Circular No. 3590 — Provides for the analysis of concentration acts in the National Financial System by the Central Bank of Brazil (Text as given by Circular No. 3,800 of 29/6/2016)

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The Collegiate Board of the Central Bank of Brazil, in a session held on April 24, 2012, based on art. 18, § 2, of Law No. 4,595, of December 31, 1964, and taking into account the provisions of art. 10, item X, subparagraphs “c” and “g”, of the said Law,

RESOLVES:

Art. 1º The following operations involving two or more financial institutions or other institutions authorized to operate by the Central Bank of Brazil shall be analyzed from the point of view of their effects on competition, without prejudice to the examination related to the stability of the financial system:

I – transfer of corporate control;

II – incorporation;

III – merger;

IV – business transfer; and

V – other concentration acts.

§ 1º For the purposes of this Circular, the following definitions apply:

I – concentration act, the operation that leads to an increase in the relative participation of financial institutions or other institutions authorized to operate by the Central Bank of Brazil in market segments in which they operate; and

II – business transfer, the assignment of the structure that generates operations or financial services.

§ 2º The provision in the caput does not apply to operations that involve only institutions of the same conglomerate or to credit assignments that do not involve a business transfer.

Art. 2º For the analysis of the operations referred to in Art. 1º, the institutions involved must designate one of them to provide the following information and documents to the Department of Organization of the Financial System (Deorf):

I – indication of the product and financial services markets and the client profile of each institution involved, as well as their respective geographic areas of operation, demonstrating, through comparative tables, the relative participations of each institution before and after the intended operation;

II – copy of the instruments signed by the institutions involved related to the operation;

III – detailed description of the nature, characteristics and strategic objectives of the operation;

IV – reasoned description of the economic and financial performance of the institutions involved, in their respective segments of the financial market in which they operate, for the last three years, also presenting:

a) the organizational and operational structures;

b) the products and services they provide and the technology used; and

c) the client profile;

V – micro‑economic analysis of the operation, identifying:

a) the geographic market and the relevant product or financial service markets considered in the operation;

b) the direct competitors in those markets and their respective relative participations;

c) possible barriers to the continued presence of those competitors in the market and to the entry of new participants; and

d) the efficiency gains expected from the concentration act that may result in benefits to users of products and financial services, specifying those derived from economies of scale, economies of scope, introduction of new technologies, generation of positive externalities and synergies, with quantification of the respective values;

VI – macro‑economic analysis of the operation, describing the economic scenario and expectations in the short, medium and long term used as parameters for the operation; and

VII – factors motivating the operation, describing:

a) the adherence of the operation to the strategic objectives defined in the business plans of the acquiring institution, in the case of transfer of control or incorporation, or of the other institutions involved, in other cases;

b) the characteristics of the operation that add value to the acquiring institution, in the case of transfer of control or incorporation, or to the institutions involved, in other cases; and

c) the impacts of the operation on the organizational and operational structures of the acquiring institution, in the case of transfer of control or incorporation, or of the institutions involved, in other cases, and its impact on the products and services offered to clients, indicating any projected measures resulting from the operation, including restructuring plans and relocation of branches.

§ 1º In the hypothesis of a transfer of control or incorporation of an institution referred to in Art. 1º, the following additional information must be provided to Deorf:

I – economic and financial valuation of the acquired or incorporated institution, substantiating the price paid, the criteria for fixing the value of assets or intangible rights related to the operation, as well as any price adjustments resulting from due diligence, when applicable; and

II – price analysis based on the market multiples method, relating, at a minimum, the values of Reference Equity (PR), credit operations, branch network and clientele.

§ 2º Quantitative information must correspond to the same reference date.

§ 3º The information, including calculations and projections, must be accompanied by studies and supporting documents containing the methodology used for the estimates, as well as references to their sources.

§ 4º The institution designated in the terms of the caput is responsible for providing the documents and information concerning all legal entities involved in the operations, including those that do not require authorization from the Central Bank of Brazil to operate.

Art. 3º Deorf may request other documents and information, including from financial system institutions that, although not involved in the operation, are relevant for the analysis of the concentration act.

Art. 4º The analysis of the concentration acts covered by this Circular shall follow the provisions of the Guide for Analysis of Concentration Acts (Guide), to be published by Deorf.

Single paragraph. Without prejudice to the provisions of the Guide, the analysis shall include the following stages, as necessary for the appraisal of the concentration act:

I – definition of the relevant market of the participating institutions;

II – determination of the market shares under control of the participating institutions;

III – analysis of the probability of exercise of market power by the institution or institutions resulting from the intended operation;

IV – analysis of the economic efficiencies that may be generated by the act; and

V – assessment of the cost‑benefit relationship of the concentration act.

Art. 5º Upon approval of the concentration acts, the Central Bank of Brazil may establish restrictions aimed at mitigating effects that could reduce the welfare of users of products or financial services or economic efficiency.

§ 1º For the purpose of complying with the caput, the Central Bank of Brazil may require the institutions involved in the concentration act to formalize a Concentration Control Agreement (Agreement), in which commitments related to the sharing of efficiency gains resulting from the act will be stipulated.

§ 2º Non‑compliance with the commitments formalized in the Agreement shall subject the institutions involved and their administrators to applicable administrative sanctions.

Art. 6º Deorf is authorized to establish specific procedures for the provision of information by credit cooperatives for the examination of concentration acts in this segment.

Art. 7º This Circular enters into force on the date of its publication.

Luiz Awazu Pereira da Silva  Anthero de Moraes Meirelles Director of System Regulation  Director of System Organization, Financial and Rural Credit Operations, substitute *