The regulatory regime applicable to banksi General aspects
An important aspect to consider when discussing banking regulation in Brazil is that there is no legal definition of bank under Brazilian law. The Banking Law, which sets forth the basis of the national financial system (SFN), defines in Article 17 the term financial institution as those public or private companies whose principal or secondary activity is the collection, intermediation or investment or custody of their own or third-party funds. It is therefore left to local regulators to determine the types of financial institutions and the activities that may be performed thereunder.
Banks are thus defined in terms of their permissible functions. The main categories of banks are:
- commercial: financial institutions whose main activities, inter alia, are receipt of time deposits, offering checking facilities, providing short-term lending, collection of trade acceptance bills and other credit documents, and accepting and processing utility bill payments;
- development: intended to foster the economic growth of specific regions or industrial sectors. Financing tends to be long-term and related to specific projects;
- commercial bank licence (if the entity was originally established as an investment bank);
- investment bank licence (if the entity was established as a commercial bank);
- real estate finance licence;
- consumer credit licence;
- leasing licence; and
- foreign exchange authorisation; and
- savings: federal and state-owned financial institutions very similar to commercial banks, which accept savings from individuals by means of deposits in checking accounts for a fixed term or in savings accounts, provide loans and perform various services in the public interest, such as the receipt of federal taxes and charges.
All such types of institutions are highly regulated. Different from individuals or corporations, which under Brazilian civil law are authorised to undertake any act that is not expressly forbidden, regulated entities may only perform activities that have been expressly authorised by law or regulation. As such, the role of regulators has become very important in relation to this type of activity.ii Regulators
There are three entities primarily entrusted with the role of regulating and overseeing financial institutions in Brazil, including banks, are the CMN, the Central Bank and the Brazilian Securities Commission (CVM).
The CMN was created by the Banking Law, and is the highest authority in the Brazilian financial system. Among the CMN's responsibilities are supervising the monetary and currency exchange policies for the purpose of the economic and social development of Brazil, as well as operating the Brazilian financial system.
Among its duties, the Central Bank has the obligation to assure the stability of the purchasing of the national currency and the solidity of the national financial system. The Banking Law granted powers to the Central Bank to implement monetary and credit policies issued by the CMN, and to regulate public and private financial institutions and payment arrangements, arrangers and institutions.
The Central Bank is responsible, inter alia, for exercising control over credit and foreign capital, receiving mandatory payments and voluntary demand deposits made by financial institutions, engaging rediscount transactions and providing funding to financial institutions, as well as exercising its function as the depository of national gold and foreign currency reserves. It is also responsible for controlling and approving the incorporation, functioning, transfer of control and corporate reorganisation of financial institutions and payment institutions.
The third regulator, the CVM, was created by the Capital Markets Law, which regulates the securities markets in Brazil. As securities activities are strictly connected with banking activities, especially investment banking, the CVM also has an important role as regulator of the banking industry.
Pursuant to the Capital Markets Law, the CVM shall implement policies pertaining to the organisation and operation of the securities industry. Accordingly, the CVM's responsibilities encompass the regulation and supervision of all securities activities, including issuance, distribution and trading of securities; the organisation and functioning of the stock exchanges; and practices in the management of securities portfolios and their custody.