Banks, Financial Services, Fintechs and Digital Assets Newsletter – 2024, February

REGULATION

Registration of Quarterly Periodic Statements with the Central Bank – Base Date of December 31, 2023

Brazilian entities that receive foreign direct investment in any amount, and whose total assets amount to or exceed BRL 300 million, must submit to the Central Bank of Brazil (“BC”), by March 31, 2024, their quarterly periodic statements (“DPT”) regarding the base date of December 31, 2023.

Read our Client Alert published on this topic.

Deadline for submitting the Annual Report of Brazilian Capital held Abroad enters into force

The Annual Report of Brazilian Capital held Abroad (“DCBE”), regarding the base date of December 31, 2023, must be submitted to the BC from February 15 to April 05, 2024.

The annual report must be submitted by all individuals and legal entities:

(i) that are resident, domiciled or headquartered in Brazil; and

(ii) that held, outside the Brazilian territory, assets of any nature that amounted to or exceeded USD 1,000,000.00 (or its equivalent in other currencies) on the base date of December 31, 2023.

Read our Client Alert published on this topic.

CMN Resolution No. 5,118, February 01, 2024

CMN Resolution No. 5,118, of February 01, 2024, provides for the backing given to the issuance of Agribusiness Receivables Certificates (“CRAs“) and Real Estate Receivables Certificates (“CRIs“).

For the purposes of this regulation, “debt securities” are securities and contractual instruments representing credit, promises of future payment or financing operations, such as: debentures; promissory notes; commercial notes; bank credit notes; bank deposit certificates; financial notes; loan agreements; financing agreements; and financial leasing. The “main activity sector” is also defined as the sector of a company responsible for more than 2/3 of its consolidated revenue, calculated on the basis of the financial statements published for the last fiscal year.

In addition, the resolution establishes that CRAs and CRIs cannot be backed by:

(i) debt securities whose issuer, debtor, co-debtor or guarantor is:

(a) a publicly traded company or a related party to a publicly traded company, unless the main activity sector is real estate or agribusiness;

(b) a financial institution or entity authorized to operate by the BC, or its related parties;

(ii) credit rights:

(a) arising from transactions between related parties; or

(b) arising from financial transactions whose funds are used to reimburse expenses.

Finally, assignment, endorsement and underwriting transactions in which the institutions and companies mentioned in item (i) above retain any risks and benefits are also prohibited. The Brazilian Securities and Exchange Commission (“CVM”) will be responsible for adopting, under its legal powers, the necessary measures to establish the provisions of this regulation.

This resolution entered into force on the date of its publication.

Read CMN Resolution No. 5,118 in full.

Read our Client Alert published on this topic.

CMN Resolution No. 5,119, February 01, 2024

CMN Resolution No. 5,119 was published on February 01, 2024, and amends the following resolutions:

(i) Resolution No. 4,410, of May 28, 2015, which provides for the Real Estate Credit Bill (“LCI“);

(ii) Resolution No. 4,676, of July 31, 2018, which provides for the general conditions and criteria for contracting real estate financing by financial institutions and other institutions authorized to operate by the BC, and also regulates the allocation of funds raised from savings deposits; and

(iii) CMN Resolution No. 5,006, of March 24, 2022, which provides for the Agribusiness Credit Bill (“LCA“).

In addition, the resolution also amends section 7 (Agribusiness Credit Bill – LCA) of Chapter 6 (Funds) of the Rural Credit Manual (“MCR“).

The following are some of the key innovations introduced by CMN Resolution No. 5,119 of February 01, 2024:

(a)      Minimum maturity period of LCIs: the minimum maturity period of LCIs is now (i) 36 months, when updated monthly by the price index; and (ii) 12 months, in other cases.

(b)      List of Real Estate Credits for issuing LCIs: for the purposes of issuing LCIs, the following transactions are considered to be real estate credits:

(i) financing for the acquisition of residential or non-residential properties;

(ii) financing for the construction of residential or non-residential properties;

(iii) loans to legal entities for the construction of residential or non-residential properties;

(iv) financing for the renovation or expansion of residential or non-residential properties;

(v) financing for the acquisition of construction material, expansion or renovation of residential or non-residential properties; and

(vi) loans to individuals secured by mortgages or fiduciary sale of residential properties.

(c)      LCIs issued until February 01, 2024, backed by revoked credit rights: can be maintained until the maturity date and cannot be extended. Their backing can be replaced by credit rights of the same type until the LCI’s maturity date.

(d)      Minimum maturity period of LCAs: the minimum maturity period of LCAs is (i) 12 months, when updated by the price index; and (ii) 9 months, when not updated by the price index.

(e)      Prohibition on the issuance of LCAs: the issuance of LCAs backed by the following credit rights is prohibited:

(i) advances on foreign exchange transactions;

(ii) export credits, including certificates, notes or bills representing export credits;

(iii) receivables certificates, including agribusiness receivables certificates; and

(iv) debentures.

(f)      LCAs issued until February 01, 2024, backed by prohibited credit rights: can be maintained until the maturity date and cannot be extended. Their backing can be replaced by credit rights of the same type until the LCA’s maturity date.

