Open finance, Tokenization, Artificial Intelligence and Prudential Regulation: Unveiling the BCB Regulation Area’s Priorities for 2024.
During a press conference held on March 4th, Otávio Damaso, Deputy Governor for Regulation, outlined the priorities of the area's work priorities for 2024. “We understand that innovation is key for enhancing the efficiency of the financial system across its multiple dimensions: inclusion, competition, and product and service development. Another key aspect is the strengthening of our regulatory agenda regarding prudential regulation," he stated. The deputy governor emphasized the importance of Open Finance within the BCB's innovation agenda. Among the advancements are the development of a new non-consent journey, publishing the definitive governance structure, and improving Open Finance performance to make products and services more suitable for their audiences. “Open finance is already a reality. We've already logged about 1.4 billion calls for information exchange, millions of consents, and several products and services are being offered. We see Open Finance as a journey, an ongoing process. It is a powerful instrument for transforming the financial system. This year will be about solidifying this initiative," Damaso explained. The tokenization of assets is another area of focus for BCB's regulatory activities this year. A variety of products and services are emerging in the financial system that involve tokenization. According to the Deputy Governor for Regulation, the BCB does not intend to issue any regulations on this issue yet; instead, they are closely monitoring these developments. Damaso mentioned that "We're at the early stages of this process, but we believe it's another factor that will deeply transform the national financial system.". Tokenization is the representation of some value or contractual right protected by cryptography, kept in a distributed registry system, and subject to custody, transfer and negotiation through electronic channels. The Central Bank has also been monitoring the adoption of new technologies by regulated institutions. “Artificial intelligence is a subject that has been heavily debated, not just in the financial system, but across the entire economy. We are carefully monitoring how artificial intelligence is being integrated into the processes of banks and other institutions. On the one hand, this innovation has the potential to result in significant efficiency gains. On the other, we must also consider the impacts from a prudential perspective and our agenda to combat financial fraud," Otávio Damaso explained. “We also plan to establish regulations for virtual asset service providers. Last year, we carried out a public consultation on this matter. Now, we are compiling the inputs received during the public consultation process, and we plan to issue regulations on the subject”, stated Damaso. Law 14.478/22 defines virtual asset as a digital representation of value that can be traded or transferred electronically and used for payment or investment purposes. Throughout this year, the Regulation Area will enhance efforts to implement the Basel III prudential requirements. “We are still working on the implementation of the prudential requirements of Basel III. Last year, we made significant progress and issued several regulations. This year, we will issue additional regulations to keep advancing in the prudential agenda," explained the Deputy Governor, highlighting the strategic importance of this subject to the BCB. Banco Central do Brasil is also looking to move forward with regulations set forth by Complementary Law 196/22, which has introduced critical developments for the cooperative industry. According to the Deputy Governor for Regulation, rules will be issued in the coming months to regulate the sector. Another point that will be subject to regulation is the Foreign Exchange Law. "Our focus this year is regulating portfolio investments and the interbank market," Damaso explained. Another development concerns the sustainability agenda, which includes the mandatory disclosure of quantitative aspects of social, environmental and climatic risks.
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During a press conference held on March 4th, Otávio Damaso, Deputy Governor for Regulation, outlined the priorities of the area's work priorities for 2024. “We understand that innovation is key for enhancing the efficiency of the financial system across its multiple dimensions: inclusion, competition, and product and service development. Another key aspect is the strengthening of our regulatory agenda regarding prudential regulation," he stated.
The deputy governor emphasized the importance of Open Finance within the BCB's innovation agenda. Among the advancements are the development of a new non-consent journey, publishing the definitive governance structure, and improving Open Finance performance to make products and services more suitable for their audiences. “Open finance is already a reality. We've already logged about 1.4 billion calls for information exchange, millions of consents, and several products and services are being offered. We see Open Finance as a journey, an ongoing process. It is a powerful instrument for transforming the financial system. This year will be about solidifying this initiative," Damaso explained.
The tokenization of assets is another area of focus for BCB's regulatory activities this year. A variety of products and services are emerging in the financial system that involve tokenization. According to the Deputy Governor for Regulation, the BCB does not intend to issue any regulations on this issue yet; instead, they are closely monitoring these developments. Damaso mentioned that "We're at the early stages of this process, but we believe it's another factor that will deeply transform the national financial system.".
Tokenization is the representation of some value or contractual right protected by cryptography, kept in a distributed registry system, and subject to custody, transfer and negotiation through electronic channels.
The Central Bank has also been monitoring the adoption of new technologies by regulated institutions. “Artificial intelligence is a subject that has been heavily debated, not just in the financial system, but across the entire economy. We are carefully monitoring how artificial intelligence is being integrated into the processes of banks and other institutions. On the one hand, this innovation has the potential to result in significant efficiency gains. On the other, we must also consider the impacts from a prudential perspective and our agenda to combat financial fraud," Otávio Damaso explained.
“We also plan to establish regulations for virtual asset service providers. Last year, we carried out a public consultation on this matter. Now, we are compiling the inputs received during the public consultation process, and we plan to issue regulations on the subject”, stated Damaso. Law 14.478/22 defines virtual asset as a digital representation of value that can be traded or transferred electronically and used for payment or investment purposes.
Throughout this year, the Regulation Area will enhance efforts to implement the Basel III prudential requirements. “We are still working on the implementation of the prudential requirements of Basel III. Last year, we made significant progress and issued several regulations. This year, we will issue additional regulations to keep advancing in the prudential agenda," explained the Deputy Governor, highlighting the strategic importance of this subject to the BCB.
Banco Central do Brasil is also looking to move forward with regulations set forth by Complementary Law 196/22, which has introduced critical developments for the cooperative industry. According to the Deputy Governor for Regulation, rules will be issued in the coming months to regulate the sector. Another point that will be subject to regulation is the Foreign Exchange Law. "Our focus this year is regulating portfolio investments and the interbank market," Damaso explained. Another development concerns the sustainability agenda, which includes the mandatory disclosure of quantitative aspects of social, environmental and climatic risks.
