Banks, Financial Services, Fintechs and Digital Assets Newsletter No. 4

REGULATION

Central Bank of Brazil

BCB Resolution No. 310, April 12, 2023

Amends BCB Resolution No. 2 of August 12, 2020, which consolidates the general criteria for drafting individual and consolidated financial statements by consortium administrators and payment institutions. Additionally, BCB Resolution No. 2 consolidates the procedures for the drafting, disclosure and remittance of financial statements that must be followed by financial institutions and other institutions authorized to operate by the Central Bank of Brazil (“BCB“).

The rule mainly determines that annual consolidated financial statements, adopting international accounting standards as stated by the International Accounting Standards Board (IASB) and translated into Portuguese by a Brazilian entity accredited by the International Financial Reporting Standards Foundation (IFRS Foundation), must be drafted by institutions that meet at least one of the following criteria:

• • • consortium administrators and payment institutions registered as publicly traded companies;
    • payment institutions that are leaders of a Type 3 prudential conglomerate classified in Segment 2 (S2) or in Segment 3 (S3), according to the regulations in force; and
    • payment institutions that are leaders of Type 2 prudential conglomerates that hold the totality of their assets calculated in accordance with the criteria and procedures established in the Accounting Standard for Institutions Regulated by the BCB (“Cosif”), which must be higher than 0.1% of the Gross Domestic Product (“GDP”) of Brazil.

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

Read the full text of BCB Resolution No. 310 here.

BCB Resolution No. 311, April 12, 2023

Amends BCB Resolution No. 146 of September 28, 2021, which provides for the general criteria for the drafting and remittance of accounting documents to the BCB by consortium administrators and payment institutions authorized to operate by the BCB. What is more, BCB Resolution No. 146 provides for specific procedures to be followed by financial institutions and other institutions authorized to operate by the BCB regarding the drafting and remittance of accounting documents to the BCB.

BCB Resolution No. 146, of September 28, 2021, establishes that leading payment institutions of the prudential conglomerate, authorized to operate by the BCB, in addition to the accounting documents mentioned in article 2 (Analytical Trial Balance Sheet, published on a monthly basis, and Analytical Balance Sheet, published on a semi-annual basis, for the base dates of June 30 and December 31), must draft and submit the following consolidated documents to the BCB:

• • • Analytical Trial Balance Sheet – Prudential Conglomerate, published on a monthly basis.
    • Analytical Balance Sheet – Prudential Conglomerate, published on a semi-annual basis, for the base dates of June 30 and December 31, and
    • Prudential Conglomerate Report, published on a semi-annual basis, for the base dates of June 30 and December 31.

However, the new BCB Resolution No. 311, of April 12, 2023, establishes that the provision of item (iii), mentioned above, does not apply to payment institutions that are:

• • • leaders of a Type 3 prudential conglomerate classified in Segment 4 (S4) or Segment 5 (S5); and
    • leaders of Type 2 prudential conglomerate that hold the totality of their assets calculated in accordance with the criteria and procedures established in the Accounting Standard for Institutions Regulated by the BCB (Cosif), which must be lower than or equal to 0.1% of the Gross Domestic Product (GDP) of Brazil.

In addition, BCB Resolution No. 311 provides that payment institutions authorized to operate by the BCB are exempt from the drafting and remittance of the Prudential Conglomerate Report, referred to in art. 16 of BCB Resolution No. 146, for the base dates related to time periods ended until December 31, 2024.

BCB Resolution No. 311:

(i) will enter into force on July 01, 2023, in connection with the amendments to arts. 4 and 5 of BCB Resolution No. 146 of 2021;

(ii) entered into force on May 01, 2023, in connection with the other provisions.

Read the full text of BCB Resolution No. 311 here.

BCB Resolution No. 312, April 26, 2023

Amends Circular Letter No. 3,641, of March 04, 2013, which establishes the procedures for calculating the portion of risk-weighted assets (“RWARWA“) relating to exposures in gold, foreign currency and assets subject to exchange variation, whose capital requirement is calculated through a standardized approach (RWACAM), in accordance with CMN Resolution No. 4,958, of October 21, 2021, and BCB Resolution No. 200, of March 11, 2022.