(g)      LCAs issued as of February 02, 2024: must comply with the following conditions regarding the participation of rural credit transactions among the credit rights used as backing:

(i) LCAs issued between February 02, 2024, and June 30, 2024: up to 75% of the credit rights used as backing for issuance can be composed of rural credit transactions financed with controlled funds, as provided for in MCR 6-1-2; and

(ii) LCAs issued between July 01, 2024, and June 30, 2025: up to 50% of the credit rights used as backing for issuance can be composed of rural credit transactions financed with controlled funds, as provided for in MCR 6-1-2.

This resolution entered into force on the date of its publication.

Read CMN Resolution No. 5,119 in full..

Read our Client Alert published on this topic.

Joint Resolution No. 9, February 22, 2024

Joint Resolution No. 9, of February 22, 2024, regulates the activities, requirements, duties and responsibilities of the fiduciary agent when issuing Insurance Risk Securities (“LRS“) through a Special Purpose Insurer (“SSPE“).

For the purposes of the joint resolution, the following will apply:

(i) SSPE: insurer whose exclusive purpose is to carry out one or more equity independent transactions, for the transfer of insurance, private pension, supplementary health, reinsurance or retrocession risks from one or more counterparties and its financing through the issuance of an LRS, a debt instrument linked to insurance and reinsurance risks; and

(ii) LRS: insurance, private pension, supplementary health, reinsurance or retrocession.

This resolution entered into force on March 01, 2024.

Read Joint Resolution No. 9 in full.

NEWS

BC publishes the list of priorities for the Regulation Board in 2024

The BC has released the list of main initiatives of the Regulation Board, which includes topics such as prudential regulation, rural credit, innovation, and sustainability, among others.

In short, the most relevant topics are:

1. 1. virtual assets in the foreign exchange and international capital markets;
   2. Open Finance;
   3. tokenization;
   4. artificial intelligence;
   5. sustainability;
   6. exposure to virtual assets;
   7. payment institutions; and
   8. finalization of Basel III.

Read the full article.

Payment transactions and the betting market

On February 06, 2024, our partner Fabio Braga published the article “Payment transactions and the betting market” in Folha de São Paulo, concerning Law No. 14,790, of December 29, 2023 (the “Legal Framework for Betting“), which:

(i) provides for the lottery method called “fixed-odds betting”;

(ii) amends Law No. 5,768, of December 20, 1971, to consolidate and establish new rules on the free distribution of prizes as advertising and on the distribution of prizes carried out by civil society organizations, in order to raise additional funds for their maintenance or funding;

(iii) amends Law No. 13,756, of December 12, 2018, to establish guidelines and rules for the operation of fixed-odds betting lotteries; and

(iv) amends Provisional Measure No. 2,158-35, of August 24, 2001, to provide for the authorization fee for the activities under Law No. 5,768, of December 20, 1971.

According to Braga, in this betting environment, platform operators and the institutions responsible for paying out bets and any winnings must adjust their procedures. In an effort to ensure transparency and security for bettors, payment transactions to non-legalized platforms were prohibited – institutions and payment arrangement providers cannot carry out betting-related transactions with unauthorized entities. This prohibition, however, is not automatic and is subject to a transition regulation, which sets its occurrence at a period of no less than 90 days as soon as operators are accredited, as defined by the Ministry of Finance.

It is also worth noting that the offering of transactional accounts or financial services that enable bettors to carry out transactions in a graphical account with the platform, as well as the receipt of prizes, are exclusive to institutions authorized by the BC – only institutions authorized to operate in means of payment will offer payment solutions in betting environments.

Read the article in full.

DREX: what it is and how the Brazilian CBDC will work

Our Banking and Finance team has published the article “DREX: what it is and how the Brazilian Central Bank Digital Currency (“CBDC”) will work.”, in Exame magazine. The article examines the BC’s digital currency, how it works and its main features.

Read the article in full.

ADMINISTRATIVE AND LEGAL DECISIONS

Superior Court of Justice

Foreign currency credit must be included in court-supervised reorganizations without conversion

The 3rd Panel of the Superior Court of Justice (“STJ“) decided that, in a court-supervised reorganization, foreign currency claims must be included in the list of creditors in the currency in which they were constituted, only indicating the updated amount, in accordance with article 50, paragraph 2, of Law No. 11,101/2005, given that the immediate conversion into Reais as soon as the claim is filed would generate a disparity between their amounts and those of the obligations that originated them.

According to Justice Marco Aurélio Bellizze, the Law on Court-Supervised Reorganization and Bankruptcy determines that, in foreign currency claims, the exchange rate variation must be preserved as the parameter for indexing the obligation and can only be removed if the creditor expressly agrees to a different provision defined in the reorganization plan. As a result, foreign claims must be included in the list of creditors in the currency in which they were constituted and updated until the date of the request for court-supervised reorganization, under the terms of article 9, item II, of Law No. 11,101/2005.

Read the appellate decision in REsp No. 1,954,441.

Read the STJ decision in full.

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