Regulation of the Brazilian Financial System

General Provisions

The basic institutional structure of the Brazilian financial system was established by Law 4,595 of December 31, 1964 (the “Law 4,595”). The Brazilian financial system comprises the following regulatory and fiscal agencies:

  • the National Monetary Council (“Conselho Monetário Nacional”), or CMN; - the Central Bank; 
  • the Brazilian Securities Commission (“Comissão de Valores Mobiliários”), or CVM; 
  • the Superintendence of Private Insurance (“Superintendência de Seguros Privados”), or SUSEP; and 
  • the Supplemental Welfare Department (“Secretaria de Previdência Complementar”).

Main Regulatory Agencies of the Banking Industry

The National Monetary Council (CMN)

The CMN is the highest authority in the Brazilian financial system and is responsible for the [overall formulation and oversight] of Brazilian monetary and foreign exchange policies, with the aim of improving social and economic development and operating the financial system. Under Law 4,595, the main objectives of CMN’s policies consist of, among others:

  • adapting the volume of mediums of exchange to the needs of the national economy and its development;
  • regulating the domestic currency values, by preventing or adjusting internal or external inflationary or deflationary events, economic crises and other domestic imbalances stemming from contingent events;
  • regulating foreign exchange values and the Country’s balance of payments, with a view towards the highest profitability of investments in foreign currency;
  • providing guidelines for the use of funds by public and private financial institutions to foster a well-balanced development of the national economy in the different regions of Brazil;
  • promoting the growth of the funds of financial institutions and instruments, aiming at improving efficiency of the payment system and transfer of funds;
  • ensuring the liquidity and solvency of financial institutions; 
  • coordinating the monetary, credit, budgetary, fiscal and public-debt policies, both internal and external; and
  • defining the policy to be observed in the organization and operation of the Brazilian securities market.

The Minister of Finance acts as Chairman of the board of directors of the CMN, which is also comprised of the Minister of Planning, Budget and Management, and the President of the Central Bank.

The Central Bank

Under Law 4,595, the Central Bank is the independent governmental agency associated with the Ministry of Finance responsible for implementing the monetary and credit policies laid down by the CMN, and overseeing the financial institutions of the public and private sectors, imposing on them such penalties as provided by law, whenever necessary.

In accordance with Law 4,595, the Central Bank is also responsible, among other activities, for exercising control over credit and foreign capital, receiving compulsory payments and voluntary deposits from financial institutions, carrying out rediscount and loan operations for banking institutions, in addition to discharging the duties as depositary for official gold and foreign-exchange reserves. It is also incumbent upon the Central Bank to control and approve the operation, control transfer and corporate reorganization of financial institutions.

The President of the Central Bank is appointed by the President of the Republic of Brazil for an indefinite term of office, subject to ratification by the Federal Senate.

The Central Bank is responsible for:

  • implementing the monetary and credit policies set forth by the CVM; 
  • regulating and overseeing Brazilian financial institutions of the public and private sectors;
  • exercising control over the foreign currency flows to and from Brazil; 
  • overseeing the Brazilian financial market.

The Central Bank exercised its control over financial institutions by means of:

  • determining minimum requirements, mandatory reserves and limits to operations;
  • authorizing and approving corporate documentation, capital increases, and the establishment or transfer, either within or outside Brazil of head-offices or branches;
  • requiring the presentation of annual or semi-annual financial audits; and 
  • requiring the disclosure of credit operations and foreign exchange agreements, exports, imports and other financial activities related thereto.

The CVM

The CVM was created by Law No. 6,385 as an independent governmental entity under a special regime, associated with the Ministry of Finance, as a separate legal identity and with its own capital, and with independent administrative authority.

According to Law No. 6,385, the CVM is responsible for:

  • regulating all matters expressly provided for by the Brazilian Corporate Law and the Brazilian Securities Law, in compliance with the policies established by the CMN;
  • managing the registries required by the Brazilian Securities Law (i.e., the registry for publicly-held companies and public offerings);
  • overseeing, on an ongoing basis, the activities and services of the securities market, as well as the disclosure of market-related information and the data on securities traded and persons acting on the market;
  • advising the CMN on the setting of maximum threshold on prices, commissions, fees and other charges benefiting market intermediaries; and
  • overseeing and inspecting publicly-held companies, giving priority to the companies that do not record profits in their balance sheets or do not pay the minimum compulsory dividends.

In addition, Law No. 10,303 transferred to the CVM the powers to regulate and oversee financial and investment funds which were originally incumbent upon the Central Bank. The Joint Decision (Decisão Conjunta) No. 10, adopted by the CVM and the Central Bank on May 2, 2002, set forth the terms and conditions for this transfer. Moreover, on July 5, 2002, the CVM and the Central Bank entered into a memorandum of understanding whereby the general terms and conditions for such transfer were determined.

The CVM has its headquarters in the city of Rio de Janeiro, state of Rio de Janeiro, and has national jurisdiction. The CVM is managed by a chairman and four directors who are appointed, subject to approval of the Federal Senate, by the President of the Republic of Brazil among reputable individuals in the capital markets. The CVM officers are appointed for a five-year term, and may not be re-appointed, so that every year one fifth of their offices must be renewed.

Last updated on 2014-03-25T15:30:34

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