On November 13 2017 President Michel Temer approved in full a bill (PL 8843/17) passed by Congress that will substantially change the existing punitive rules for crimes and misconduct carried out within the capital and financial markets. The text of the bill was largely based on a project presented by the president in June 2016 (as Provisional Measure 784).

The new law (13,506) introduces some relevant changes to the rules through which the Brazilian Central Bank and the Brazilian Securities Commission (CVM) may punish, in the administrative sphere, offences in the financial and capital markets, respectively. Notably, it:

  • establishes a wide list of punishable acts (including new ones);
  • creates new forms of penalty;
  • considerably increases the maximum amounts for fines; and
  • regulates administrative settlement agreements and leniency agreements with the Central Bank and the CVM, as applicable.

The new law also includes changes to the definitions and scope of application of certain financial crimes and wrongdoings, such as insider trading and market manipulation.

The most important innovations in the law are detailed below.

Punitive administrative proceedings within Central Bank

The law introduces a long list which unifies the infractions that the Central Bank may administratively impose. In addition to the existing violations, the new rules include certain administrative infractions that have been considered vague and subjective, such as performing any financial transactions "in disagreement with the principles provided in the legal and regulatory rules governing the activities supervised by the Central Bank". The general mention of principles has raised concern in the market as it allows for wide discretionary interpretation by the authorities.

The most substantial changes made by Law 13,506 relate to the punitive administrative proceedings within the Central Bank, the authority responsible for regulating and supervising the Brazilian financial system.

The law also substantially increases the amounts of the fines that the Central Bank can impose on the institutions under its authority, which will now be limited to the higher of:

  • 0.5% of the institution's revenues for financial services and products in the year preceding the relevant offence; and
  • Rs2 billion (in lieu of the previous Rs250,000 limit).

Any fine established in an amount higher than Rs50 million will be revised by a collegiate body containing at least one officer from the Central Bank. The previous limit was considered extremely low, given the nature of the institutions involved and their typical incomes, and the authorities expect that the new cap may serve as a better deterrent against financial misconducts in future.

In addition to the increased fines and the other existing penalty forms, such as a temporary prohibition on certain individuals acting in managerial positions in financial institutions and a prohibition on the institutions themselves from operating in the financial system, the law also introduces the concept of 'public admonition' to replace the penalty of advertence. While the former penalty resulted in a private notice sent to the institution, public admonitions consist of a public reprimand outlining the details of the illicit conduct, prepared by the authority and published online and in other outlets, at the offender's expense.

The penalties may be cumulated and should be calculated considering:

  • the gains obtained or intended by the offender;
  • the economic capability to comply;
  • the seriousness of the offence; and
  • the actual losses caused to the financial system, the offending institution or third parties.

Moreover, the law introduces the possibility of the Central Bank applying precautionary measures within punitive proceedings (eg, the immediate suspension of directors or officers of the institutions from their management positions), provided that there is strong evidence to support the allegations and the risk of losses in case of delay. This provision has caused some concern within the banking sector as a premature precautionary suspension may:

  • cause significant financial and reputational losses;
  • lead to withdraw of cash and investments and account closures; and
  • have other impacts deriving from loss of confidence, with is an essential element within the banking system.

While the penalties will get stricter, the law allows the Central Bank to enter into settlement agreements with investigated institutions in order to correct any illegal conduct, which is currently impossible. Through these agreements, the accused institution must commit to cease all practices under investigation, correct any ongoing irregularities and indemnify any deriving losses, as well as other case-specific commitments agreed with the authority, in exchange for the suspension or dismissal of the punitive administrative proceedings. This practice is common in administrative proceedings within several government agencies, including the Securities Commission, but has never been adopted by the Central Bank.

The law also establishes rules for appeals against decisions involving penalties. The penalties of public admonition and pecuniary fine should be suspended if the defendant appeals until a final decision from the Council of Appeals of the National Financial System is granted. However, any other form of penalty will have immediate effects, unless the Central Bank agrees to suspend it until a final decision has been reached. The law also prohibits the Council of Appeals from increasing the penalties originally applied by the Central Bank, thereby providing appellants with more legal certainty.

