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

REGULATIONS

Brazilian National Monetary Council

CMN Resolution No. 5,187, dated November 28, 2024

The National Monetary Council (“CMN”) Resolution No. 5,187, of November 28, 2024, provides for the process of planning the recovery and resolution of financial institutions and other institutions authorized to operate by the Central Bank of Brazil (“BC”).

The regulation aims to ensure the soundness, stability and regular functioning of the National Financial System (“SFN”), the Brazilian Payment System (“SPB”) and the real economy.

CMN Resolution No. 5,187 will enter into force: (i) on January 01, 2028, regard-ing Article 14, Paragraphs 1 and 2, for contracts signed before the date of publication of this resolution; and (ii) on January 01, 2025, regarding the other provisions, including Article 14, Paragraphs 1 and 2, for contracts signed as of the date of publication of this resolution.

Read CMN Resolution No. 5,187 in full.

CMN Resolution No. 5,185, dated November 21, 2024

CMN Resolution No. 5,185, of November 21, 2024, amends Resolution No. 4,818, of May 29, 2020, which establishes general criteria for drafting and disclosing individual and consolidated financial statements by financial institutions and other institutions authorized to operate by the BC.

CMN Resolution No. 5,185 will enter into force on January 01, 2025.

Read CMN Resolution No. 5,185 in full.

CMN Resolution No. 5,184, dated November 21, 2024

CMN Resolution No. 5,184 of November 21, 2024 amends Resolution No. 4,222 of May 23, 2013, and its Annexes I and II, address, respectively, the Bylaws and Regulation of the Credit Guarantee Fund (“FGC”), to include the Development Credit Letter (“LCD”) in the list of financial instruments subject to ordinary guarantee, and the introduction of improvements to the FGC’s governance and depositor protection.

CMN Resolution No. 5,184 entered into force on the date of its publication.

Read CMN Resolution No. 5,184 in full.

Central Bank of Brazil

BCB Resolution No. 440, dated November 28, 2024

BCB Resolution No. 440, of November 28, 2024, provides for the process of planning the recovery and resolution of payment institutions and on the content, preparation and shipment of the Organized Recovery and Exit Plan (“PRSO”).

BCB Resolution No. 440 will enter into force on January 01, 2025.

Read BCB Resolution No. 440 in full.

BCB Resolution No. 438, dated November 28, 2024

BCB Resolution No. 438, of November 28, 2024, amends BCB Resolution No. 229, of May 12, 2022, which establishes the procedures for calculating the share of risk-weighted assets (“RWA”) in relation to credit risk exposures subject to the calculation of capital requirement using the standardized approach (“RWACPAD”).

BCB Resolution No. 438 will enter into force on January 02, 2025.

Read BCB Resolution No. 438 in full.

BCB Resolution No. 437, dated November 28, 2024

BCB Resolution No. 437, of November 28, 2024, establishes the procedures for calculating the share of risk-weighted assets (“RWA”) in relation to credit risk exposures subject to the calculation of capital requirement through a simplified, standardized approach (“RWARCSimp”).

BCB Resolution No. 437 will enter into force on January 01, 2025.

Read BCB Resolution No. 437 in full.

BCB Resolution No. 436, dated November 28, 2024

BCB Resolution 436, of November 28, 2024, classifies the singular institutions authorized to operate by the BC and the prudential conglomerates led by these institutions as Type 1, Type 2, or Type 3. The resolution also establishes the segmentation of institutions and conglomerates classified as Type 3.

BCB Resolution No. 436 will enter into force on January 01, 2025.

Read BCB Resolution No. 436 in full.

BCB Resolution No. 434, dated November 21, 2024

BCB Resolution 434, of November 21, 2024, amends BCB Resolution 198, of March 11, 2022, which provides for the minimum required Reference Capital of a Payment Institution (“PRIP”) that is not part of a prudential conglomerate or a Type 2 prudential conglomerate.

BCB Resolution No. 434 entered into force on the date of its publication.

Read BCB Resolution No. 434 in full.

BCB Resolution No. 432, dated November 13, 2024

BCB Resolution 432, of November 13, 2024, establishes the remuneration policy for administrators of securities brokers, securities distributors, foreign exchange brokers, consortium administrators and payment institutions authorized to operate by the BC.

The following provisions have also been repealed: (i) Article 8 of BCB Resolution No. 65, of January 26, 2021, published in the Federal Official Gazette (“DOU”) on January 28, 2021; and (ii) article 9 of BCB Resolution No. 93, of May 06, 2021, published in the DOU on May 10, 2021.

BCB Resolution No. 432 will enter into force on January 01, 2025.

Read BCB Resolution No. 432 in full.

BCB Resolution No. 431, dated November 13, 2024

BCB Resolution 431, of November 13, 2024, amends BCB Resolution 260, of November 22, 2022, which provides for the internal control systems of consortium administrators, payment institutions, securities brokers, securities distributors and foreign exchange brokers authorized to operate by the BC.

BCB Resolution No. 431 will enter into force on January 01, 2025.

Read BCB Resolution No. 431 in full.

