Banks, Financial Services, Fintechs and Digital Assets Newsletter No 10 & 11 – October, November, 2023

REGULATION

Central Bank of Brazil

BCB Resolution No. 349, October 31, 2023

The Resolution of the Central Bank of Brazil (“BCB“) No. 349, published on October 31, 2023, amends BCB Resolution No. 264, of November 25, 2022, which provides for the registration of receivables arising from transactions within the scope of payment arrangements based on post-paid accounts and demand deposits that are part of the Brazilian Payment System.

Among the implemented amendments, we highlight the following:

(1) amendments to article 7, regarding the deadline for requesting the removal of liens and encumbrances associated with promissory assignment agreements for payment arrangement receivables or agreements producing equivalent effects, executed with receiving end users;

(2) amendments to items XII, XIII, XIV of article 15 on the duties of registration systems;

(3) amendments to article 26, regarding the deadlines for submission of the agreement established in article 18 and the amendments to the commands of items I, II and III of article 27;

(4) amendments to item II and sub-items “b”, “c”, and “d” of article 27; and

(5) repeal of the sole paragraph of article 7 of BCB Resolution No. 264 of 2022.

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

Read BCB Resolution No. 349 in full.

CMN Resolution No. 5,106, October 26, 2023

CMN Resolution No. 5,106, published on October 26, 2023, amends the annual global limit for contracting credit operations with bodies and entities of the public sector in 2023, to be followed by financial institutions and other institutions authorized to operate by the BCB.

This resolution entered into force on November 01, 2023.

Read CMN Resolution No. 5,106 in full.

Joint Resolution No. 7, October 26, 2023

Joint Resolution No. 7, of October 26, 2023, amends Joint Resolution No. 1, of May 04, 2020, which provides for the implementation of Open Finance, streamlining the process of renewing consents for data sharing, as well as bringing greater convenience and accessibility for users.

BCB Normative Instruction No. 421, November 23, 2023

BCB Normative Instruction No. 421, of November 23, 2023, amends BCB Normative Instruction No. 311, of October 19, 2022, which establishes the procedures for the submission of the Prudential Conglomerate Report under CMN Resolution No. 4,911, of May 27, 2021, and BCB Resolution No. 146, of September 28, 2021.

The regulation amends the following articles of BCB Normative Instruction No. 311, of October 19, 2022: (i) Art. 2, paragraph 4, items I and II, paragraphs 5 and 6; (ii) Art. 3, paragraphs 1 and 2; and (iii) Art. 4, paragraph 3.

Finally, the sole paragraph of Art. 3 of BCB Resolution No. 311, of 2022, was repealed.

This normative instruction entered into force on December 01, 2023.

Read BCB Normative Instruction No. 421 in full.

BCB Normative Instruction No. 422, November 24, 2023

BCB Normative Instruction No. 422, of November 24, 2023, amends BCB Normative Instruction No. 291, of July 29, 2022, which establishes the necessary procedures for joining Pix, adjusting provisions regarding the submission of quantitative information on accounts, as well as reviewing formal errors in the documentation submitted.

This instruction amended article 10, paragraph 9, and article 40-A of BCB Normative Instruction No. 291.

This instruction entered into force on December 01, 2023.

Read BCB Normative Instruction No. 422 in full.

BCB Resolution No. 352, November 23, 2023

BCB Resolution No. 352, of November 23, 2023, provides for the accounting concepts and criteria applicable to financial instruments, as well as the identification and recognition of protection relationships (hedge accounting) by securities brokers, securities distributors, foreign exchange brokers, consortium administrators, and payment institutions authorized to operate by the BCB. This resolution also establishes the accounting procedures for defining the cash flows of financial assets solely as payments of principal and interest, applying the methodology for calculating the effective interest rate of financial instruments, creating a provision for losses associated with credit risk, as well as disclosing information relating to financial instruments, in explanatory notes, to be followed by financial institutions and other institutions authorized to operate by the BCB.

In short, this resolution establishes:

(i) the accounting concepts and criteria to be followed by securities brokers and dealers, foreign exchange brokers, consortium administrators and payment institutions authorized to operate by the BCB: (a) in the classification, measurement, recognition and write-off of financial instruments; (b) in the creation of a provision for expected losses associated with the credit risk of financial instruments; (c) in the identification and accounting recognition of hedge relationships; and (d) in the disclosure of information on financial instruments.

