Banks, Financial Services, Fintechs and Digital Assets Newsletter No. 1 – January 2023

Important Federal Laws and Bills 

Law No. 14,478, of December 21, 2022 (“Regulatory Framework for Cryptocurrency”)

• • Provides for guidelines to be followed regarding the provision of virtual asset services and the regulation of virtual assets service providers.
  • Provides for the crime of fraud involving the use of virtual assets, securities or financial assets, and the penalties to be applied for such illicit act.
  • Equates virtual service providers to financial institutions, for the purposes of Law No. 7,492/86 of June 16, 1986, which defines crimes against the national financial system.
  • Amends Law No. 9,613 of March 03, 1998, which provides for money laundering, to include virtual asset service providers in the list of its provisions.

The Regulatory Framework for Cryptocurrency establishes that virtual asset providers (such as exchanges, custodians, among others) may only operate in Brazil upon prior authorization from an agency or entity of the Federal Government. In addition, the agency responsible for such regulation will establish conditions and terms – which cannot be less than six months – for active virtual asset service providers to adapt to the rules of the Regulatory Framework for Cryptocurrency.

The Law also defines a virtual asset as “a digital representation of value that can be traded or transferred by electronic means and used to make payments or for investment purposes“, which does not include:

• • domestic currency and foreign currency;
  • digital currency, pursuant to Law No. 12,865, of October 09, 2013;
  • instruments that grant their holder access to specific products or services or to benefits arising from these products or services, such as points and rewards from loyalty programs; and
  • representations of assets whose issuance, bookkeeping, trading or settlement is provided for by law or regulation, such as securities and financial assets.

In addition, the Executive Branch will determine which agency or entity of the Federal Government will be in charge of regulating the activities of virtual asset providers in Brazil.

Among other aspects, Law No. 14,478/2022 also adds to the Brazilian Criminal Code (Decree-Law No. 2,848, of December 07, 1940) a new criminal type, with penalty of imprisonment from four to eight years and fine: fraud with the use of virtual assets, securities or financial assets. Such crime applies to those who, under the terms of article 171-A: “Organize, manage, offer or distribute portfolios or intermediate operations involving virtual assets, securities or any financial assets in order to obtain illicit advantage, to the detriment of others, inducing or keeping someone in error, through artifice, ruse or any other fraudulent means.”

Law No. 14,478 of December 21, 2022 will enter into force 180 days after its official publication (on December 22, 2022).

For more information, access our publication on the subject here.

Law No. 14286, of December 29, 2021 (“New Legal Framework for the Brazilian Exchange Market”)

Provides for the Brazilian exchange market, Brazilian capital abroad, foreign capital in Brazil and the reporting of information to the Central Bank of Brazil.

The New Legal Framework for the Brazilian Exchange Market – originated from Bill (“PL”) 5,387/2019, of the Executive Branch – promotes the modernization and simplification of the foreign exchange market, and provides legal certainty and alignment with the best international practices, given that it is based on the principles of free capital mobility and carrying out operations in the foreign exchange market in a simpler, more transparent and less bureaucratic manner.

In summary, the New Legal Framework for the Brazilian Exchange Market seeks to:

• • consolidate in a single law more than 40 regulations published since 1920, which currently represent a genuine legal uncertainty, given that such regulations do not take into consideration recent technological innovations and economic requirements;
  • align the Brazilian legislation with the requirements of an economy that forms part of global production chains, in order to improve the development of foreign trade and the flow of investment resources; and
  • encourage foreign investments in Brazil, as well as Brazilian investments abroad, in a manner proportional to the size of the business and the risks involved.

At first, the New Legal Framework for the Brazilian Exchange Market establishes that “exchange market operations can be freely carried out, without limitation of amounts, in compliance with the legislation, guidelines established by the Brazilian National Monetary Council and the regulation to be published by the Central Bank of Brazil.“

It also determines that exchange market operations can only be carried out through institutions authorized to operate in this market by the Central Bank of Brazil (“BCB”), in accordance with regulations to be established by BCB, which is authorized to request from residents the information necessary to compile official macroeconomic statistics.

For individuals, one of the main changes is the permission to sell foreign currency, provided it is not on a professional, but rather an occasional basis – although previously a common practice, this action was not allowed by law. The amount that can be carried on international trips has also changed: the limit changed from BRL10 thousand to USD 10 thousand, per individual. The rule, in turn, applies both to those entering and leaving Brazil.

