wednesday, 20 september of 2017

Enlargement of the list of operations that are prohibited to brazilian financial institutions

Welson H. Lassali Rodrigues

The Brazilian Central Bank enacted on August 28 a new piece of legislation (Resolução 4.596) by means of which the list of persons to whom Brazilian financial institutions are prohibited to concede loans or to advance payments was expanded.

Initially, however, it is important we detail the legal background on the matter so as to try to make it as clear as possible to all persons that may be affected by the new statute.

In fact, the issue was originally ruled by article 34 of the Federal law 4.595/64, which created the National Monetary Council (CMN, according to its Portuguese acronym) and regulated how the Brazilian financial system should be structured.

In order to prevent financial institutions from carrying out transactions with related parties, said article 34 determines that all financial institutions operating within Brazilian territory are prohibited to grant loans or advance payments to: (i) their officers or members of their internal committees, as well as to their respective spouses; (ii) first and second degree relatives of the persons mentioned at the last item; (iii) individuals or legal persons having an equity interest in the financial institution superior to 10% (ten per cent) of its total capital; (iv) legal persons in which the financial institution has an equity interest superior to 10% (ten per cent) of their total capital; (v) legal persons in which officers or administrators of the financial institution (including their respective spouses, first and second degree relatives) have an equity interest superior to 10% (ten per cent) of their total capital.

Any violation to such a norm could in fact characterize a crime against the Brazilian financial system, according to articles 17 and 25 of the Federal Law 7.492/86.

Nonetheless, the Brazilian Federal Government decided to enlarge the list of persons to whom the local financial institutions are prevented from granting loans, so as to try to turn the administration of the financial system broader and more effective.

In this sense, the new Resolution 4.596 establishes that not only the formal spouses of the persons mentioned above would be considered related persons to the financial institutions, but also any sort of intimate partner in line with the familiar structure established by Brazilian Federal Constitution.

Furthermore, the new legislation establishes that there are also prohibited credit facilities granted to legal persons with which the financial institutions keep any sort of effective operational control, or even preponderance on their operational decisions, irrespective of the actual equity interest that the financial institution keeps in such legal persons.

Finally, the new Resolution from Brazilian Central Bank makes clear that any legal person having a common administrator with the financial institution is also prohibited to receive loans from the latter.

As it is, all financial institutions that operate within Brazilian territory must boost their internal controls to stay away from violating the above-mentioned legislation, under pain of compromising their local operations and being penalized by local governmental watchdogs.


*Welson H. Lassali Rodrigues is a lawyer at Chiarottino e Nicoletti - Advogados.

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