(ii) the procedures to be followed by financial institutions and other institutions authorized to operate by the BCB in order to: (a) define the future cash flows of a financial asset as only the payment of principal and interest on the principal amount; (b) apply the methodology for calculating the interest rate of financial instruments; (c) establish a provision for losses associated with credit risk; request authorization to use the methodology for calculating the provision for expected losses associated with credit risk; and (d) disclose information on financial instruments in explanatory notes regarding the financial statements.

This resolution will enter into force (i) on January 01, 2024, regarding articles 24, 100 and 101 as well as items X and XI of article 107; (ii) on January 01, 2027, regarding Chapter IV of Title II; and (iii) on January 01, 2025, regarding the remaining provisions.

Read BCB Resolution No. 352 in full.

BCB Resolution No. 356, November 28, 2023

BCB Resolution No. 356, of November 28, 2023, establishes the procedures for calculating the portion of risk-weighted assets (RWA) for the calculation of capital required for operational risk using a standardized approach (RWAOPAD), under CMN Resolution No. 4,958, of October 21, 2021, and BCB Resolution No. 200, of March 11, 2022.

This resolution applies to financial institutions and other institutions authorized to operate by the BCB, except: (i) consortium administrators; (ii) institutions belonging to a Type 2 prudential conglomerate and payment institutions that are not part of a prudential conglomerate, under the terms of BCB Resolution 197, of March 11, 2022; and (iii) institutions included in Segment 5 (S5).

This resolution will enter into force (i) on June 01, 2026, regarding article 21; and (ii) on January 01, 2025, regarding the other articles.

Read BCB Resolution No. 356 in full.

Notice No. 40,874, November 06, 2023

Notice No. 40,874, of November 06, 2023, provides information on the conditions and deadlines established in article 9, of Law No. 14,478, of December 21, 2022, for the adjustment of virtual asset service providers currently in operation regarding compliance with the provisions of this law and the rules established by the BCB.

In summary, the notice in question clarifies that the conditions and deadlines for the adjustment of virtual asset service providers will be established in a normative act by the BCB, whose rules will apply to all service providers in operation on the date the act enters into force. Additionally, until this normative act enters into force, service providers will be able to operate without prior authorization from the BCB.

Read the Client Alert published on Notice No. 40,874.

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NEWS

Ordinary Meeting of OAB-SP Special Commission on Banking Law – Lecture on Bill No. 4,188 – Legal Framework for Guarantees

On November 07, 2023, Fabio Braga, partner in Demarest’s Banking and Finance practice area, and Marc Stalder, partner in Demarest’s Real Estate practice area, took part in the Ordinary Meeting of OAB’s Special Commission on Banking Law, which addressed Bill No. 4,188, currently Law No. 14,711, to discuss the new Legal Framework for Guarantees.

Read the full Client Alert on the Legal Framework for Guarantees.

Administrative and Legal Decisions

Court of Justice of São Paulo – TJSP

TJSP renders decision on Conditional Sale Bank Agreements within the context of Court-Supervised Reorganization

On November 16, 2023, TJSP decided on Interlocutory Appeal No. 2150212-96.2023.8.26.0000, filed against a decision rendered within the scope of a court-supervised reorganization in which the trial judge prevented financial institutions from making new repayments on any securities in accounts belonging to the aggravated parties until the end of the stay period, under penalty of a daily fine of BRL 100,000.00, as well as full repayment of the amounts within 48 hours.

On the merits, the judge considered that two circumstances prevented protection regarding the agreements executed with the aggravating bank: (i) the instruments provide for the constitution of a fiduciary guarantee, through the assignment of card receivables; and (ii) cash cannot be considered an essential capital asset, under the terms of art. 6, paragraph 7-A, of Law No. 11,101/05.

In addition, the judge emphasized that the guarantees established in the instruments are valid, so that there is no evidence in the instruments that they were not legally constituted.

Accordingly, the TJSP upheld the decision to guarantee the effectiveness of the bank locks as well as the release of the receivables linked to the transactions as of February 21, 2023. Therefore, the creditor will be able to conduct the regular collection of the out-of-court debt, within the limits of what was agreed.

Read the full judgment rendered in Interlocutory Appeal No. 2150212-96.2023.8.26.0000.

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