Circular No. 3,810 — Amends Circular No. 3,648 of March 4, 2013, regarding minimum requirements for calculating the capital requirement portion for credit risk exposures under internal rating-based approaches (IRB)

CIRCULAR NO. 3,810, OF AUGUST 25, 2016

Amends Circular No. 3,648, of March 4, 2013, which establishes the minimum requirements for the calculation of the portion related to credit risk exposures subject to the calculation of the capital requirement through internal credit risk classification systems (IRB approaches) (RWACIRB), of which Resolution No. 4,193, of March 1, 2013, treats.

The Collegiate Board of the Central Bank of Brazil, in a session held on August 10, 2016, based on the provisions of Arts. 9, 10, item IX, and 11, item VII, of Law No. 4,595, of December 31, 1964, and Arts. 3, § 2, and 15 of Resolution No. 4,193, of March 1, 2013,

R E S O L V E:

Art. 1 Arts. 4, 7, 9, 39, 40, 62, 69, 74, 80, 83, 87, 88, 89, 91, 100, 101, 106, 107, 118, 139 and 162 of Circular No. 3,648, of March 4, 2013, shall enter into force with the following wording:

“Art. 4 ............................................................................................................
§ 1 ..................................................................................................................
..........................................................................................................................
III - resulting from interdependent operations and other operations carried out with institutions that are part of the prudential conglomerate; IV - relating to the equity elements deducted in the calculation of Reference Equity (RE), as defined in Arts. 5 to 7 of Resolution No. 4,192, of March 1, 2013, gross of deferred tax liabilities associated with them subtracted in the calculation of RE; V - relating to the risk of the asset object resulting from investments in shares and commodities (commodities), if covered by the portion related to exposures to market risk subject to the calculation of the capital requirement through standardized approach (RWAMPAD) or by the portion related to exposures to market risk subject to the calculation of the capital requirement through internal model authorized by the Central Bank of Brazil (RWAMINT) of the RWA amount, of which Resolution No. 4,193, of March 1, 2013, treats;
..........................................................................................................................
XIII - relating to exposures resulting from operations to be settled in clearing systems or clearing and settlement service providers, in which an entity acts as a central counterparty; and

Circular No. 3,810, of August 25, 2016 Page 2 of 6

XIV - relating to linked active operations, carried out according to the provisions of Resolution No. 2,921, of January 17, 2002. ...............................................................................................................” (NR)

“Art. 7 ............................................................................................................
..........................................................................................................................
III - ...................................................................................................................
a) exposures to individuals and to legal entities with gross annual revenue below R$15,000,000.00 (fifteen million reais), managed in a non-individualized manner through homogeneous risk groups, which take the form of financial instruments typically aimed at retail; and ...............................................................................................................” (NR)

“Art. 9 ............................................................................................................
I - “exposures to individuals not classified in the “retail” category and to small and medium-sized enterprises (SME)”, comprising exposures to private legal entities that are part of an economic group with consolidated gross annual revenue below R$60,000,000.00 (sixty million reais); ...............................................................................................................” (NR)

“Art. 39. For exposures classified in the “corporate”, “sovereign entities” and “financial institutions” categories, the K factor referred to in item II, of Art. 34, must correspond to the result of the following formula:

K = {LGD × N [
N−1(PD)+√R×N−1(0,999)
√1−R
] − PD × LGD} ×
1+(M−2,5)×b
1−1,5×b
, where:
..........................................................................................................................
§ 2 ..................................................................................................................
I - S = gross annual revenue of the economic group to which the legal entity belongs, in millions of reais, limited to a minimum value of 15 (fifteen whole) and a maximum value of 60 (sixty whole), with the value of S equal to 15 (fifteen whole) for exposures to individuals and to private legal entities that are part of an economic group with consolidated gross annual revenue below R$15,000,000.00 (fifteen million reais); and

Circular No. 3,810, of August 25, 2016 Page 3 of 6

...............................................................................................................” (NR)

“Art. 40. ..........................................................................................................
..........................................................................................................................
§ 5 ..................................................................................................................
I - F = factor mentioned in Art. 34, item IV; and ...............................................................................................................” (NR)

“Art. 62. Surety guarantees and credit derivatives associated with receivables must receive the treatment established in Arts. 87 to 107. ...............................................................................................................” (NR)

“Art. 69. The PD parameter may be adjusted based on the existence of surety guarantees, according to the criteria provided for in Arts. 87 to 107.” (NR)

“Art. 74. ..........................................................................................................
I - 85% (eighty-five percent), for exposures to individuals and companies with revenue less than or equal to R$15,000,000.00 (fifteen million reais) not classified in the “retail” category; II - 70% (seventy percent), for exposures to companies with revenue greater than or equal to R$60,000,000.00 (sixty million reais); III - the result of the following formula, for exposures to companies with revenue greater than R$15,000,000.00 (fifteen million reais) and less than R$60,000,000.00 (sixty million reais):

LGD = 0,70 + 0,15 x [1 - (S - 15) / 45], where S is equal to the value of the gross annual revenue of the legal entity in millions of reais, limited to a minimum of 15 (fifteen whole) and to a maximum of 60 (sixty whole); and ...............................................................................................................” (NR)

“Art. 80. ..........................................................................................................
..........................................................................................................................
§ 3 ..................................................................................................................
I - the reference exposure used to determine the liquidation value of the credit derivative, in the event of default, must be the same exposure subject to the credit risk mitigation instrument, except when the requirements provided for in Art. 24, § 1, of Circular No. 3,809, of August 25, 2016, are met;

Circular No. 3,810, of August 25, 2016 Page 4 of 6

II - the exposure used to determine the default of the credit derivative must be identical to the exposure subject to the instrument of credit risk mitigation, except in the case provided for in Art. 24, § 2, of Circular No. 3,809, of 2016; ...............................................................................................................” (NR)