BCB Resolution No. 430, dated November 12, 2024

BCB Resolution No. 430, of November 12, 2024, establishes the essential activi-ties required to fulfill the BC’s institutional mission, which must be fully operational in the event of a shutdown or strike.

Among the activities considered as essential are the following, carried out by the Financial System Organization Department (“Deorf”):

(i) Preparing and finalizing processes relating to operating authorization for entities under the responsibility of the BC;

(ii) Deciding on incorporation and operation;

(iii) Deciding on the election and appointment of statutory or contractual members, including the FGC and the Credit Cooperative Guarantee Fund (“FGCoop”);

(iv) Conducting and finalizing processes relating to functional and operational corporate authorizations within the scope of the SFN, the Consortium System and the SPB;

(v) Deciding on corporate control changes;

(vi) Deciding on incorporations, mergers and spin-offs;

(vii) Deciding on a change of corporate purpose;

(viii) Conducting and finalizing processes relating to structural or corporate changes for entities under the responsibility of the BC;

(ix) Examining authorization requests for the operation of a new financial mar-ket infrastructure; and

(x) Conducting and finalizing processes relating to market infrastructure.

BCB Resolution No. 430 will enter into force on January 01, 2025.

Read BCB Resolution No. 430 in full.

BCB Resolution No. 429, dated November 11, 2024

BCB Resolution No. 429, of November 11, 2024, amends BCB Resolution No. 1, of August 12, 2020, which establishes the Pix payment arrangement and its attached regulation, regulating the operation of the Pix payment arrangement to stipulate that only institutions authorized to operate by the BC can be Pix participants; establish deadlines for Pix participants or those in the process of joining who do not have authorization to operate to apply for authorization; establish share capital and net worth requirements for participation in Pix; and establish new obligations for participants without authorization to operate and for participants responsible for these institutions.

BCB Resolution 429 entered into force on the date of its publication, taking effect: (i) as of July 01, 2025, for the provisions amending art. 3 Paragraph 5, item I, items “e” and “f”, and art. 3 Paragraph 5, item III, of BCB Resolution no. 1, of August 12, 2020; and (ii) immediately, for the other provisions.

Read BCB Resolution No. 429 in full.

BCB Normative Instruction No. 547, dated November 07, 2024

BCB Normative Instruction (“IN”) No. 547, of November 07, 2024, amends BCB IN No. 398, of June 29, 2023, which discloses the procedures, documents, deadlines, and information necessary to conduct authorization requests relating to the operation of the consortium administrators referred to in BCB Reso-lution No. 233, of July 27, 2022.

In short, the new regulation implements changes regarding the documentation required to conduct authorization requests for: (i) operation; (ii) transfer or change of control; (iii) change of share capital; and (iv) cancellation of operat-ing authorizations, to be submitted to the BC.

In addition, BCB IN 547 establishes the rules and procedures involved in the extinction of Independent Auditors and amends annexes I, II and III. These annexes provide, respectively, for: (i) the content of the executive summary of the business plan; (ii) the content of the business plan; and (iii) the content of the reasoned justification for the transfer or change of control, as well as for the incorporation, merger or spin-off.

Finally, the following provisions of BCB IN 398 were repealed: (a) Article 5, head paragraph, items XIII and XIV; and (b) Article 8, head paragraph, items X and XI.

BCB Resolution No. 547 entered into force on the date of its publication.

Read BCB IN No. 547 in full.

NEWS

BC announces proposed regulations on the incorporation and operation of virtual asset service providers

On November 08, 2024, the BC published ECP No. 109, which outlines the proposal to regulate the incorporation and operation of Virtual Asset Service Providers (“VASPs”) and the provision of virtual asset services by other institutions authorized to operate by the BC.

To establish a legally secure, solid and efficient environment, as well as the regular operation of virtual asset service providers and other institutions that are part of the virtual asset market, the BC proposed the creation of three types of virtual asset service providers: (i) virtual asset intermediaries; (ii) custodians; and (iii) virtual asset brokers. Considering the vertical nature of the institutions in the virtual asset market, the BC also suggests allowing a combination of the activities carried out by intermediaries and brokers.

The minimum share capital and paid-in net worth limits for these types of institutions, as proposed, are: (i) BRL 1,000,000.00 (one million reais) for intermediaries; (ii) BRL 2,000,000.00 (two million reais) for custodians; and (iii) BRL 3,000,000.00 (three million reais) for virtual asset brokers. VASPs that include virtual asset margin accounts and virtual asset staking transactions in their corporate purposes, which are assessed as higher risk, must add BRL 2,000,000.00 (two million reais) to their share capital and paid-in net worth limits.

The proposal allows institutions that are already authorized to operate by the BC to operate in the intermediation and custody of virtual assets – as long as these companies operate with payment accounts (in accordance with specific regulations):

1. commercial banks;
2. multiple banks;
3. investment banks;
4. Caixa Econômica Federal;
5. securities distribution companies; and
6. securities brokers.

