Five steps to start up a financial institution in Brazil

Hello, I begin this article by making a comment I consider important in order to call the attention of those who seriously intend to start up a financial institution(FI)  in Brazil:

Regardless of its category, it is not enough to wish or even be considerably wealthy for starting up a FI. On the other hand, I am not saying it is too complicated either. To be ready is everything. In addition to the obligation of obeying to a rigid regulatory demand, to be wealth enough and to have a skilled team, you also need a business plan very well elaborated. To hire the team is not that complicated, although some positions might have higher salaries if compared to other segments within the market. A well-done business plan based on the Central Bank’s needs is considerably more complicated because you need to demonstrate that your project will work out and generate profit as a result.

Remember that the Central Bank of Brazil(BACEN) does not want any FI facing operational or financial difficulties. They avoid the generation of untrusting feelings in the market and undesired headaches for themselves. Be conscious that to start up a bank is totally different from opening a commercial company. However, this kind of business has been considered an extraordinary investment in Brazil. In fact, BACEN’s analysts need to be convinced the new FI will bring benefits for all stakeholders.

Having said that, I’d like to point out five important steps in order to start up a FI:

Step 1: Read carefully all the legislation about the subject. There are two basic phases to be considered: establishment and authorization to operate. Follow this link for the specific legislation.

Step 2: Develop a business plan. This is a very important step and should be considered critical. The approval tenor of your project at BACEN will vary considerably depending upon the quality of your business plan and the interlocutor, whom will be negotiating and clarifying details for the team of analysts at BACEN. By the way, they have eagled eyes and consequently, can see certain divergences apparently unseen that must be justified, and that implies waste of time.

Step 3: Establishment: you should file an initial application with BACEN – DEORF accompanied by a Draft Statement of Purpose(DSP). DEORF(Department of Organization and Restructuring of the financial system) shall examine the intended corporate name and the contents of the DSP, as the case may be. In case there are no hindrances to the name and the contents of the DSP, you publish it according to the legislation provided under SISORF. You should complete the proceedings for establishment by providing the documents foreseen in SISORF within ninety calendar days from the filing of the initial application. On this phase, you should also nominate a person, technically able, in command of conducting the proceedings. Such person is not responsible for discussing formal issues related to the proceedings. He or she shall display technical abilities to discuss the whole enterprise project, especially in what relates to the business plan, economic and financial feasibility analysis and standards of corporate governance of the future institution. It is highly recommended that this person be come from the financial market because will facilitate the relationship between the intended institution and BACEN. Furthermore, they will deeply examine the requisites of good character besides personal and financial history of the controlling shareholders. After the application is analyzed, BACEN shall communicate its decision to you. If it is approved, you will have ninety days from the receipt of the related decision, to formalize the bank`s request for authorization to operate.

Step 4: Phase of authorization to operate: you should formalize the request for authorization of the society to BACEN followed by corporate acts for establishment of the society; approved bylaws; acts of election and any other documentation requested by BACEN. After the internalization of the institution’s capital, you have five days to deposit its initial amount in BACEN. This operation can be done through any bank. The amount of money deposited will be blocked during the analyses of your request. After you receive the authorization to operate, they will return the amount deposited plus the interests to the new FI.

Step 5: Now that you already have your FI authorized to operate, your mind shall think differently. Why? You should exercise your sense of urgency because you need to register immediately the bylaws because of the fact that the FI has fiscal and regulatory obligations, even not being fully in operation.

If you have surpassed all these steps above, we congratulate you. You are ready to operate. However, there come the most difficult phase which is to make money. Although my focus in this article is not exploring the nuances of operational structuring details, I encourage you very much to consider some critical issues such as human-resource qualifications, special accounting procedures, compliance, IT and data security, adequate products and services related to your target market, credit policies, sales force and general governance. It supposes that you have already discussed these subjects previously in your business plan but if not so well, it is the time to implement all of them straightaway.

Finally, I end up this post motivating you to think as a banker and startup the engines of your new business. I am sure you will have the operation in excellent conditions to succeed.

By Paulo Bezerra – CEO at CMF Consulting Group.

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