“Art. 83. ..........................................................................................................
..........................................................................................................................
III - those provided for in items I to III of Art. 11 of Circular No. 3,644, of 2013, for surety, guarantee, co-obligation and other surety guarantees of the fulfillment of financial obligations of third parties. § 1 To use the FCC of 0% (zero percent), the institution must demonstrate the ability to actively monitor the borrower's financial conditions and the possibility of immediate cancellation of the credit limit offered, in the event of evident deterioration of these conditions, for limits cancellable unconditionally and unilaterally. § 2 The exposure value related to the provision of guarantee, as provided for in item III, related to an operation not recorded in the Balance Sheet must correspond to the value of the guarantee provided, minus any portion already honored, multiplied by the lowest of the FCCs applicable to the guarantee or to the guaranteed operation.” (NR)

“Art. 87. ..........................................................................................................
..........................................................................................................................
§ 2 The use of the option provided for in the main text is conditioned to compliance with the requirements established in Art. 2, § 1, of Circular No. 3,809, of 2016. § 3 The credit risk mitigation instrument must be associated with a specific operation, except in the cases provided for in Art. 2, § 2, of Circular No. 3,809, of 2016. ...............................................................................................................” (NR)

“Art. 88. Financial collateral is considered those recognized in Art. 4 of Circular No. 3,809, of 2016.” (NR)

“Art. 89. In the case of using financial collateral as an instrument of credit risk mitigation, the exposure value, considering the mitigation of credit risk, must be calculated according to the provisions of Art. 9 of Circular No. 3,809, of 2016.
..........................................................................................................................

Circular No. 3,810, of August 25, 2016 Page 5 of 6

§ 12. For the purposes of the provision in the main text, the E parameter, defined in Art. 9, item II, of Circular No. 3,809, of 2016, must correspond to the current value of the exposure, not considering the mitigation of credit risk.” (NR)

“Art. 91. For exposures related to repurchase operations, the application of the treatment for the Comprehensive Approach provided for in Art. 10 of Circular No. 3,809, of 2016, is optional, provided that all provisions established therein are met.” (NR)

“Art. 100. Bilateral agreements for the clearing and settlement of obligations are eligible for use as credit risk mitigation instruments, provided they meet the requirements established in Art. 13 of Circular No. 3,809, of 2016.
§ 1 ..................................................................................................................
I - E* = effective exposure value, calculated based on the provisions of Arts.
14, 15 and 16 of Circular No. 3,809, of 2016, except for the calculation of the E parameter, which must observe the provisions of item II of this paragraph; ...............................................................................................................” (NR)

“Art. 101. Surety guarantees and credit derivatives are eligible as credit risk mitigation instruments, provided they meet the requirements established in Arts. 19, 22, 23 and 24 of Circular No. 3,809, of 2016, as applicable. Sole paragraph. The same treatment provided for in Arts. 105 to 107 applied to surety guarantees must be applied to the guarantees listed in Arts. 27, 28, 29 and 30 of Circular No. 3,809, of 2016.” (NR)

“Art. 106. For the credit risk mitigation instruments referred to in Art. 101, in the case where the underlying obligation is denominated in currency different from the reference currency of the instrument used, the value of the instrument must be adjusted according to Art. 20 of Circular No. 3,809, of 2016.” (NR)

“Art. 107. The provisions contained in Arts. 25 and 26 of Circular No. 3,809, of 2016, must be applied to the effective maturity dates of the credit risk mitigation instrument and the exposure subject to mitigation. § 4 The provision in the main text does not apply when the credit risk mitigation instrument consists of financial receivables with an effective term less than 1 (one) year, as defined in Art. 96, whose financial resources remain under the custody of the institution until there is the replacement of new receivables or the settlement of the credit.” (NR)

Circular No. 3,810, of August 25, 2016 Page 6 of 6

“Art. 118. In a synthetic securitization process, the recognition of credit risk mitigation instruments is permitted according to the provisions of Arts. 87 to 107 for the respective underlying assets, provided that the following requirements are met:
..........................................................................................................................
Sole paragraph. In the event of maturity mismatch in synthetic securitization process, the originating counterparty must observe the provisions of Art. 107.” (NR)

“Art. 139. The use of the SF or RBA approaches implies the treatment of credit risk mitigation instruments according to the provisions of Arts. 87 to 107. ...............................................................................................................” (NR)

“Art. 162. ........................................................................................................
..........................................................................................................................
§ 3 ..................................................................................................................
I - ......................................................................................................................
..........................................................................................................................
c) prior use, for a minimum period of 3 (three) years, of the specified IRB approach for risk classification and estimation of risk parameters, according to the provisions of Art. 159 for at least 60% (sixty percent) of the exposures within the scope of application weighted by their respective RPs; and ...............................................................................................................” (NR)

Art. 2 This Circular enters into force on January 1, 2017.

Art. 3 Arts. 87, § 2, items I to IX, and § 3, items I and II, Art.
88, items I to VIII, Art. 89, items I to VI of the main text and §§ 1, 2, 4, 5, 6 and 10, Art. 91, items I to VI of the main text and sole paragraph, Art. 100, items I to V of the main text and § 1, items III to VII, Art. 101, items I to III, Arts. 102 to 104, Art. 106, items I and II of the main text and the sole paragraph, Art. 107, §§ 1, 2 and 3, and Art. 108 of Circular No. 3,648, of March 4, 2013, are repealed.

Otávio Ribeiro Damaso
Director of Regulation

This text does not replace the published in the DOU of 8/26/2016, Section 1, p. 24, and in Sisbacen.