Banking & Finance
Central Bank of Brazil takes another step to approve the regulation of Instant Payments System (SPI) in Brazil
On June 12, 2020, the Central Bank of Brazil (BC) enacted Circular No. 4,027, which established the Instant Payment System (SPI) and the Instant Payment Account (PI Account). The devices are part of another stage of the process to launch instant payments in Brazil, expected to start operating in November this year.
The definitions of the instant payment ecosystem were made through the coordination activities of the thematic working group called GT - Instant Payments, established by Ordinance No. 97,909 of May 3, 2018, within the framework of the Payment Schemes and Institutions Forum (AIP), which resulted in the publication of Communiqué No. 32,927, updated by Communiqué No. 34,085 of August 28, 2019. The group was composed of BC members and representatives of public and private entities, taking into account the experience of foreign countries.
On February 18, 2020, BC enacted Circular No. 3,985, with some of the rules for participation in the instant payments scheme (PIX) and SPI. The goal was that both financial institutions and payment institutions could adapt to meet the requirements necessary to join the system, performing the centralized infrastructure tests on schedule.
Circular No. 4,027 consolidates and improves the regulatory framework, establishing the SPI, with its respective regulation, and the PI Account, to be held in the BC by the direct participants of the system.
Regulation of the Instant Payments System (SPI)
The regulation reaffirmed that the BC will be responsible for monitoring the SPI, as the guidelines have already indicated, through the Department of Banking Transactions and Payment System (DEBAN) and the Department of Information Technology (DEINF). It also provided that SPI direct participants may issue and receive instant payments, for the benefit of their customers or customers of indirect participants for whom they act as settlors in the SPI or, in the case of the National Treasury Secretariat (STN), issue and receive instant payments related to their main activities.
Besides consolidating the participation requirements, under the terms of the Circular No. 3,985, the regulation controls important SPI aspects, such as: the monitoring of the system by BC, technical structure, opening hours, rights and duties of the participants, the processing of settlement orders, liquidity mechanisms in PI Account and the policy in the establishment of rates.
The regulation also introduced the rights of SPI participants: they must receive information on the processing of credit orders issued by them, the credit orders directed to them, the relevant events related to the management of the PI Account of their ownership or the operation of the SPI by BC and the inclusion, modification or exclusion of direct and indirect participants.
SPI Participants
There are two ways to participate in the SPI. Direct participation takes place through a financial or payment institution that offers a transactional account to the end user and that, for settlement purposes between institutions, has an account at BC (later called the Instant Payment Account) and connection to the centralized settlement infrastructure.
In the indirect participation, the holder does not have an account at BC or connection to the centralized settlement infrastructure, being dependent on a direct participant hired to carry out its settlements.
Participation in the SPI is mandatory for participants of the PIX scheme for the purposes of instant payment settlement. In addition, commercial banks, multiple banks with commercial portfolios, savings banks, clearing and settlement systems and the STN must participate directly, if they decide to participate in the system.
PI Account
The PI Account is intended to keep a record of the balance held in BC for the purpose of settlement of transactions under the SPI and to transfer funds corresponding to the settlement of instant payment orders submitted for processing by SPI.
Institutions already authorized to operate by BC that participate in the SPI in direct form, clearing and settlement systems authorized by BC to provide private liquidity intermediation services and the STN may be holders of the PI Account upon the authorization by BC.
Credit Order and Settlement
Credit order is the funds transfer order whose issuer is the institution holding the account held with BC from which the funds subject to the transfer come from. It is important to differentiate the credit order from the instant payment order. The latter is a credit order issued by a SPI participant under PIX.
Credit orders of any amount are settled by SPI. The credit order must always be issued in national currency, for immediate settlement and involving transfer between PI Accounts of different direct participants in the case of instant payment order.
When processing the instant payment order received, the SPI will block the corresponding amount in the PI Account of the issuing participant in order to ensure the existence of funds necessary to settle the instant payment order.
Prior to the settlement of the instant payment order, the SPI forwards the order to the receiving participant so that the direct or indirect participant who holds the account of the end user receiving the instant payment order verifies the user and account data and confirms to SPI the ability to receive the order.
Unexpired payment orders with confirmation of receipt capacity will be submitted to immediate settlement. This settlement must take place within a maximum period to be established by BC.
Instant Payments Scheme - PIX
PIX was also first regulated by Circular No. 3,985. The form of registration of participants for the process of their adhesion in the approval phase is regulated by Circular Letter No. 4,006, of February 20, 2020. Registration, as seen, is mandatory for part of the institutions and optional for the others.
The registration deadline for the second group ended on June 1, 2020 and new requests will be received from December 1, 2020, as provided by Circular Letter No. 4,022, of April 9, 2020.
Circular Letters No. 4,055 and No. 4,056, both of May 25, 2020 established a schedule of mandatory tests in order to ensure the proper functioning of the system. The steps include tests of connectivity, payment and return settlement, consultation of the PI Account balance and launch details, contribution and withdrawal of liquidity mechanisms, and the submission of a suitability statement to operate in the SPI production environment until October 16, 2020.
PIX will be the only brand of instant payment functionality in Brazil, operated by BC. The purpose of centralizing the instant payment functionality is to create a visual identity that can be easily identified by users, facilitating the understanding and adoption of the instrument. All digital platforms of participating institutions must provide a space of use for PIX by their users.
Conclusion
The SPI regulation is the latest advance in the implementation of the Instant Payment System in Brazil. The approval and testing procedures are currently on track to implement the SPI within the proposed schedule. According to information from BC, so far 980 financial and payment institutions are already participating in the approval phase.
The market has great interest, reflected in the numbers, to offer instant payment to its customers because it is faster and safer. In this test stage, as demands or failures are observed, new standards can be established after rounds of discussions.