Banks, Financial Services, Fintechs and Digital Assets Newsletter No. 3

REGULATIONS

Brazilian National Monetary Council

CMN regulates service confederations (confederações de serviços) exclusively comprised of central credit cooperatives

Recently, Supplementary Law no. 196 of 2022 introduced relevant changes in Supplementary Law no. 130 of 2009, which governs Brazil’s National Cooperative Credit System (SNCC), including service confederations exclusively comprised of central credit cooperatives (service confederations) in the list of institutions governed by such Supplementary Law.

Through Supplementary Law No. 196, the legal authority of the National Monetary Council (“CMN”) and BCB regarding financial institutions also apply to service confederations, which are now authorized to operate.

As a result of this amendment, CMN approved the regulations for the organization and operation of service confederations, which are cooperative associations designed to provide services that are pertinent, complementary, or necessary to the activities carried out by their members or by single cooperatives affiliated to such central cooperatives – except for services and operations exclusive to financial institutions.

Read the article in full.

Central Bank of Brazil

BCB Resolution No. 297, March 02, 2022

Provides for the transfer of funds through Credit Documents (“DOC”) and Special Credit Transfer (“TEC”).

BCB Resolution No. 297, of the Central Bank of Brazil (“BCB”) establishes that the DOC can be sent and received only by commercial banks, by multiple banks with a commercial portfolio and by Caixa Econômica Federal (Federal Savings Bank).  Sending institutions that offer the fund transfer service via DOC are not allowed to refuse the transfer, if the funds are delivered in cash, in compliance with the specific regulation to prevent the use of the financial system to commit money laundering and terrorism financing crimes.

TEC, in turn, can be sent and received by financial institutions, and its use is accepted for credit transfer.

The DOC and TEC clearing and settlement proceedings must be carried out by a system approved by the BCB. Finally, basic information must be included about the DOC and each of the transfers contained in a TEC, such as:

1. 1. 1. identification codes, under the funds transfer settlement system, of institutions involved in the transaction;
      2. identification numbers of the branch and account of the sender, except for DOC in cash, and of the recipient’s account;
      3. identification of the sender: name, enrollment number with the Individual Taxpayer Registry (“CPF”) or the Corporate Taxpayer Registry (“CNPJ”);
      4. Identification of the beneficiary: name, enrollment number with CPF or CNPJ; and
      5. transfer order amount.

The Resolution entered into force on April 03, 2023.

Read the full text of BCB Resolution No. 297 here.

BCB Resolution No. 300, March 16, 2023

Amends provisions of BCB Resolution No.237, of August 24, 2022, to regulate the compensation regarding the balance of Account Corresponding to Digital Currency (CCME) owned by payment institutions.

This Resolution will enter into force on July 03, 2023.

Read the full text of BCB Resolution No. 300 here.

BCB Resolution No. 303, March 16, 2023

Establishes procedures for the calculation of part of the risk-weighted assets (RWA) related to exposures to credit risk, subject to the calculation of the capital requirement through internal credit risk classification systems (IRB approaches) authorized by BCB (RWA_CIRB), described in CMN Resolution No. 4,958, of October 21, 2021, and BCB Resolution No. 200, of March 11, 2022.

The Resolution is aimed at financial institutions classified under Segment 1 (S1) and Segment 2 (S2), in accordance with the definitions provided in CMN Resolution No. 4,553, of January 30, 2017, and BCB Resolution No. 197, of March 11, 2022.

Thus, BCB improves the capital requirement framework through internal credit risk rating systems (IRB approaches), implementing the recommendations of the Basel Committee on Banking Supervision (“BCBS”), contained in the document “Basel III: Finalizing postcrisis reforms”, published in December 2017, known as “Basel III”. In addition, BCB Resolution No. 302 introduces other updates as a result of advances in prudential regulation, to which the IRB approaches are linked, particularly regarding integrated risk management.

In this regard, BCB Resolution No. 302, of 2023, establishes some standards, by reducing the set of portfolios eligible to the approaches, and improvements concerning more efficient capital allocation by financial institutions. This practice has a positive repercussion on the system and on financial stability, which are the main goals of BCB.

This Resolution will enter into force on July 01, 2023.