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

Read the full text of BCB Resolution No. 312 here.

BCB Resolution No. 313, April 26, 2023

Establishes the procedures for the daily calculation, through a standardized approach, of the RWA portion relating to the calculation of the capital required for credit risk exposures of financial instruments classified in the trading portfolio (RWA_DRC), addressed by CMN Resolution No. 4.958, of October 21, 2021, and BCB Resolution No. 200, of March 11, 2022.

This Resolution will enter into force on July 01, 2024.

Read the full text of BCB Resolution No. 313 here.

BCB Resolution No. 315, April 27, 2023

Establishes the Executive Management Committee (“CEG“) for the Pilot Project of the Digital Brazilian Real Platform (“RD Pilot“) and approves the RD Pilot Regulation.

The RD Pilot Regulation provides that the CEG is a deliberative committee and is specifically in charge of the governance and execution of the work related to the RD Pilot.

According to this Regulation, the RD Pilot aims to validate the use of a Distributed Ledger Technology (“DLT“) solution on the Hyperledger Besu platform. The RD Pilot assesses the programmability of financial assets and the ability to comply with legal and regulatory requirements, especially regarding the data privacy of individuals and others involved in transactions on the Digital Brazilian Real platform, as well as its technological feasibility.

It is important to highlight that institutions that participate in the RD Pilot will gather efforts and employ human, financial and material resources, intellectual capital, services, as well as other tangible or intangible means for the implementation of this pilot project, in order to create a collaborative environment for the testing and development of a DLT platform for the Digital Brazilian Real.

According to BCB, institutions authorized to operate by BCB will be eligible to participate in the pilot project as long as they are able to test, based on their corresponding business model, transactions of issuance, redemption or transfer of financial assets, as well as to run simulations related to financial flows resulting from trading events, when applicable. 

As indicated by BCB, adhesion will be official upon signing the Instrument of Participation, and the submission of a proposal for participation in the pilot project will be carried out exclusively through the e-mail address piloto.rd@bcb.gov.br from May 02 to May 12, 2023.

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

Read the full text of BCB Resolution No. 315 here.

Read the full text of the Note published by BCB.

BCB Resolution No. 316, April 27, 2023

Amends Annex II to BCB Resolution No. 108 of June 24, 2021, which addresses the specific terms for different phases of administrative proceedings for clearance of economic activities, within the scope of the BCB.

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

Read the full text of BCB Resolution No. 316 here.

BCB Resolution No. 317, April 27, 2023

Establishes the maximum terms for the publication of administrative decisions on requests for public acts of clearance of economic activities to the BCB, and classifies the risk levels related to such clearance, pursuant to Decree No. 10,178 of December 18, 2019, which regulates Law No. 13,874 of September 20, 2019, and repeals Ordinances No. 108,302 of September 17, 2020, and No. 110,741 of June 24, 2021.

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

Read the full text of BCB Resolution No. 317 here.

BCB Normative Instruction No. 370, April 10, 2023

Amends BCB Normative Instruction No. 243, of March 16, 2022, which establishes procedure requirements for direct participation in the Instant Payment System (“SPI”), for opening the Instant Payment Account (“PI Account”) and defines the maximum terms for validation and settlement of instant payment orders, provided for in the Regulation attached to BCB Resolution No. 195, of March 03, 2022.

The rule establishes that the maximum term for settlement, referred to in art. 42, main section, of the SPI Regulation, attached to BCB Resolution No. 195, of 2022, is:

• • • 40 seconds for orders posted on the Primary Message Transmission Channel, as defined in the Communication Interfaces Manual; and
    • 45 minutes for orders posted on the Secondary Message Transmission Channel, as defined in the Communication Interfaces Manual.

This Normative Instruction will enter into force on October 29, 2023.

