementioned.

The payment industry is currently highly regulated. Therefore, its players are subject to a series of regulatory obligations, among which we may highlight:

Compliance with banking secrecy requirements provided for in Complementary Law No. 105/ 2001;

Compliance with cyber security requirements, provided for in Resolution No. 4,658/2018 and Circular 3,909/2018, as applicable;

Observing the accounting requirements set forth in the Accounting Chart for Institutions of the National Financial System (Plano Contábil das Instituições do Sistema Financeiro Nacional or COSIF);

Revision of financial statements by independent auditors and, depending on the reference net worth it may be necessary to create a corporate body designated as an audit committee, responsible to ensure compliance by the institution with the applicable accounting regulations;

Reporting suspicious transactions to the Financial Activity Control Council (Conselho de Controle de Atividades Financeiras or COAF);

Implementing risk management procedures; corporate governance policy; internal controls; and anti-money laundering and know-your-client procedures;

Creating an Ombusdman department, which shall provide last resort assistance to demands raised by clients and users;

Answering the complaints registered in the Citizen Complaints Registration System (Sistema de Registro de Demandas de Cidadãos or RDR);

Providing information regarding their end-users through the Clients Register of the National Financial System (Cadastro dos Clientes do Sistema Financeiro Nacional or CCS);

Providing information on certain credit transactions through the Credit Information System (Sistema de Informações de Crédito or SCR);

Observing certain capital adequacy requirements; and

Observing floating requirements.

MOST RELEVANT CURRENT

DISCUSSIONSThe dynamic nature of the payment industry environment makes it a fertile ground for the

development of new and innovative tools and also for the innovative application of preexisting technologies.

These new tools and new uses of such technologies generate several doubts and sometimes inflamed

discussions regarding their regulation – some of which deserve to be mentioned herein.

07.26

Although there is no specific regulation subjecting cryptocurrencies to BACEN’s supervision, the institution has already issued two statements about the matter.

On February 19th, 2014, it has issued Policy Statement No. 25,306 (“2014 Statement”), regarding the risks related to the acquisition of the so-called “virtual currencies” or “cryptocurrencies” and transactions carried out with these currencies. The purpose of the 2014 Statement was, inter alia, to clarify that cryptocurrencies should not be confused with e-money.

The 2014 Statement broadly explains that e-money is a resource stored in a device or electronic system that allows the final user to make payment transactions in the national currency (Brazilian Real, or BRL). In other words, it is denominated in Brazilian Real. On the other hand, virtual currencies are denominated in a different unit of account from the currencies issued by sovereign governments and are not stored in a device or electronic system in national currency.

It also mentions that virtual currencies are not issued or guaranteed by a monetary authority and are not regulated or supervised by the monetary authorities of any country, so there is no government mechanism that guarantees the value in official currency of those instruments known as virtual currencies.

The 2014 Statement also advises about possible fast and wide price floating (leading even to total value loss) and the possibility of involvement of cryptocurrency users in investigations, due to the eventual usage of this instrument in non-compliant activities.

CRYPTOCURRENCIES

Due to the fast growth of the cryptocurrency market, the usage of such currencies and whether the regulation applicable to financial and payments systems applies to them have been the theme of international debate and public announcements by monetary authorities and other public institutions. The Brazilian Chamber of Deputies, for instance, is analyzing – as of December 2018 – three (3) bills of law that intend to regulate the matter.

The first, introduced in 2015, provides for the inclusion of virtual assets and airlines mileage programs in the definition of “payment arrangements” under the supervision of the Central Bank, and would require individuals and companies engaged in investment businesses to closely monitor deals involving virtual currencies and air mileage programs for crimes of money laundering or concealment of assets.

The second, in short, intends to criminalize all conducts related to cryptocurrencies, except Initial Coin Offerings with utility tokens, and it remains awaiting the end of this legislative process.

The last bill of law, on the other hand, proposes that cryptocurrencies may be freely transferred, provided that certain conditions are observed; and used as payment means, through acceptance of the parties. It also proposes that regulatory agencies (which are not named in the bill of law) be responsible for regulating their use – forbidding them to create standards that aim at prohibiting the circulation of cryptocurrencies and the activities of companies that provide services of intermediation, exchange, purchase and sale and custody of cryptocurrencies.

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Furthermore, BACEN states that the storage of cryptocurrencies in the so-called electronic wallets presents the risk of financial loss to their holders, due to criminal attacks in the world wide web.

Finally, BACEN states that, although the use of cryptocurrencies in Brazil does not yet seem to offer risks to the National Financial System (particularly to retail payment transactions), the evolution of the usage of these instruments, as well as the related discussions in international forums (especially regarding their nature, ownership, and functioning) is being monitored by the Central Bank, in order to allow the potential adoption of measures in its sphere of legal competency, if necessary.