Seeking increased transparency, the law also provides that judgment sessions for administrative proceedings within the Central Bank's collegiate bodies and the Council of Appeals will be open to the public.

Punitive administrative proceedings within CVM

The administrative proceedings held within the CVM relating to public companies and capital markets in general are also generally affected by Law 13,506.

Similar to the changes applied to the Central Bank's proceedings, the law provides stricter penalties which may be cumulated, including a considerable increase in the pecuniary fines that may be applied to companies accused of capital market-related offences. The caps were increased to the higher of:

  • Rs50 million (in lieu of the previous Rs500,000);
  • twice the value of the irregular transaction (in lieu of half);
  • three times the amount of the economic gain obtained or loss avoided (unchanged); or
  • 20% of the total turnover of the company or its economic group, if it is a corporation.

The cap amounts may be tripled in cases of recidivism.

The law also introduces a new form of penalty for companies that are party to CVM punitive proceedings. Offending companies may be prohibited, for up to five years, from entering into agreements with public financial institutions and from participating in bidding processes for acquisitions, sales, construction projects and the tender of public services involving any entity of the state administration or state-owned entities. Some concerns regarding this provision could particularly affect government contractors, such as companies in the construction and infrastructure sector.

Leniency agreements

The introduction of leniency agreements between the Central Bank or the CVM and investigated entities is probably the most innovative measure in the law. This concept has been the topic of extensive debate in Brazil, since leniency agreements involving corruption schemes have played a major role in the investigation of Brazilian companies caught up in the recently unveiled corruption scandals in Brazil.

Entities or individuals that confess to illegal practices may execute leniency agreements (so-called 'administrative agreements during supervision proceeding') with the Central Bank or the CVM, as applicable.

Parties may be exempt from punitive proceedings or incur a one-third to two-third reduction in the applicable penalties where they collaborate fully with the investigation and provide evidence that leads to its successful closure, particularly by identifying other agents involved and obtaining material evidence of the alleged offences.

The leniency agreement will be made public after its validation. However, if a proposed leniency agreement is not accepted by the authorities, it should not be considered a confession or recognition of misconduct nor made public.

If an entity or individual fails to comply with an executed leniency agreement, they will be prohibited from entering into a new one for three years from the date on which the violation was reported by the CVM or Central Bank.

Other provisions

In addition to the changes detailed above, which compose the bulk of Law 13,506, the law includes several other provisions relating to crimes and misconduct within the financial and capital markets. In total, the law amends and changes 19 older laws and decrees.

From a criminal law perspective, the law introduces changes to the scope of application of insider trading rules, to include beneficiaries of second-hand inside information – so-called 'tippees'. Moreover, the rule will apply to members of management that breach their duty of secrecy, even if they do not directly use the information to trade. At present, only individuals who have a duty of secrecy can be prosecuted for insider trading and only if they actually trade. Due to this original limited scope, accusations for insider trading have, to date, been rare in Brazil.

The law also changes the wording of the definition of the crime of 'market manipulation'. While the existing definition is "artificially changing the regular work of the capital markets", the new rule defines it as "the performance of transactions that aim to raise, maintain or lower the rating, price or volume of trading of a security, with the intent of obtaining undue advantage". The practical effects of this new definition are still unclear, as while it may be considered more specific than the existing one, it takes away the artificiality element. This may lead to wider interpretations of what would qualify as market manipulation, since many legitimate transactions may have the effects described in the new definition.

On enactment of the law, the Central Bank and the CVM are expected to issue specific regulations in connection with the new rules in the banking and trading sectors. In any case, due to the punitive character of the changes, the stricter penalties brought by Law 13,506 will apply only to acts committed from November 13 2017 – the date on which the new law became effective.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact Camila Goldberg Cavalcanti at BMA Barbosa Müssnich Aragão by telephone (+55 21 3824 5800) or email ( The BMA Barbosa Müssnich Aragão website can be accessed at