Read the full text of BCB Normative Instruction No. 370 here.

BCB Normative Instruction No. 371, April 10, 2023

Announces version 5.0 of the Manual for the Scope of Data and Services of Open Finance, which requires mandatory compliance by participating institutions.

The latest version of this manual will be available on the Open Finance web page of the BCB website and on the Brazilian Open Finance Portal.

In summary, the following changes were introduced by this rule:

(i) Improvements to the wording of the text, with no change in merit.

(ii) Substitution of the expressions “Open Banking” for “Open Finance”, according to the amendment published by Joint Resolution No. 4, of March 24, 2022, in Joint Resolution No. 1, of 2020.

(iii) Removal of the express mention of specific normative acts and adoption of generic expressions referring to the matter of the normative acts.

(iv) Exclusion of fields “Payer/payee branch code” and “Payer/payee account number” (Item 5.1); inclusion of the name as well as Individual Taxpayer Number (“CPF”) or Corporate Taxpayer Number (“CNPJ”) in the description of the field “Payment transaction payer/payee identification” (Item 5.1).

(v) Inclusion of a paragraph in the overview, highlighting that the information provided in this manual must follow the standard contained in the regulations, if any.

Finally, BCB Normative Instruction No. 184, of November 12, 2021, was repealed.

This Normative Instruction entered into force on May 02, 2023.

Read the full text of BCB Normative Instruction No. 371 here.

BCB Normative Instructions No. 372 and No. 373, April 25, 2023

BCB Normative Instruction No. 372 amends BCB Normative Instruction No. 290 of July 29, 2022, which establishes the procedures required for carrying out formal approval tests in the Directory of Transactional Account Identifiers (“DICT”), validating QR Codes, validating the provision of payment transaction initiation services, and the carrying out of approval tests for publishing information related to withdrawal services, within the scope of Pix. BCB Normative Instruction No. 372 aims to adjust instructions regarding the generation of QR Codes.

BCB Normative Instruction No. 373 amends BCB Normative Instruction No. 291, of July 29, 2022, which establishes necessary procedures for adhering to Pix, adjusting provisions related to the registration stage and the approval stage, inserting annexes relating to the security self-assessment questionnaire, and establishing temporary provisions regarding the submission of this questionnaire.

These Normative Instructions entered into force on May 02, 2023.

Read the full text of our Client Alert on the subject.

BCB Normative Instruction No. 375, April 28, 2023

Announces version 7.0 of the Operational Manual of the Directory of Transactional Account Identifiers (“DICT”), which is part of the Pix Regulation.

This Normative Instruction will enter into force on November 05, 2023.

Read the full text of BCB Normative Instruction No. 375 here.

BCB Normative Instruction No. 376, April 28, 2023

Establishes guidelines for the participation of registration entities and central depositaries of financial assets in the process of drafting an agreement that provides for self-regulation rules regarding the activities of registration and centralized deposit of real estate receivables, referred to in art. 12 of BCB Resolution No. 308, of March 28, 2023.

This Normative Instruction entered into force on May 02, 2023.

Read the full text of BCB Normative Instruction No. 376 here.

National Monetary Council

CMN Resolution No. 5,069, April 20, 2023

Provides for the operation of the Local Currency Payment System (“SML“) and establishes guidelines for the regulation of bilateral agreements between its participants, executed within the scope of Mercosur.

The rule establishes that international fund transfers be intermediated by authorized institutions, which are in charge of:

• • • registering a payment order requested by a sender which is resident, domiciled or headquartered in Brazil;
    • receiving funds and immediately carrying out the payment order from a country whose central bank is a convening party – as long as the authorized institutions comply with the lawfulness of the operation, its economic rationale and the rules related to the anti-money laundering measures, as well as to the combat against terrorism financing and the proliferation of mass destruction weapons;
    • canceling the registration of the payment order referred to in item “i”; and
    • return the funds referred to in item “(ii)”.