For legal entities, the New Legal Framework for the Brazilian Exchange Market enables banks and financial institutions to invest, abroad, funds raised inside or outside Brazil, and encourages the use of Brazilian currency in international transactions.

For more information, access our publication on the subject here.

Bill 4,188/2021 (Bill for the New Legal Framework of Guarantees)

The Bill provides for:

• • the specialized management service for guarantees;
  • the improvement of rules for guarantees; and
  • the procedure for extrajudicial search and seizure of assets in the event of default of a fiduciary sale agreement, among others.

The Bill essentially aims to revise the rules that regulate loan transactions in financial institutions and the assets given as collateral in case of default, in order to reduce the risk for creditors and contribute to lowering the cost of credit in Brazil.

In short, the proposal seeks to reduce the risk of debtor default, reduce the cost of credit and interest on financing, and also increase competition. In addition, Bill 4,188 of 2021 also creates a specialized management service for guarantees, which will be operated by guarantee management institutions (“IGGs”): private companies that, in order to operate, will require prior authorization from the Central Bank of Brazil, based on criteria defined by the Brazilian National Monetary Council.

The text also proposes to modify rules on fiduciary sale, extrajudicial execution of credits guaranteed by mortgage, extrajudicial execution in case of creditor competition and impossibility to levy execution on family assets, creating, above all, possibilities for:

• • the use of the same property as a guarantee in different financing operations; and
  • the levy on the single family property, if given as a guarantee for a loan.

PL 4,188/2021 has already been approved by the House of Representatives (Initiating House) and is currently pending review by the Federal Senate (Revising House). Once it is approved, the Bill will advance for presidential sanctioning.

Regulations

Central Bank of Brazil

BCB Resolution No. 281, December 31, 2022

BCB Resolution No. 281 addresses transitory provisions to be followed along with BCB Resolution No. 278, of December 31, 2022, regarding:

• • foreign capital in Brazil, foreign credit operations and foreign direct investment; and
  • reporting information to the Central Bank of Brazil, in light of the New Legal Framework for the Brazilian Exchange Market.

This Resolution entered into force on the date of its publication (December 31, 2022).

For more information, access our publication on the subject here.

Read the full text of BCB Resolution No. 281 here.

BCB Resolution No. 280, December 31, 2022

BCB Resolution No. 280 establishes the definition of resident and non-resident, to be applied to individuals and legal entities, for purposes of the New Legal Framework for the Brazilian Exchange Market.

This Resolution entered into force on the date of its publication (December 31, 2022).

For more information, access our publication on the subject here.

Read the full text of BCB Resolution No. 280 here.

BCB Resolution No. 279, December 31, 2022

BCB Resolution No. 279 provided for Brazilian capital abroad, under the New Legal Framework for the Brazilian Exchange Market.

This Resolution entered into force on the date of its publication (December 31, 2022).

For more information, access our publication on the subject here.

Read the full text of BCB Resolution No. 279 here.

BCB Resolution No. 278, December 31, 2022

BCB Resolution No. 278 regulates foreign capital in Brazil, foreign credit operations, and foreign direct investment, as well as the reporting of information to the Central Bank of Brazil, under the New Legal Framework for the Brazilian Exchange Market.

The Resolution entered into force on the date of its publication (December 31, 2022).

For more information, access our publication on the subject here.

Read the full text of BCB Resolution No. 278 here.

BCB Resolution No. 277, December 31, 2022

BCB Resolution No. 277 establishes the new rules for the foreign exchange market and the inflow and outflow, in Brazil, of amounts in Brazilian reais and in foreign currency as well as other provisions under the New Legal Framework for the Brazilian Exchange Market.

This Resolution entered into force on the date of its publication (December 31, 2022), except for some of its provisions that will enter into force on July 01, 2023.

For more information, access our publication on the subject here.

Read the full text of BCB Resolution No. 277 here.

BCB Resolution No. 274, December 13, 2022

BCB Resolution No. 274 amends BCB Resolution No. 131/2021, which consolidates:

• • the rules on administrative sanctioning proceedings and application of penalties, among others, provided for in Law No. 13,506, of November 13, 2017; and
  • the parameters for the application of administrative penalties provided for in Law No. 9,613, of March 03, 1998, to adjust the application of penalties to the offenses provided for in Law No. 14,286, of December 29, 2021.

This Resolution entered into force on December 31, 2022.

Read the full text of BCB Resolution No. 274 here.