Read the full text of BCB Resolution No. 303 here.

BCB Resolution No. 304, March 20, 2023

Approves the Regulation that provides, within the scope of the Brazilian Payment System, for the operation of settlement systems, activities of registration and centralized deposit of financial assets and the incorporation of liens and encumbrances on registered or deposited financial assets and consolidates the rules on the matter.

In addition, the Resolution stipulates a period of one year, from the date it enters into force, for the Operating Institutions of the Financial Market System (IOSMF) to adapt their structures and systems to the provisions of the regulation, and thirty days after the one-year period to submit to the BCB a document summarizing the changes carried out, signed by a representative appointed in the by-laws or articles of association. However, applications for authorizations filed before the new Resolution enters into force will continue to be governed by the regulations in force at the time of filing.

The Resolution will enter into force on May 02, 2023.

Read the full text of BCB Resolution No. 304 here.

BCB Resolution No. 306, March 23, 2023

Amends BCB circulars and resolutions that provide for:

• • 1. the Internal Capital Adequacy Assessment Process (Icaap) and the Simplified Internal Capital Adequacy Assessment Process (Icaap_Simp);
    2. the operational risk database;
    3. the disclosure of the Pillar 3 Report;
    4. the Report on Social, Environmental and Climate Risks and Opportunities (GRSAC Report);
    5. the criteria for classifying instruments in the trading portfolio or in the banking portfolio;
    6. the governance requirements for trading desks in which instruments subject to market risk are managed;
    7. requirements for recognizing internal risk transfers; and
    8. the risk management structure, the capital management structure, and the information disclosure policy for prudential conglomerates classified as Type 3.

This Resolution will enter into force on July 01, 2023.

Read the full text of BCB Resolution No. 306 here.

BCB Resolution No. 307, March 23, 2023

It establishes the maximum limit for the amount of credit operations with public sector bodies and entities, to be observed by a prudential conglomerate classified as Type 3, pursuant to article 2, paragraph III, of BCB Resolution No. 197 of March 11, 2022.

Under the terms of the Resolution, bodies and entities of the public sector are defined as:

• • 1. The direct administration of the Brazilian Government, states, the Federal District and municipalities;
    2. autonomous entities and foundations established or maintained, directly or indirectly, by the Government, states, Federal District and municipalities;
    3. public companies and non-financial mixed companies, their subsidiaries and other companies controlled, directly or indirectly, by the Government, states, Federal District and municipalities, including exclusive-purpose corporations; and
    4. other bodies or entities belonging to the Government, states, Federal District and municipalities.

In turn, credit operations are defined as:

• • 1. loans and financing;
    2. leasing transactions;
    3. definitive acquisition, or acquisition carried out by means of repurchase agreements of securities issued by public bodies and entities mentioned in item “III” above, except for the definitive acquisition of shares of mixed-capital companies;
    4. the granting of guarantees of any kind; and
    5. any and all operations that directly or indirectly result in the granting of credit and/or raising of funds of any nature, including with the use of financial derivatives.

This Resolution will enter into force on July 01, 2023.

Read the full text of BCB Resolution No. 307 here.

BCB Normative Instruction No. 358, March 02, 2023

Establishes the procedures for submitting to BCB requests for exemption from mandatory participation in Open Finance.

Institutions that hold accounts classified under article 1 of BCB Resolution No. 295, of February 23, 2023, which are registered with the Directory of Participants in the Open Finance Governance Structure, must request the exclusion from carrying out any payments.

The Normative Instruction entered into force on April 01, 2023.

Read BCB Normative Instruction No. 358.

BCB Normative Instruction No. 359, March 03, 2023

Announces version 3.0 of the Manual of Services Provided by the Open Finance Governance Structure.

Compliance with the manual is mandatory for all participating institutions and will be accessible through the Open Finance page, on the BCB website and on the Open Finance Portal in Brazil, maintained by the Open Finance Governance Structure referred to in article 44, paragraph 1, of Joint Resolution No. 01, of May 04, 2020.

The Normative Instruction entered into force on April 01, 2023.

Read BCB Normative Instruction No. 359.

