Banks, Financial Services, Fintechs and Digital Assets Newsletter No 9 – September, 2023

REGULATIONS

Central Bank of Brazil

BCB Normative Instruction No. 412, September 26, 2023

Establishes the operational procedures for informing personal data subjects in the event of a security incident involving a database related to a Pix component or infrastructure, including the transmission of information by a Pix participant to potentially affected data subjects in connection with Pix, when confirmed by the Central Bank of Brazil (“BCB”).

The Pix participant (which holds the transactional account of the data subject potentially affected by the security incident) will be responsible for transmitting the information of the data subject potentially affected by the security incident, regardless of being directly responsible for the incident.

The BCB will request, through the Central Bank’s Electronic Mail System (“BC Correio”), that Pix participants holding transactional accounts of potentially affected users proceed with the transmission of the information to the account holders. In the message to be sent by BC Correio, the BCB will provide the necessary guidelines for due communication, with a deadline to be defined at its own discretion.

Without prejudice to other aspects to be established in the request submitted by the BCB in the future, depending on the security incident, the warning must mention at least:

(i) information on the incident;

(ii) description and nature of the personal data potentially affected; and

(iii) the risks associated with the incident.

This normative instruction entered into force on September 26, 2023.

Read BCB Normative Instruction No. 412 in full.

BCB Resolution No. 340, September 21, 2023

Announces the new Internal Regulations of the Central Bank of Brazil.

BCB Resolution No. 340, which announces the BCB’s new internal regulations, repealed the following regulations:

(i) Ordinance No. 84,287, of February 27, 2015;

(ii) Ordinance No. 91,163, of November 17, 2016;

(iii) Ordinance No. 91,740, of December 22, 2016;

(iv) Ordinance No. 92,743, of March 08, 2017;

(v) Ordinance No. 93,503, of May 18, 2017;

(vi) Ordinance No. 94,464, of August 03, 2017;

(vii) Ordinance No. 95,818, of December 04, 2017;

(viii) Ordinance No. 96.,825, of January 25, 2018;

(ix) Ordinance No. 97,827, of April 26, 2018;

(x) Ordinance No. 98,559, of June 27, 2018;

(xi) Ordinance No. 99,433, of August 29, 2018;

(xii) Ordinance No. 102,261, of March 28, 2019;

(xiii) Ordinance No. 103,198, of June 06, 2019;

(xiv) Ordinance No. 105,173, of October 24, 2019; and

(xv) Ordinance No. 108,150, of August 27, 2020. The resolution entered into force on October 02, 2023.

Read BCB Resolution No. 340 in full.

BCB Resolution No. 342, September 26, 2020

Amends the Regulation attached to BCB Resolution No. 1, of August 12, 2020, which regulates the operation of the Pix payment arrangement, to provide for the communication to personal data holders regarding the occurrence of a security incident, and amends Annexes I and II of BCB Resolution No. 177, of December 22, 2021 (Pix Penalties Manual), to provide for measures regarding non-compliance with Pix’s technical security requirements and the criteria for applying penalties.

The Resolution determines, most importantly, that the institutions responsible for the account of personal data holders will be obliged to notify their own clients, regardless of whether they caused the incident or not, even if the case does not involve any risk or important data for end users. Therefore, this obligation falls to the client’s relationship institution, even if it did not cause the event, provided that such institution has a secure communication channel with the client, accessible exclusively through personal identification.

Improvements are also planned for Pix’s penalty framework, so that potential breaches of security requirements can be penalized according to their effects, and more severe penalties can be applied in cases of greater impact, including due to the consequences involved.

In addition, weighting factors have been included for calculating the amount of the fine, which will take into account the number of Pix keys potentially affected in the event of a security incident involving personal data associated with the system.

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

Read BCB Resolution No. 342 in full.

Brazilian National Monetary Council

CMN Resolution No. 5,103, September 28, 2023

Adjusts regulations to be applied to operations contracted under the Export Financing Program (“Proex”).

The regulation establishes that the following procedures must be followed when granting equalization of interest rates (of the Proex Equalization request):

(i) requests for equalization to the National Treasury Financial Agent for Proex (“Proex Financial Agent”) will be submitted through the Licenses, Permits, Certificates and Other Documents (“LPCO”) module, on the Single Foreign Trade Portal (Siscomex), and must be requested by the exporter prior to the export;

(ii) when the goods, which are the object of exports under consignment or destined for fairs and exhibitions, are negotiated under the Program, the LPCO may be completed after departure from the Brazilian customs territory, as long as it is carried out before the final sale abroad;

(iii) the Proex Financial Agent will have 20 days after registration with the LPCO to analyze the appropriate requests, and this period will be interrupted in order to meet any requirements pointed out by the Proex Financial Agent; and

(iv) the approval of requests for equalization by the Proex Financial Agent will be subject to budgetary and financial availability, and will be carried out before the goods are shipped, the services are invoiced or the final sale is made abroad, as the case may be.

Among the duties of the Proex Financial Agent, it is established that it:

(a) may reject of the request for equalization if the exporter does not comply, within twenty (20) days, with the requirement indicated in item “(iii)” above;

(b) may revoke of the LPCO if the export of goods or services is not carried out within thirty (30) days of the date of the first shipment or service provided for in the approved LPCO; and

(c) will reject the request for equalization in the event of budgetary and financial unavailability.

It is also worth noting that approval of the LPCO is allowed after the shipment of goods, invoicing of services or final sale abroad, as the case may be, provided that:

(a) the LPCO request was submitted prior to the events mentioned above;

(b) approval of the LPCO is granted in the same financial year as the shipment of goods, invoicing of services or final sale abroad, as the case may be; and

(c) there is budgetary and financial availability at the time of approval of the LPCO.