On November 16th, 2017, due to the growing interest of individuals and companies in cryptocurrencies, BACEN issued another statement (Policy Statement No. 31,379) (“2017 Statement”). In this new statement, BACEN warned the public about the risks derived from storing and negotiating virtual currencies and reiterated that these assets are neither issued nor guaranteed by any monetary authority.

The 2017 Statement further detailed that companies that negotiate or store virtual currencies on behalf of their owners (that can be natural persons or legal entities), (i) are neither regulated, licensed to operate, nor supervised by BACEN; (ii) there is no specific provision governing virtual currencies in the legal and regulatory frameworks associated with the National Financial System; and (iii) BACEN, in particular, neither regulates nor supervises transactions involving virtual currencies.

The statement also reminded people that virtual currencies are not to be confused with e-money and, in addition, it highlighted that, in BACEN’s opinion, carrying out international wire transfers referenced in foreign currencies through the use of virtual assets and related instruments does not exempt companies from the obligation to comply with foreign exchange rules — especially the rule establishing that this type of transaction may only be performed by institutions authorized by BACEN to operate in the foreign exchange market.

OPEN BANKING

Open banking can be defined as a collaborative model in which banking data is shared with third parties through Application Programming Interfaces (APIs), so that they are able to deliver enhanced capabilities (products and/or services) to the marketplace, with the consent of the client that owns such data. This subject has been receiving attention in Brazil and abroad, especially after the Payment Services Revised Directive (PSD2) has come into force in Europe.

The Central Bank intends to define, until the end of 2018, a general model for the regulation of the matter, which shall start to be implemented in 2019.

BACEN shall establish requirements for the system of data sharing, limits for the scope of services that may be offered, types of companies that may offer its services through such APIs and also an implementation schedule.

It is expected that, aiming to improve competition, the new regulation will encourage (or even push) banks to provide their clients data, when duly authorized by them.

INSTANT PAYMENTS

BACEN is working on the implementation of an instant payment model as part of a number of measures geared at fostering competition in the financial and payments environment.

Instant payments are expected to be implemented under a phased approach, starting in 2019, and to be fully operational by 2021 – in order to initiate the implementation process, BACEN has published the fundamental requirements for this new payments ecosystem in December 2018.

The new model shall allow real-time, 24/7 payments and its rules will be defined by the Central Bank, which shall create the conditions required for the development of an instant payment system that is efficient, competitive, safe, inclusive and comprises all use cases.

The rules of the system will be issued by BACEN, which will count on a permanent consulting committee consisting of industry players, connectivity service providers and end users’ representatives.

Some of specific rules, of operational nature, may be defined by a governance structure created specifically for this purpose.

The system shall have a flexible and open participation structure, in order to ensure the access and the emergence of players that provide innovative and differentiated services, that fill end users’ needs. It will be possible to participate in three ways: directly, indirectly or as a provider of payment initiation services – the latter way subject to specific regulation.

BACEN will be responsible for developing and operating the centralized settlement infrastructure, to which participants may connect directly or through connectivity service providers (“switches”).

ABOUT OUR

SPONSOR

08.Focaccia, Amaral, Pellon e Lamonica Advogados – FAS Advogados – has a philosophy of delivering added value to its clients’ business, by working at the pace required by the market and understanding the peculiarities of each sector, with teams dedicated to Tax, Corporate, M&A, Civil, Communications, Labor and Regulatory Law, focused on payment methods.

The firm believes that legal services can only be fully realized by bringing continuous in-depth technical qualifications and specialization to its clients’ businesses, deeply focused on their expectations.

Since 2003, FAS Advogados has established itself as one of the most dynamic firms on the Brazilian market, by providing legal services that are able to positively and strategically impact their businesses.

FAS’ team is comprised of highly qualified professionals, dedicated to providing top legal services within strict ethical standards. They aim to establish legal services in a way that rewards personal qualities, aligned with the most contemporaneous methods of highly-successful corporate relations.

Internally, FAS strives for participative management, by providing our team with the opportunity to collaborate on ideas, suggestions and innovations aimed at achieving its practices.

FOR FURTHER INFORMATION, PLEASE CONTACT: R. Gomes de Carvalho, 1507

4th and 5th floors – 04547-005 São Paulo – SP – BrasilTelephone: (55 11) 3805-0222Website: www.fasadv.com.brSkype: fasadvogados

Paulo Mertz Focaccia pfocaccia@fasadv.com.br

Renata Homem de Melo Fontes rhmelo@fasadv.com.br

Karine E. Araújo Oliveira koliveira@fasadv.com.br

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