Investors keep pouring money into Brazil’s so-called shadow-banking market even as defaults continue to climb.
That, combined with several high-profile fraud cases, has prompted the central bank to say it’s concerned some investors aren’t getting the level of transparency they need to assess the risks. The focus is on FIDCs — funds that invest in pools of loans often originated by fintechs.
FIDCs have been called shadow banks by some market participants because of the major role they play in the lending market despite the fact that they’re subject to less stringent regulatory oversight than traditional banks.
The flood of capital into FIDCs has spurred concerns more than the structure itself. Total FIDCs under management jumped 14% this year through September, to 978.8 billion reais ($178 billion), and have doubled in the past three years, according to Uqbar, a data and research company that specializes in structured finance and securitization.
The central bank said it’s concerned about the need to improve “the quality of the registered information,” according to a May report, and regulators are looking into “the proper measurement of credit risk, and the valuation of illiquid and non-standardized assets.” Authorities followed up by strengthening some of the rules for legal claims and adding more disclosure requirements.