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NEWS

Central Bank of Brazil

BCB publishes guidelines for Digital Brazilian Real pilot project

As reported in our February newsletter, BCB informed that it will develop a platform for testing digital transactions in reais, the “RD Pilot“. In this test phase, BCB intends to evaluate the advantages of using the programming resources of multi-asset Distributed Ledger Technology (DLT) in tokenized asset transactions.

The initiative will be adopted to enable legal conditions of secrecy, data protection and prevention against money laundering. The test will be a simulation and will not involve real operations.

RD Pilot plans for end users to participate through tokenized deposits, which are digital representations of deposits held by financial institutions (IFs) or payment institutions (IPs). In addition, The Digital Brazilian Real pilot project will involve Brazil’s National Treasury Secretariat (STN) and will include the issuance of Federal Government Bonds and the settlement of transactions involving these bonds with Delivery versus Payment (“DvP”) at the end-customer level.

Read the article in full.

BCB and credit bureaus enter into an information sharing agreement

In order to contribute to the expansion of Brazilian citizens’ access to credit at a more affordable cost, BCB and five other database managers (credit bureaus – GBDs) have signed a data sharing agreement (Technical Cooperation Agreement – ACT).

The credit bureaus that entered into an agreement with the BCB are:

• • 1. Boa Vista Serviços S.A.;
    2. Confederação Nacional de Dirigentes Lojistas (CNDL – SPC Brasil);
    3. Gestora de Inteligência de Crédito S.A. (Quod);
    4. Serasa S.A.; and
    5. TransUnion Brasil Sistemas em Informática Ltda.

According to the provisions of such agreements, included in CMN Resolution No. 5,037, BCB may provide information to credit bureaus from the Credit Information System (“SCR”) regarding completed or ongoing credit operations of individuals or companies registered in the system’s databases, pursuant to the Positive Credit Registry Law (Law No. 12,414 of 2011) and the Bank Secrecy Law (Supplementary Law No. 105 of 2001).

In turn, the credit bureaus (companies that promote the storage of financial data of individuals and companies, registered by BCB) will share information of interest to BCB, such as credit scores and non-banking credit history.

Read the article in full.

BCB ceases coercive measure applied to payment arrangements associated with Facebook Pay

On March 02, 2023, BCB decided to completely cease the coercive measures applied to Mastercard Brasil Soluções de Pagamento Ltda. (Mastercard) and Visa do Brasil Empreendimentos Ltda. (Visa). The coercive measures had suspended payment transactions through the messaging application WhatsApp (Facebook Pay Program) via the (i) purchase purpose (P2M) and (ii) transfer purpose (P2P) payment arrangements of these institutions.

As such, there will be no regulatory impediments to the carrying out of credit, debit and prepaid card purchase transactions via WhatsApp (P2M). These transactions are in line with the carrying out of transfers of funds between WhatsApp users, authorized in March 2021 (P2P).

Read the article in full.

BCB sets guidelines for the acceptance of Bank Credit Bills in Liquidity Lines

Considering the competitiveness component of the BC# Agenda, and seeking to increase market efficiency according to the evolutionary agenda of the Liquidity Lines (“LFL”) announced in Notice 147/2021-BCB of 30 June 2021, BCB has established the basic guidelines for the acceptance of Bank Credit Bills (“CCB”) as eligible assets under the LFL.

The definition of the guidelines, approved by vote 40/2023-BCB, aims to instruct and coordinate the market in relation to the developments necessary to effectively carry out these operations as of the first quarter of 2024. In summary, CCBs will be eligible as collateral for book-entry and notarial LFL CCBs deposited in Central Depositories of financial assets.

The inclusion of CCBs as eligible collateral in LFLs is a structural measure within scope of the progressive agenda of LFL. Through such agenda, the BCB will seek to:

• • 1. improve the use of the LFL to enable the structural reduction of compulsory collections;
    2. improve its operational framework to maintain financial stability; and
    3. increase market efficiency.

Read the article in full.

ALSO CHECK OUT: REGULATIONS  | ADMINISTRATIVE AND JUDICIAL DECISIONS

ADMINISTRATIVE AND JUDICIAL DECISIONS

Superior Court of Justice – STJ

According to Third Panel, a loan agreement with interest rates above predefined levels is not, in itself, abusive

The Third Panel of the Superior Court of Justice (“STJ”) decided that, in banking loan agreements, that an interest rate higher than a certain level, such as one and a half times, twice or three times the average market rate, by itself, is not abusive.