BCB Resolution No. 273, December 12, 2022

Establishes the “GTI Tokenization” Interdepartmental Working Group, within the scope of the Central Bank of Brazil, to carry out a study on the activities of registration, custody, trading and settlement of financial assets in Distributed Ledger Technologies (“DLTs”) infrastructures.

The “GTI Tokenization” Interdepartmental Working Group, which is a multidisciplinary and advisory group, is responsible for proposing recommendations and assessing the following aspects related to asset “tokenization” activities:

• • the comparison between the Brazilian and the international landscape;
  • the analysis of results of the Sandbox and LIFT Challenge Real Digital initiatives of the Central Bank of Brazil;
  • the opening of a debate forum on the digital economy with other regulators and market participants;
  • the mapping of the activities of bookkeeping, registration, deposit, custody, trading and settlement, considering the agents and services involved;
  • the study of the impact of using DLT/blockchain technologies on services and market structure;
  • the assessment of efficiency gains within the scope of the Brazilian National Financial System (“SFN”) as well as of financial, operational, reputational and business risks;
  • the evaluation of the degree of cybersecurity of current tokenization solutions; and
  • diagnosis of the legal framework and possible proposal for regulatory adjustments.

This Resolution entered into force on January 01, 2023.

Read the full text of BCB Resolution No. 273 here.

BCB Resolution No. 269, December 01, 2022;

Amends the Regulation attached to BCB Resolution No. 1, of August 12, 2020, which provides for:

• • the operation of the Pix payment system, to adjust provisions on the criteria and conditions for outsourcing activities;
  • the definition of a transaction account;
  • the offer of a Pix Collection service;
  • an Application Programming Interface (API) developed specifically for Pix payments;
  • the Transaction Accounts Identifiers Directory (DICT);
  • the return of transactions;
  • dispute resolution;
  • verifying the adherence of participants’ actions to the regulations;
  • penalties applied; and
  • aspects related to Open Finance.

This Resolution will enter into force:

• • on March 01, 2023, for amendments to article 1 regarding articles 90, 90-A, 90-B and 90-C of the Regulation attached to BCB Resolution No. 1, of 2020;
  • on July 03, 2023, for amendments of article 1 regarding article 3, item VI, letter “f”, of the Regulation attached to BCB Resolution No. 1, 2020; and
  • on January 01, 2023, for all other provisions.

Read the full text of BCB Resolution No. 269 here.

BCB Normative Instruction No. 342, January 02, 2023

Amends BCB Normative Instruction No. 299 of August 30, 2022, which outlines the procedures, documents, deadlines and information required for filing authorization requests related to the operation of institutions under CMN Resolution No. 4,970 of November 25, 2021.
This Normative Instruction entered into force on the date of its publication (January 02, 2023).

Read the full text of BCB Normative Instruction No. 342 here.

BCB Normative Instruction No. 341, December 30, 2022

Establishes the period for implementation of provisions provided for in BCB Normative Instruction No. 331, of December 1, 2022, which establishes the amount limits for Pix transactions.
This Normative Instruction entered into force on the date of its publication (December 30, 2022).

Read the full text of BCB Normative Instruction No. 341 here.

BCB Normative Instruction No. 340, December 27, 2022

Releases version 5.0 of the Dispute Resolution Guide, which is part of the Pix Regulation.
This Normative Instruction will enter into force on February 01, 2023.

Read the full text of BCB Normative Instruction No. 340 here.

BCB Normative Instruction No. 333, December 05, 2022

Releases version 4.1 of the Pix User Manual, which is part of the Pix Regulation.
This Normative Instruction entered into force on January 02, 2023.

Read the full text of BCB Normative Instruction No. 333 here.

BCB Normative Instruction No. 331, December 01, 2022

Provides for the amount limits of Pix transactions.
This Normative Instruction will enter into force:

• • on July 03, 2023, for provisions of article 3; and
  • on January 02, 2023, for the other provisions.

Read the full text of BCB Normative Instruction No. 331 here.

Brazilian National Monetary Council

CMN Resolution No. 5,059, December 16, 2022

Establishes an annual global limit for contracting credit operations with public sector entities and agencies in 2023 and 2024, to be followed by financial institutions and other institutions authorized to operate by the Central Bank of Brazil.
This Resolution entered into force on January 02, 2023.

Read the full text of CMN Resolution No. 5,059 here.

CMN Resolution No. 5,057, December 15, 2022

Provides for the portability of credit and finance leasing operations.

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

Read the full text of CMN Resolution No. 5,057 here.