In addition, in order to operate on SML, interested institutions must request authorization from the BCB. Institutions authorized to operate in the foreign exchange market by the BCB under Law No. 14,286 of December 29, 2021 and its regulations may apply for authorization, as well as savings banks and banks that hold Bank Reserve accounts.

In order to obtain authorization, information technology systems of the requesting institution must comply with the technical standards for electronic data communication under the National Financial System (SFN) established by the Central Bank, applicable to the SML.

It is worth noting that the financial transactions between the BCB and authorized institutions, and between the latter and their clients, will be processed exclusively in Brazilian reais, through accounts held at the BCB.

The recipients will receive funds in compliance with the payment order received by the BCB from the counterpart central bank. The funds to be transferred by the senders through the SML must be delivered to the BCB by authorized institutions on the business day following the day on which the transaction is registered.

Authorized institutions must comply with the lawfulness of the operation, its economic rationale and the rules related to the anti-money laundering measures and to the combat against terrorism financing and the proliferation of mass destruction weapons. In this regard, the authorized institution is exclusively in charge of the correct processing and execution of operations with its clients and with the BCB.

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

Read the full text of CMN Resolution No. 5,069 here.

CMN Resolution No. 5,070, April 20, 2023

Provides for the carrying out of credit derivative operations in Brazil by financial institutions and other institutions authorized to operate by the BCB.

These institutions can only carry out the following credit derivative operations:

• • • credit swap, when: (a) the risk transferring counterparty pays the risk receiving counterparty a protection fee established in the contract; and (b) one or more credit events provided for in the contract take place, the risk receiving counterparty pays the risk transferring counterparty the contracted protection, which can cause, as applicable, the partial or total early settlement of the contract; and
    • total return swap, when: (a) the risk transferring counterparty transfers to the risk receiving counterparty the amounts corresponding to the cash flow of charges and/or payments related to the reference bond, in addition to the positive variation in its market value, on contractually established dates; (b) the risk receiving counterparty pays the risk transferring counterparty a portion of interest based on a contractually established fee (fixed or variable), in addition to any negative variation in the market value of the reference bond; and (c) one or more credit events provided for in the contract take place, the early settlement of the contract is possible, resulting in payments due of amounts and rates referred to in items “a” and “b” of this topic by the counterparties.

Among the improvements introduced by the new regulation, the following stand out:

• • • The updating of the list of institutions eligible to act as risk receiving counterparties in credit transactions carried out with financial institutions, which now includes development banks, the Brazilian National Bank for Economic and Social Development (BNDES) and non-financial entities (such as insurance companies, pension funds and investment funds, among others), provided that they meet the professional investor requirements established by the CVM. The current Resolution does not provide for such predictability, which hinders the transfer of credit risk through derivatives to non-financial institutions, such as insurance companies.
    • The possibility of carrying out credit derivative operations between controlling, associated or controlled companies, or even institutions in the same prudential conglomerate, which is currently not allowed. This relaxation is justified by the fact that the calculation of risks and capital is carried out in a consolidated manner by the institutions of the same prudential conglomerate, so that the transfer of risks between these institutions is not computed for purposes of capital requirements, bilateral margin exchanges, credit risk mitigation or the calculation of operational limits.
    • The possibility of specifying credit indexes, asset indexes, reference pools or portfolios as reference entities and bonds of credit derivatives.
    • Permission for credit derivative operations to be carried out with financial flows named or referenced in currencies or indexes other than those named or referenced in the reference bond.
    • Permission for credit derivative operations to be referenced to lower liquidity bonds, provided that their pricing methodology complies with the rules contained in the regulatory framework applicable to derivatives. Currently, only assets regularly traded in organized markets can be used as a reference for the transfer of unsecured credit risk.
    • Expansion of the list of institutions eligible to act as suppliers of quotes for reference bonds, including regulatory or self-regulatory entities and international trading platforms.
    • Relaxation of the required maintenance of ownership of the reference bond by the risk transferring counterparty, which will now be mandatory only in the event that the reference at issue regards one or more credit or lease operations.

