The authorisation regime is effected by the Central Bank. Under the federal constitution, foreign ownership interests in a Brazilian financial institution are subject not only to the Central Bank’s prior approval, but also to issuance of a decree by the President of the Republic confirming the national interest in and authorising such foreign equity holding. This presidential decree is also required for a foreign-based financial institution to open a branch in Brazil.
Licensing of new financial services firms, for which Central Bank approval is required, must follow the procedures prescribed by Resolution 4,122 of 2 August 2012, and Circular 3,649 of 11 March 2013. Any interested party may apply for approval. However, the person in charge of the licensing process must be technically qualified to conduct the project at the Central Bank, and the group organising the institution (in which the representatives of the future controlling group and future holders of qualified interest will participate) must be identified.
The application must contain:
- a draft statement of intent;
- an executive summary of the business plan;
- the names and particulars of each member of the controlling group of the financial institution and the holders of qualified equity interest (direct or indirect interest held by individuals or legal entities, corresponding to 15 per cent or more of shares representing the total capital stock of the financial services firm), stating their respective ownership interests;
- the names and particulars of individuals and legal entities that are part of the same economic group as the financial institution and that may directly or indirectly influence its business;
- statements and documents evidencing that the economic group members are knowledgeable in the line of business and segment in which the institution intends to operate, and also in market dynamics, sources of operating funds, management and risks related to the intended operations;
- identification of the origin of venture funds; and
- an authorisation from all members of the controlling group and from all holders of qualified equity interest to the Brazilian Federal Revenue Office and to the Central Bank granting access to relevant information.
If the application is approved by the Central Bank, the applicant, before the financial institution is authorised to begin operations, must:
- formalise the constituent documents of the financial institution, arranging for their registration with the relevant commercial registry after approval by the Central Bank;
- implement the organisational structure (eg, corporate governance, business management, internal control and risk management structure); and
- apply to the Central Bank for an inspection into actual implementation of the organisational structure.
After the inspection, the applicant must show that the following procedures have been adopted:
- amendment to the by-laws of the financial institution to make its corporate capital correspond to the amount previously established in the business plan;
- election of senior managers and other members of the bodies of the financial institution; and
- evidence of the origin of funds used in the undertaking.
Once the Central Bank confirms that the above conditions have been satisfied, the financial institution is licensed to operate.
On being authorised to do business in Brazil, financial institutions become subject to the Central Bank’s supervision. Prior approval from the Central Bank is mandatory for all amendments to their acts of incorporation; election of directors and officers; capital increases and reductions; disposal of control; mergers, spin-offs and consolidation; and other non-routine corporate acts of those financial institutions.
Financial institutions can also set up representative offices in Brazil with the Central Bank’s prior approval. These offices are meant to conduct non-transactional operations, serving only as a point of contact between the foreign-based parent and clients domiciled in Brazil. A representative office cannot engage in any activity that is solely attributable to a Brazilian financial institution, or its authorisation will be cancelled (without prejudice to other administrative and criminal sanctions).
In April 2018, the CMN enacted Resolution 4,656, which regulated the fintechs, creating ‘light’ financial institutions called sociedade de crédito direto (SCD) and sociedade de empréstimo entre pessoas (SEP), with the purposes of increasing legal certainty to fintechs carrying out financial activities; increasing innovation in the financial system; fostering competition among financial institutions; and improving credit access for the public.
An SCD is a financial institution authorised to provide loans with its own corporate capital; and an SEP is a financial institution authorised to connect investors and borrowers in a peer-to-peer lending arrangement. Both SCDs and SEPs are authorised to grant credit only through electronic platforms, must be incorporated as joint-stock companies, and must have minimum equity of 1 million reais. As well as in financial institutions, foreign ownership interests in SCDs and SEPs are subject to the Central Bank’s prior approval, and to the issuance of a decree by the President of the Republic. On 29 October 2018, a blanket Presidential Decree was issued confirming the national interest in and authorising the foreign equity holding of up to 100 per cent of the capital stock of SCDs and SEPs that are authorised by the Central Bank.
Their authorisation process is based on the financial institution, but simplified, since it does not require a business plan, a technical interview (although the Central Bank may request one), or an inspection prior to authorisation.
Finally, entities operating in fields related to capital markets, such as asset managers and advisers, investment consultants and agents, custodians, and investment funds, are subject to authorisation or registration with the CVM.
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