CMN Resolution No. 5,056, December 15, 2022

Provides for the financial charge resulting from the cancellation or write-off of an exchange position, related to a foreign currency purchase agreement backed by an advanced payment in Brazilian reais.

This Resolution entered into force on December 31, 2022.

Read the full text of CMN Resolution No. 5,056 here.

News

Central Bank of Brazil

BCB launches new version of the Guide to Excellence in the Offering of Financial Products and Services – Credit Operations

Launched by the Central Bank of Brazil (“BCB”), the “Guide to Excellence in the Offering of Financial Products and Services – Credit Operations” aims to foster good practices regarding responsible credit, which are essential to prevent over-indebtedness.

BCB already regulates matters regarding the relationship of citizens with financial and payment institutions, such as transparency, compliance and fair treatment, in addition to bringing financial education to the population through several projects. As a result, the Guide to Excellence seeks to complement such initiatives, suggesting good practices in the offering of credit to financial institutions, helping customers make better decisions regarding their operations, by becoming more aware of the costs and risks involved.

The Guide is divided into four sections:

• • advertising and offering;
  • credit contracting;
  • credit after-sales; and
  • credit cards.

Read the full text of the Guide to Excellence here.

BCB releases Regulatory Sandbox Management Report

The Brazilian Central Bank (“BCB”) has recently published the Management Report of the Regulatory Sandbox – 1st Cycle 2022.

The document contains an overview of the development and implementation of the initiative and summarizes which projects within the scope of the action. The material also includes the resolutions of the Strategic Management Committee of the Regulatory Sandbox (“Cesb”).

The report highlights that the “Regulatory Sandbox is an environment in which entities are authorized by the Central Bank to test, for a certain period, an innovative project within the financial or payment sector, in compliance with a specific set of regulatory provisions that support the carrying out of controlled and outlined activities.”

Among the goals of the BCB’s Regulatory Sandbox, the following are worth highlighting:

• • to encourage innovation and diversity in business models;
  • to increase efficiency and reduce costs for systems;
  • to foster competition and financial inclusion; and
  • to increase the reliability, quality and safety of products and services.

Finally, the report is also intended to ensure anti-money laundering measures and to combat terrorism financing (PLD/CFT), as well as to address customer and user complaints. According to the report, the general provisions regarding the initiative can be found in CMN Resolution No. 4,865 of October 26, 2020 and BCB Resolution No. 29 of October 26, 2020.

Access the full Report here.

BCB publishes Report on Social, Environmental and Climate Risks and Opportunities for 2022

In order to provide greater transparency to its actions, and supported by the Sustainability topic of the AgendaBC# guidelines, the BCB has published the Social, Environmental and Climate Risks and Opportunities Report 2022 (“RIS”) to reinforce its commitment towards addressing such risks.

The Report presents, in an integrated manner, the BCB’s actions related to the management of social, environmental and climate risks and opportunities carried out between August 2021 and August 2022.

The material contains detailed information on the several work fronts in which the BCB is engaged to effectively participate in the identification and management of ESG (environmental, social and governance) risks, both internally and before the Brazilian National Financial System (“SFN”) and society.

The RIS, which was drafted based on the structure proposed by the World Economic Forum (WEF), has expanded its scope regarding the Task Force on Climate-related Financial Disclosures (“TCFD“), while addressing social, environmental and climate aspects. In turn, aspects related to the management of international reserves and efforts of alignment with the TCFD recommendations receive more attention.

Read the full Report here.

Workshop and Call for Papers: Central Bank Digital Currencies, Tokenization and Cryptoassets

The call for Papers for the Workshop “The tokenization of finance: from cryptoassets to digital currencies of the Central Bank”, to be held on May 16, 2023, in Brasília, is now open.

The Workshop will be divided into thematic sub-topics:

a) economics and finance;

b) law; and

c) technology.

Interested authors must submit their papers in PDF format to the e-mail real.digital@bcb.gov.br by March 24. The deadline to confirm attendance to the Workshop is April 14, 2023.

The paper must:

• • identify the thematic sub-topic;
  • be completed; and
  • contain, on the cover page, data on the author(s) and co-author(s), such as institutional affiliation, address and e-mail; and
  • contain, on the cover page, an abstract and keywords. 

The event will be held along with the 1st Annual Conference of the Central Bank of Brazil, from May 17 to 19, 2023, which, as of 2023, unifies the Annual Inflation Targeting Conference and the Annual Conference on Financial Stability and Banking.

Read the Call in full.