The regulation also stipulates that the entities listed below must inform the Proex Financial Agent of any NTN-I to be canceled, or to be used as a reference for repayment in kind or delivery of securities, within a maximum period of 60 days from the early settlement of financing under their responsibility, supported by the Proex equalization of interest rates:

(i) financial institutions subject to BCB oversight, resident or domiciled in Brazil, and the Special Industrial Financing Agency (“Finame”);

(ii) credit or financial establishments located abroad, including branches or subsidiaries of Brazilian banks; and

(iii) multilateral organizations with export credit portfolios.

In the event of non-compliance with the deadline under discussion, the Federal Government may collect the amounts owed from the financial institutions administratively or judicially, as well as prevent new approvals within the scope of Proex until they are settled with the Proex Financial Agent. The Federal Government may also charge the financial institutions in the event of default due to the early maturity of the debt or honor of the guarantee (subject to the same 60-day deadline).

Read CMN Resolution No. 5,103 in full.

CMN Resolution No. 5,105, September 28, 2023

Establishes minimum guidelines for regulating the conditions for incorporation and operation, authorization for incorporation and operation, and oversight of the activities of securities brokers, foreign exchange brokers and securities distributors.

The following principles are established to guide the regulation of the topics under discussion:

(i) the prevention and mitigation of risks in the markets in which they operate;

(ii) the provision of information necessary to enable the free choice and decision-making of clients, including rights, duties, responsibilities, costs, burdens, penalties, as well as any existing risks in carrying out transactions or contracting services;

(iii) meeting the needs of clients, especially regarding the protection of their economic interests, non-discriminatory treatment, privacy and the protection of personal data;

(iv) stimulating efficiency, effectiveness and competition in the markets in which they operate, in addition to adopting the necessary measures to obtain the best possible result for their clients;

(v) stimulating innovation and diversity of business models;

(vi) increasing the supply, reliability, quality and security of products and services offered in the financial and capital markets;

(vii) encouraging financial inclusion and reducing transaction costs;

(viii) ensuring the integrity, compliance, security and confidentiality of transactions and the handling of securities in the markets in which they operate;

(ix) the transparency and suitability of the products and services offered or recommended to the needs, interests and objectives of clients; and

(x) the implementation and maintenance of internal control practices and policies, prevention of conflicts of interest and money laundering, terrorist financing or concealment of assets, in order to comply with current legislation and regulations.

Securities brokers, foreign exchange brokers and securities distributors must also:

(i) maintain consistency and equivalence with the regulations applicable to other institutions authorized to operate by the BCB; and

(ii) maintain the alignment with internationally accepted standards, where they exist.

The guidelines established by the resolution must be followed according to the nature and size of the institutions, while also considering the complexity and risks of the operations carried out.

Read CMN Resolution No. 5,105 in full.

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NEWS

Drex: in 50 days, 500 operations have already been successfully carried out and 11 institutions operate on the network

Incorporated into the Drex Pilot platform (the digital Brazilian real pilot program) since the end of July 2023, the selected institutions (currently 11 in the network) have already participated in various types of operations, both wholesale and retail, which involve both the creation of portfolios, issuance and extinguishment of Drex, as well as simulated transfers between banks and clients.

In fact, the very first issuance of federal government bonds for simulation purposes was carried out. Each of the qualified participants received a quota of the simulation version of the securities mentioned and, from then on, they were able to start simulating purchases and sales between the participants, and between simulated clients.

The operation of the first stage is expected to be completed by mid-2024, with the development of additional features in the next stage, which will enable the BCB to evaluate the platform’s performance. Transactions (simulated and intended exclusively for testing Drex’s basic infrastructure can be carried out:

(i) directly between participants;

(ii) between a participant and its clients;

(iii) between clients of the same participant; and

(iv) between clients of different participants.

As the Brazilian real in digital format, Drex will enable several types of financial transactions with digital assets to be settled by banks within the BCB’s platform. These settlements will be carried out by means of smart contracts, which can be adapted to suit the convenience of clients, so as to enable the conclusion of the transaction upon fulfillment of all the established conditions, generating security and efficiency for the parties.

Read the article about Drex in full.

Central Bank releases Management Report on Pix’s first years of operation

On September 04, 2023, the BCB released the “Pix Management Report – Conception and first years of operation 2020-2022”, which provides an overview of the payment service, which, in less than three (3) years of operation, has transformed the way Brazilians carry out transfers and payments.

The material is divided into the main topics listed below:

(i) From the Idealization to the Implementation of Pix – addresses the BCB’s motivation in developing a payment solution that represents the achievement of multiple public goals, in order to promote greater efficiency and competition in the Brazilian Payment System (“SPB”), as well as generating value for society. It also highlights the gaps in the means of payment available in Brazil prior to the launch of Pix, as well as the way in which this payment arrangement fits into the context of the technological transformation experienced by people, companies and governments, including details of its implementation and launch.

(ii) Evolution of Pix throughout the 2021/2022 Biennium – encompasses products, features and initiatives that were developed and launched throughout 2021 and 2022, in order to increase user convenience, collection with expiration date, the launch of “Pix Withdrawal” and “Pix Change”, as well as the creation of new security measures and the possibility of the payment initiator acting on Pix.

(iii) Pix in Numbers – contains data on the use of Pix up to December 2022, including transaction statistics, Pix keys, users (individuals and legal entities), participating institutions and the retail payments market, as well as interesting facts about the payment arrangement.

(iv) The Future of Pix – addresses the development agenda for the use of Pix, covering new features and products that could be created to further simplify payments, such as automatic recurring payments. The report also includes the development of actions aimed at expanding the use of existing functionalities, as well as the “future vision” of Pix.

Read the article about the BCB’s Pix Management Report in full.

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