The case was initiated when a client filed a lawsuit against the bank, questioning alleged abusive practices. In the decision, the judge ruled that the charging of capitalized interest on a monthly basis and the charging of interest not agreed upon above the average market rate are invalid, ordering the return of the exceeding amount unduly charged outside the previously established criteria or its deduction from any outstanding balance.

The Court of Justice of Paraná (“TJPR”) granted the bank’s appeal, considering that the rates charged did not significantly exceed the market average, and therefore should be upheld, which motivated the appeal to the STJ.

According to the rapporteur of the Third Panel, minister Andrighi Nancy, the TJPR evidenced the existence of an agreement of interest rates exceeding 12 times the monthly rate, a condition that would authorize monthly capitalization. However, she recalled that investigating the circumstances of the ruling would require re-examining the evidence and the agreement, procedures prohibited by Precedent 5 and Precedent 7 of the STJ. In addition, the justice stated: “(…) this Superior Court outlines the understanding that the provision, in the banking agreement, of annual interest rate higher than two times the monthly rate is sufficient to allow the collection of the effective rate contracted on an annual basis.”

Moreover, minister Andrighi Nancy pointed out that, as a rule, the National Financial System favors freedom of agreement, so that financial institutions are not subject, for example, to the limitation of interest defined in the Usury Law (Decree No. 22,626/1933) and the simple stipulation of interest rates exceeding 12% per year does not unequivocally indicate the occurrence of abusive behavior.

Read the ruling in Special Appeal REsp No. 2,015,514

Read the article in full.

Lack of proof of vulnerability precludes application of CDC in online payment management agreement

The Third Panel of the STJ unanimously decided that the Consumer Protection Code (“CDC”) cannot be applied to the legal relationship between a company that sells electronic tickets for an event and a company specialized in online payment intermediation services, given the absence of vulnerability of one party to the other.

In this case, the ticket seller contracted the services of the payment intermediary – and the relationship lasted for nine months. However, the ticket seller eventually filed suit for collection alleging that 407 chargebacks (refund of amounts related to transactions canceled by customers) were unduly charged to its account and that, contrary to what was agreed, the contractor did not provide proof that the tickets were effectively sold.

The trial court ruled that there was a failure in the provision of services and ordered the online payment intermediary to pay damages. The Court of Justice of São Paulo (“TJSP”), in turn, reformed the decision, dismissed plaintiff’s claims and upheld the counterclaim filed by the defendant.

In the special appeal decision, the minister pointed out that the recognition of the condition of consumer, based on the definition of the finalistic theory, requires that the user enjoys the product or service as an end user. Thus, the mitigated finalistic theory should be adopted in this case, according to which the CDC protective system can be applied in the case of those who, despite acquiring products or services for the development of their business activity, shows technical or factual vulnerability before the supplier.

According to the minister, the services provided by the defendant are intended for the development of economic activities of the plaintiff, in addition to which it is up to the buyer of the product or service to prove their vulnerability to the supplier, when seeking the application of the CDC rules, which was not proven based on the evidence included in the case.

Read the ruling in Special Appeal REsp No. 2,020,811

Read the article in full.

Third Panel cancels trade bill used to collect losses resulting from fraud

The Third Panel of the STJ declared the nullity of a trade bill issued by a fuel company against an accrediting company of credit card machines and determined the restitution of the amounts required, plus interest and monetary adjustment.

Originally, the accrediting company filed a declaratory action for nullity coupled with a request for refund against the fuel company, which was accredited by it to use its credit card machines. According to the case records, after having been a victim of fraud by a third party, the commercial establishment transferred the loss to the plaintiff, through an Appointed Bill of Exchange (“DMI”).

Even though the lower courts have ruled that the Trade Bill was issued based on the existing agreement between the parties and that the fraud was due to failure to provide services by the accrediting company, the reporting justice for the case in the STJ, Justice Ricardo Villas Bôas Cueva, pointed out that:

• • 1. Trade Bills can only be issued by the seller of goods or provider of services, never by the buyer or whoever used the service provided;
    2. even if the company is a creditor of amounts regarding the sale of its products and services, it cannot demand payment through a Trade Bill, which is a causal credit instrument, strictly linked to the legal transaction that gave rise to its issuance; and
    3. the use of Trade Bills to enable the collection of an alleged credit resulting from civil liability is not compliant with Article 887 of the Civil Code.