Interested parties can submit contributions by February 07, 2025, through the link below and by e-mail: ativosvirtuais.denor@bcb.gov.br; or denor@bcb.gov.br.

Read our client alert on Public Consultation No. 109/2024.

Read ECP No. 109 in full.

BC publishes public consultation on proposed regulation of authorization processes for companies providing virtual asset services

On November 08, 2024, the BC published ECP No. 110 on the proposed regulation of authorization processes for VASPs, foreign exchange brokers, securities brokers (“CVTMs”) and securities distributors (“DTVMs”).

ECP 110 introduces a series of requirements for the authorization and operation of VASPs and the other mentioned institutions, thus proposing all the rules for processes that require authorization from the BC. These processes mainly include: transfers or changes in corporate control; mergers, spin-offs or incorporations; corporate transformations; the taking and term of office of those elected or appointed to management positions; and changes in the amount of share capital.

In addition, the definitions of “controlling shareholder”, “controlling group” and “holder of a qualifying holding” are also established for the resolution proposed by the BC.

Interested parties can submit contributions by February 07, 2025, through the link below and by e-mail: ativosvirtuais.denor@bcb.gov.br; or denor@bcb.gov.br.

Read our client alert on Public Consultation No. 110/2024.

Read ECP No. 110 in full.

BC announces public consultation on proposed regulation to amend rules on the foreign exchange market, foreign capital in Brazil and Brazilian capital abroad

On November 29, 2024, the BC published ECP No. 111, regarding the proposal for a resolution to amend BCB Resolutions No. 277, of December 31, 2022, BCB No. 278, of December 31, 2022, and BCB No. 279, of December 31, 2022, to regulate item V of art. 7 of Law No. 14,478, of December 21, 2022, include the activities or operations of virtual asset service providers in the foreign exchange market, and provide for the hypotheses in which they must submit to the regulation of Brazilian capital abroad and foreign capital in Brazil.

In short, among the main provisions of ECP No. 111, the following stand out:

(i) the definition of the activities of VASPs included in the foreign exchange market: (1) international payments and transfers through the transmission of virtual assets; (2) purchase, sale, exchange or custody of virtual assets denominated in Brazilian Reais owned by non-residents; and (3) transactions with virtual assets denominated in foreign currency;

(ii) the setting of rules for carrying out these activities in the foreign exchange market;

(iii) only VASPs authorized to operate in the foreign exchange market may carry out these activities in the foreign exchange market; institutions eligible to play this role have been defined; and

(iv) the provision of information to the BC regarding such activities includes: (1) the identification of client and counterparties (where applicable); (2) the classification of the transaction; and (3) the amounts and types of virtual assets involved.

In addition, the proposal seeks input from the public on whether VASPs need to establish additional limits – beyond those contained in the proposal – for transactions involving the provision of virtual asset services in the foreign ex-change market. The BC is also seeking input on how VASPs could verify that their counterparty providing equivalent services abroad would be subject to regulation and supervision in their jurisdiction and what role such institutions could play in international capital flows and stock transactions (including non-resident portfolio investment transactions).

Interested parties can submit contributions by February 28, 2025, through the links www.gov.br/participamaisbrasil and www.bcb.gov.br and e-mail dereg@bcb.gov.br.

Read our client alert on Public Consultation No. 111/2024.

Read ECP No. 111 in full.

Registration of Quarterly Periodic Statements with the BC – Base Date of September 30, 2024

Brazilian entities that receive foreign direct equity investment in any amount, and whose total assets amount to or exceed BRL 300 million must submit to the BC, by December 31, 2024, their economic-financial statements (Declaração Econômico-Financeira – DPT) as of the base date of September 30, 2024.

This submission is one of the obligations applicable to Brazilian entities that receive foreign direct investments, and any omission or delay to comply with such obligation may trigger the application of penalties by the BC.

Read our client alert on the DPT.

Regulation of crypto assets: Will Brazil be a hub for security and innovation?

On November 18, 2024, our Banking and Finance partner Fabio Braga wrote an article for Lex Legal Brasil about the BC’s public consultation to discuss the proposed regulation of VASPs. The consultation at issue also includes regulatory concerns for foreign exchange brokers, CVTMs and DTVMs.

In short, the article covers the following topics:

(i) purpose: security and transparency in the crypto asset market;

(ii) requirements and criteria for VASPs;

(iii) impact on the crypto asset market and regulatory challenges;

(iv) public consultation and open debate;

(v) opportunities and innovation in the regulated market;

(vi) challenges for financial institutions and startups;

(vii) Brazil as an international benchmark in crypto assets; and

(viii) long-term impact and next steps.

According to Braga, the BC summarizes the role of VASPs by creating three types of companies – virtual asset intermediaries, custodians responsible for the safekeeping of assets, and brokers – which will combine their duties and require minimum capital proportional to the complexity and volume of their operations, establishing a higher level of responsibility for participants in the sector.

It is also worth noting that the BC may propose special treatment for service providers already operating in the market until the new regulation enters into force, which allows for a gradual transition and avoids disruptions that could potentially be harmful to the market.

Read the article published by Lex Legal Brasil in full.