OPENING A BANK OR FINTECH IN BRAZIL IS CHEAP AND EASY NOW. HERE IS THE PROCEDURE.
As mentioned in my last post, Brazil has eased restrictions to foreign investment in the financial market.
The text of the new regulation was a bit ambiguous about the definition of “branch”. But the Brazilian Central Bank has issued a public statement that indicates that the term “branch” is to be understood as “new company”.
As a result, the process for incorporating a bank in Brazil has become much more streamlined. And, due to the current exchange rate, minimum capital requirements are very low.
This post will give you a list of the minimum capital requirements for finance companies and a general overview of the process to obtain authorization from the Brazilian Central Bank.
- MININUM CAPITAL FOR FINTECHS THAT DO NOT ACT AS FINANCIAL INSTITUTION
The definition of financial institution is not totally clear in Brazilian law. A good rule of thumb is that any company that provides loans at interest rates determined by the market (which, in case of credit cards, may reach 300% per year) is to be considered a financial institution.
Many, many fintechs are more focused on the “tech” part than on the “finance” part. I see that many companies provide API solutions, or data aggregation or similar software or SAAS products.
For these pure tech fintechs, there are basically no minimum capital requirements.
- MINIMUM CAPITAL FOR BANKS AND FINTECHS THAT ACT AS FINANCIAL INSTITUTIONS
Capital requirements are divided by type of portfolio.
Values are given in dollars, considering a 4 to 1 exchange rate to the Brazilian Real.
a. Commercial banks (that is, banks that open bank accounts to the general public)
USD 4,357.000.00
(BRL 17,500,000.00 – seventeen million five hundred thousand reais)
NOTE: For entities based outside of Rio de Janeiro or São Paulo, capital requirements are reduced in 30%. This means that commercial banks with HQ in other large metropolitan areas, such as Belo Horizonte (where I live) or Curitiba or Fortaleza need only 3 million dollars to start business.
b. Investment banks (banks specialized in investment banking, M&A, etc.)
USD 3,125,000.00
(BRL 12,500,000.00 – twelve million and five hundred thousand reais):
*Outside Rio and São Paulo: 2.187 million USD.
c. Foreign exchange brokerage firms
USD 1,750.000,00
(BRL 7,000,000.00 – seven million reais)
*Outside Rio and São Paulo:1.225million USD.
Note: for limited forex transactions, such as sale to tourists, the minimum capital is much lower, only USD 87,500.00.
d. Securities brokerage firms that guarantee the underwriting of securities.
USD 375,000.00
(BRL 1,500,000.00 – one million five hundred thousand reais)
*Outside Rio and São Paulo: 262,000.00 USD.
e. Securities brokerage firms that do not guarantee the underwriting of securities (intermediation only)
USD 137,500.00
(BRL 550,000.00 – five hundred and fifty thousand reais)
*Outside Rio and São Paulo:96,000.00 USD
f. Banks for real estate credit (mortgages)
USD 1,750.000,00
(BRL 7,000,000.00 – seven million reais)
*Outside Rio and São Paulo:1.225milion USD.
g. Credit financing (especially for companies, e.g. invoice discounts) and leasing operations
USD 1,750.000,00
(BRL 7,000,000.00 – seven million reais)
*Outside Rio and São Paulo:1.225milion USD.
- AUTHORIZATION PROCESS
As mentioned in my last post, presidential authorization is no longer needed.
Therefore, the process to set up a financial institution owned by foreign investors, or a Brazilian branch of a foreign financial institution, will follow the same legislation applicable to Brazilian banks.
The process has 03 main phases
I – FILING OF A DECLARATION OF PURPOSE AND BUSINESS PLAN
This includes several documents, such as an executive summary of the business plan and a list of organizers, investors and directors.
On a following step of this phase, a detailed business plan will be required by the Brazilian Central Bank.
II – INCORPORATION OF COMPANY AND SETTING UP OF THE PRE-OPERATIONAL BUSINESS STRUCTURE
After the business plan is approved, the investors must incorporate the company and organize the basic business structure, including computer systems, headquarters and basic head count.
III – INSPECTION AND AUTHORIZATION TO DO BUSINESS
After a final inspection, the company will be ordered to formally appoint its directors and start doing business.
Total time frame may range from 60 days to one year, depending on the size and complexity of the structure.
- FORECAST OF FUTURURE REGULATIONS
There are projects for new foreign exchange and foreign investment regulation, which are supposed to make the whole process less bureaucratic.
However, the project has just been prepared and forwarded to the government’s appreciation. It may take 2-3 years for it to be voted and become effective.
For now, investors would be wise to enjoy the highly favorable exchange rate and the relatively small number of applicants in the pipeline.