Read the ruling in Special Appeal REsp No. 2,036,764

Read the article in full.

Payment of FGO commission may be transferred to borrower

The Third Panel of the STJ decided that, in financing agreements where the guarantee is supplemented by the Guarantee Fund for Operations (“FGO”), the costs of the Guarantee Granting Commission (“CCG”) may be transferred to the contracting party, provided that there is an express provision in the contract.

In this specific case, a micro company filed a motion to stay execution of an extrajudicial instrument based on a bank credit bill, promoted by a public bank.

Although the Federal Regional Court of the 4th Region (“TRF4”) had considered null the contractual clause that attributed the obligation to pay the CCG to the borrower, minister Ricardo Villas Bôas Cueva recalled that, under the terms of Law No 12,087/2009, – which allows the guarantees required by banks in financing operations to be complemented by the FGO, such guarantee does not imply exemption of debtors from their financial obligations.

The minister added that, as the bank recovers the loan, the fund will be reimbursed. Moreover, Minister Ricardo Villas Bôas Cueva added that one of the main characteristics of these funds is the possibility of receiving commission to compensate for the risk assumed, and its cost can be transferred to the borrower, according to article 9, paragraphs 2 and 3 of Law No. 12,087/2009.

Read the ruling in Special Appeal REsp No. 1,848,714

Read the article in full.

Court of Justice of São Paulo

Cryptocurrency platform will compensate customer who had account reset to zero by alleged criminal action

The 36th Chamber of Private Law of the Court of São Paulo upheld the conviction of a cryptocurrency investment platform to compensate a client who had his account reset to zero due to an alleged fraud caused by criminals.

According to the case records, in August 2021, the victim could not access his account on the platform, and once the access was cleared (which only occurred in the following month), found that the balance of investments in bitcoins was reset to zero.

Although the defendant claimed no responsibility in the event because the funds were stolen by third parties, the panel recognized the duty of the supplier to compensate the client for the loss, as provided by the CDC. The defendant was responsible for providing safe and efficient services and must therefore pay for any damage resulting from any failure or deficiency.

Judge Milton Carvalho, rapporteur of the ruling, stressed that all evidence indicates that the fraud was committed exclusively by third parties, a fact that, in turn, is part of the risk of the activity carried out by the defendant.

Read the article in full.

National Financial System Resource Council – CRSFN

CRSFN judges the first CVM sanctioning proceeding involving cryptoassets

At the 468th trial session, held on February 07 and 08, 2023, CRSFN judged the first case of administrative sanctioning proceeding by the Securities and Exchange Commission of Brazil (CVM) involving cryptoassets.

The case, which sought to investigate evidence of irregular offering of securities related to the issuance and distribution of tokens by the appellant, is the first precedent involving cryptoassets in Brazil.

At the trial court level, the decision was to impose a pecuniary fine on both appellants (Iconic Intermediação de Negócios e Serviços Ltda. and Jonathan Doering Darcie). At the appellate court level, the Collegiate Board unanimously decided to uphold the fine imposed on the legal entity and to convert the fine into a warning for the individual.

The appeal referred to CRSFN sought to reform the decision that held both the legal entity and the individual liable to pay a pecuniary fine in the Administrative Sanctioning Proceeding judged by the CVM, based on the violation of Articles 19 of Law No. 6,385, of December 07, 1976, and Article 2 of CVM Instruction 400, of December 29, 2003.

Finally, it is important to highlight that cryptoassets are digital assets, protected by encryption, transacted electronically and can be used for various purposes, such as investing and speculating, transferring amounts or accessing services. In addition, there are several types of cryptoassets in the market, such as cryptocurrencies, fungible tokens, stablecoins, non-fungible tokens (NFTS), decentralized finance protocols (DeFi), among others.

Read the ruling of Proceeding No. 10372.100089/2021-71 in full here.

Read the article in full.

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