PIX Forum introduces new products under development for 2023

On December 01, 2022, BCB held the 18th plenary meeting of the PIX Forum, a permanent advisory committee that coordinates several market agents in the collaborative construction and transportation of PIX. In this environment, the evolutionary agenda of the payment system was discussed, as well as new services under development.

The main product to be developed in 2023 is the automatic Pix. The new product will be used for recurring payments, such as utilities and other services that require periodic payments (schools, gyms, subscriptions, and streaming services, among others). The function, in turn, will be similar to current payments made through the debit account, without relying, however, on bilateral agreements. The automatic Pix should be a standardized and improved user experience, using all the benefits of PIX.

Among the new features for 2023 is a new security device to identify fraud – currently, any account used for fraud, called “laranjas accounts“, are marked as suspicious. The Individual Taxpayer IDs (“CPFs”) of these account holders will be identified as “suspicious”, which will increase security as it prevents these “laranjas” from continuing to create and use new accounts for fraud.

The development of a new version of the Special Return Mechanism, MED 2.0, whose purpose is to increase the effectiveness of the system for returning funds that have been subject to fraud, is also expected.

Read the article in full.

Federal Supreme Court (“STF”)

Consif questions Confaz rule on electronic payment of ICMS tax

The Brazilian National Financial System Council (“Consif“) has filed a Direct Action for the Declaration of Unconstitutionality (“ADI 7276”) with the Federal Supreme Court against provisions of an agreement by the Brazilian National Council of Fiscal Policy (“Confaz”).

Such provisions ratify the supply of information by financial agents to state tax authorities regarding ICMS collection operations by electronic means.

Confaz-ICMS 134/16 Agreement, entered into by the state governments that are members of Confaz, establishes that banking institutions are required to report all transactions carried out by individuals and legal entities via PIX, debit and credit cards, and others, when paying taxes electronically.

According to Consif, the rule would be, on the pretense of establishing ancillary obligations in the process of ICMS collection, requiring financial institutions to provide information on their clients that is protected by bank secrecy. In the ADI, the council requests an injunction to suspend the effects of the agreement until the judgment on the merits.

Read the article in full.

Sentence of a man convicted of financial pyramiding and criminal organization is upheld

The Brazilian Federal Supreme Court (“STF”) decided to uphold the sentence of 5 years, 2 months and 12 days of imprisonment imposed on Fernando Ewerton Cezar da Silva, convicted of crimes related to the practice of financial pyramiding in Brazil’s Federal District.

Minister Alexandre de Moraes denied the request for Habeas Corpus (HC) 223813, in which the defense sought to reduce the sentence imposed. Fernando Ewerton – who was sentenced at the trial court to three years and six months of imprisonment for the practice of criminal organization, and two years for a crime against the popular economy, initially without parole – and other co-defendants were investigated in “Operation Patrick“, which investigated the group’s activities involved in the creation and marketing of virtual currency (Kriptacoin).

At the STF, his attorneys requested the reassessment of the sentence for the crime of participation in a criminal organization to three years and six months of imprisonment, in an initially semi-open system, as established for defendant Alessandro Ricardo, on the grounds that the judicial circumstances were the same.

However, in his decision, minister Alexandre de Moraes stressed that, according to the Superior Court of Justice (STJ), there are no factual and legal grounds to justify the extension of the effects of the decision that reduced the penalty imposed to co-defendant Alessandro Ricardo. For the minister, there is no similarity between the situations of the defendants, and it would be essential to establish, unambiguously, a perfect similarity between the cases as well as the absence of personal circumstances that justify a procedural distinction.

Read the article in full.

Court of Justice of São Paulo

TJSP holds financial institution liable for failure in the use of PIX

According to a decision rendered on January 17, 2023, in Civil Appeal No. 1000430-37.2022.8.26.0624, the 27th Panel of Private Law of the Court of Justice of São Paulo (“TJSP”) ordered a certain financial institution to compensate the damages suffered by its client due to a failure during the use of Pix, pointing out that the bank was negligent and failed to comply with the principle of the obligation to disclose information.

The TJSP understood that the bank is objectively liable and such liability should not be dismissed, given that the bank is the intermediary of operations performed via PIX. The judge also pointed out that “any successive attempts to carry out the operation cannot be blamed on the Pix user, who is eager to complete the payment under negotiation, when the system does not work as it should.” In addition, the judge noted that the bank should have realized that carrying out three pix transfers in a row, in the same amount and to the same recipient, would not be normal, and should have contacted the customer.

Read the article in full.