Brazil financial services reforms bring foreign investor promise

Brazil’s capital markets regulator is pushing through reforms aimed at attracting foreign investors

As Brazil gears up to host the World Cup next year and the Olympics in 2016, a clutch of government reforms hold high promise for the country’s financial infrastructure, according to Aldo Mendes, deputy governor, monetary policy at Brazil’s Central Bank.

The first of these is a set of new proposals currently being discussed by the National Congress of Brazil, the country’s legislative body, which aim to lower the cost of mobile payment transactions and encourage competition between merchants and service providers. The new rules essentially focus on making mobile payment secure, and create a framework in which the Central Bank is responsible for regulation of the sector.

Congress is due to finalise the new rules within the next 120 days, after which they will be passed into law.

“My hope is that mobile will increase financial inclusion in Brazil,” said Mendes. “Building out new bank branches is costly and difficult. But telecoms cover the entire country – there are more cell phones in Brazil than people. It’s possible to make payments using simple equipment, as has been done in India. We aim to bring the same approach to Brazil.”

Earlier this month, Brazil gained its first ever mobile payment service  with the launch of a joint service provided by Spanish and South American telecom firm Telefónica and MasterCard. Available first in Sao Paulo and Belo Horizonte, the Zuum service will allow Brazilians to transfer money, buy credits for pre-paid mobile phones and pay bills with their mobile phone.

The second step is a drive by the government to cut away at the layers of bureaucracy around tax and the setting up of new companies in Brazil. Supported by the World Bank, and including the participation of the Mayor of Sao Paulo, the project aims to boost foreign investment by institutional investors in the country’s capital markets.

“Foreign investors are sometimes put off by the bureaucracy – it’s not easy to set up a new company and to pay the right taxes in Brazil,” said Paulo Oliveira, director-president at Brasil Investimentos e Negocios (BRAIN), an organisation set up in March 2010 to develop Brazil as an international business centre. “We aim to reduce the time it takes to get the approval to open a new company in Brazil from around 3 months to one week.”

BRAIN was established by Brazilian exchange BM&F Bovespa, the Brazilian Federation of Banks and the Brazilian Association of Financial and Capital Market Entities.

Luciana Dias, board member at the Securities and Exchange Commission of Brazil, added that foreign institutional investors can soon expect to gain authorisation within days. Pointing to the country’s relatively smooth progress through the financial crisis, Dias commented that Brazil should still appeal to international investors. Research from Aite Group revealed that Europe surpassed the US as the largest source of foreign investment into Brazil last year.

“We have good fundamentals,” she said. “We have a very safe system, well regulated, in compliance with international standards for preventing systemic risk. We are a stable democracy. If you’re an institutional investor, that’s what you want.”