For small and mid-sized financial and payment institutions (including cooperatives, CFIs, SCDs and payment fintechs), capital and governance weaknesses are no longer a manageable liability.
Last Thursday (the 16th), the Central Bank of Brazil ordered the extrajudicial liquidation of Creditag, an independent credit cooperative in the S5 segment, due to serious economic and financial impairment and abnormal risk to unsecured creditors (in other words, insolvency). In systemic terms, it is a small case: the institution held 0.0000226% of the National Financial System's total assets. As a regulatory signal, it is big.
In an interview with Times Brasil (CNBC), our partner Roberto Panucci summed up the turning point: "Nos últimos anos, o regulador vem reduzindo significativamente o grau de tolerância com deficiências de governança, controles internos e resiliência operacional. Essa liquidação deixa claro que a supervisão não vai mais aguardar a correção voluntária de fragilidades graves." [In recent years, the regulator has significantly reduced its tolerance for deficiencies in governance, internal controls and operational resilience. This liquidation makes it clear that supervision will no longer wait for serious weaknesses to be voluntarily corrected.]
The practical effect is twofold and immediate.
First, it accelerates a consolidation trend already under way. Institutions without the scale to sustain the required structure of controls, capital and operational resilience on their own will have to choose between combining, selling or being removed from the system.
Second, it changes the M&A landscape for regulated entities. Structured governance is no longer a mere formal due diligence item and now determines who comes to the table in a position to negotiate, on what timeline and with how much freedom over the terms of the deal.
For boards, controlling shareholders and executives of regulated entities on this radar, the internal discussion has changed. It is no longer "how much does it cost to stay current with the regulator". It is how much to invest to remain in operation versus when it makes more sense to structure an orderly exit, and in what window.
The time to plan an orderly exit or a merger is now, not when the regulator is already knocking at the door.
Waiting rarely makes the solution cheaper. It reduces options.
Robust regulatory compliance has become a condition for staying in business, no longer a differentiator.
And for some small and mid-sized institutions, M&A is no longer an opportunity but the rational exit.
PSNA works on both fronts. In M&A, with partners Roberto Panucci and Daphne Minerbo. In banking regulation and compliance, with Roberto Panucci and Tiago Severo Gomes. Anyone wishing to discuss a specific case can contact our partners directly.
Full article: https://lnkd.in/dhHAwzSh