The contracting of other types of derivatives referenced in the modalities of credit derivatives described above must follow the conditions provided for in Chapter IV of CMN Resolution No. 5,070.

However, this resolution does not apply to securities brokers, foreign exchange dealers, securities distributors, consortium administrators, and payment institutions.

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

Read the full text of CMN Resolution No. 5,070 here.

ALSO CHECK OUT: NEWS  |  ADMINISTRATIVE AND JUDICIAL DECISIONS

NEWS

Pix is one of the world’s most used instant payment methods

Brazil, ranking second in number of transactions, was responsible for 15% of all instant payments worldwide in 2022. According to the Prime Time for Real-Time Report studies, in a partnership between ACI Worldwide (payment system company) and GlobalData (data analysis and consulting company), Brazil was the second country that used instant payment methods the most in 2022, accounting for 29.2 billion transactions – only behind India, whose transactions totaled 89.5 billion.

The growing use of instant payment services in Brazil between 2021 and 2022 reached the expressive number of 228.9%.

According to the Department of Competition and Financial Market Structure (DECEM) of BCB, by presenting a universal overview, the work shows how Pix is a successful public policy, positively impacting society, bringing efficiency and cost reduction to Brazil, as well as transforming the lives of millions of people and businesses.

The list of the largest global markets by number of instant payment transactions in 2022, according to the survey, is completed by:

• • • China, with 6 billion transactions;
    • Thailand, with 5 billion transactions; and
    • South Korea, with 8 billion transactions.

The numbers compiled point to Brazil as holder of 15% of the total number of instant payments made in 2022 worldwide.

In 2022, Brazil ranked 1st in Latin America and 4th globally, with a result of 14.2% of transactions carried out by people over the age of 15. The first three global positions were held by Thailand (23%), Bahrain (19.1%), and South Korea (14.7%).

Regarding instant payments as a whole, figures show that they accounted for 195 billion transactions in 2022, representing an increase of 63.2% as compared to the previous year. The forecast is that, by 2027, this number will have reached 511.7 billion, and that instant payments will account for 27.8% of all electronic payments worldwide.

Read the article in full.

CVM provides instructions on the characterization of receivables and fixed-income tokens as securities

On April 04, 2023, the Superintendence of Securitization Oversight (“SSE”) of the Brazilian Securities and Exchange Commission (“CVM”) published CVM/SSE Circular Letter 4/2023.

This Circular Letter is aimed at service providers involved in tokenization activities (“exchanges” or “tokenizators”), credit advisors, structurers and credit rights assignors, regarding the characterization of Receivables Tokens or Fixed-Income Tokens (TR) as securities.

From the perspective of article 2, item IX, of Law No. 6,385/76, securities are subject to the system of this law: “when offered publicly, any other securities or collective investment contracts, which generate participation, partnership or remuneration rights, including those resulting from the provision of services, whose income arise from the efforts of the business owner or third parties.”

If the tokens are characterized as securities, the rules on issuer registration and public offerings must be respected, as well as the provisions on intermediation, bookkeeping, custody, centralized deposit, registration, clearing, settlement and management of organized market for trading securities.

Additionally, the purpose of the circular is to clarify that certain public offerings for distribution of TR may be carried out under the system provided for in CVM Resolution No. 88, of April 27, 2022 (“CVM Resolution 88/2022”).

Finally, CVM/SSE Circular Letter 4/2023 aims to provide guidance, within the scope of the requirements of CVM Resolution No. 88/2022, that the webpage of any platform referring to the offering of tokens and the advertising materials for its promotion must contain specific information about such tokens, according to the recommendations of Practice Bulletin No. 40/2022.

Read the full text of CVM/SSE Circular Letter 4/2023 here.

Read the article in full.

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ADMINISTRATIVE AND JUDICIAL DECISIONS

Superior Court of Justice – STJ

Debtors have no preemptive right to acquire own debt security at credit portfolio auctions

The Fourth Panel of the Superior Court of Justice (“STJ”) dismissed the claim of a company, issuer of a bank credit bill with chattel mortgage, which claimed alleged preemptive rights to acquire the debt security at auction, after the bankruptcy of the creditor bank. The collegiate, in turn, decided that the legislation assigns preemptive rights for debtors to repurchase the asset that was conditionally sold. However, this rule does not apply to cases of credit portfolio disposal.

Read the ruling in Special Appeal REsp No. 2,035,515.

Read the article in full.

Large limited liability corporations not required to publish financial statements

The Third Panel of the STJ acknowledged that large companies incorporated as limited liability corporations are neither required to publish their financial statements in the Brazilian Official Gazette nor in widely circulated newspapers prior to the filing of such statements with the Board of Trade.

In the case that originated the decision, two companies filed a writ of mandamus against the act of the president of the Board of Trade of the State of Rio de Janeiro (JUCERJA), seeking to be released from the obligation to publish their financial statements. Although the lower courts had denied the writ of mandamus – and concluded that publication of financial statements was mandatory – in a special appeal, the STJ acknowledged that Law No. 11,638/2007 did not expressly state the obligation of publication of financial statements by large corporations in article 3.

Read the ruling in Special Appeal REsp No. 1,824,891.

Read the article in full.

Trust creditor has the burden of proof to account for the sale of seized asset and any remaining balance

According to the Fourth Panel of the STJ, after the consolidation of ownership based on Decree-Law 911/1969, the trust creditor has the burden of proof to account for the sale of the seized asset, as well as the amount obtained from the sale and any remaining balance in favor of the debtor.

In a special appeal, the STJ ruled that both Decree-Law 911/1969 and the Civil Code already established the obligation of the trust creditor to carry out the sale of the asset pledged as collateral and, after discounting the debt amount and costs related to the operation, deliver the remaining balance to the debtor – in line with the provisions of art. 2 of the Decree-Law, with the enactment of Law No. 13,043/2014.

Read the ruling in Special Appeal REsp No. 1,742,102.

Read the article in full.

Court of Justice of São Paulo

Out-of-court order signed by non-accredited certifier with ICP Brasil is recognized as unenforceable by TJ-SP

The Court of Justice of the State of São Paulo (TJSP) has recognized, in several cases, the impossibility to enforce bank credit bills, which are extrajudicial debt instruments governed by Law No. 10,931, of August 02, 2004, when not signed according to the provisions of Provisional Measure 2,200-2, of August 24, 2001, which established the Infrastructure Brazilian Public Key – ICP Brasil (“MP 2,200-2/2001”).

According to Art. 1 of MP 2,200-2/2001, the Infrastructure Brazilian Public Key – ICP Brasil – was established to ensure the authenticity, integrity and legal validity of documents in electronic form, as well as supporting and enabled applications that require digital certificates, in addition to securing electronic transactions.

The position of the State Court has been – as it was in the judgment of case No. 1007584-78.2019.8.26.0344 and in the Interlocutory Appeals (i) No. 2237817-51.2021.8.26.0000 and (ii) No. 2146732-18.2020.8.26.0000 – that electronic documents have had their effectiveness established since the publication of MP 2. 200-2/2001, by which ICP-Brasil was established, while the existing signatures in such electronic documents must be accompanied by the respective certification of the accrediting authority in order to ensure the validity of the adhesion of the subscribing parties.

In all three cases mentioned above, the electronic signature collected and certified by an entity that is not accredited with ICP-Brasil (under the terms of MP 2,200-2/2001) is not considered invalid, taking into account the lack of certainty and collection of the debt, but it does hinder its enforceability, whose payment obligation must be carried out through a proper suit for collection.

Read the full Decision on the Enforcement of Debt Instrument No. 1007584-78.2019.8.26.0344.

Read the Ruling on Interlocutory Appeal No. 2237817-51.2021.8.26.0000.

Read the Ruling on Interlocutory Appeal No. 2146732-18.2020.8.26.0000.

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