CMN Resolution No. 4,895: Updates and Consolidates Rules for Supervision of Rural Credit Operations, Disclassification, and Reclassification

Resolution No. 4,895

The current text of the MCR is available at the following electronic address: www3.bcb.gov.br/mcr.

CMN RESOLUTION NO. 4,895, OF FEBRUARY 26, 2021

Updates and consolidates the rules applicable to the supervision of rural credit operations by financial institutions and consolidates the rules on disclassification and reclassification.

The Central Bank of Brazil, in accordance with Article 9 of Law No. 4,595, of December 31, 1964, makes public that the National Monetary Council, in a session held on February 25, 2021, considering the provisions of Article 4, item VI, of Law No. 4,595, of 1964, Articles 4, 10, item III, and 14 of Law No. 4,829, of November 5, 1965, Article 50 of Law No. 8,171, of January 17, 1991, and Article 5 of Decree No. 10,139, of November 28, 2019,

R E S O L V E S:

Article 1. Sections 7 (Monitoring and Supervision) and 8 (Disclassification and Reclassification) of Chapter 2 (Basic Conditions) of the Rural Credit Manual (MCR) are consolidated, as per the annexes to this Resolution.

Article 2. The following are revoked:

I - Article 2 and the annex of Resolution No. 4,427, of June 25, 2015;

II - Resolution No. 4,641, of February 22, 2018;

III - Resolution No. 4,736, of July 29, 2019;

IV - Article 2 of Resolution No. 4,810, of April 30, 2020;

V - Article 2 of Resolution No. 4,829, of June 18, 2020;

VI - Article 2 of CMN Resolution No. 4,843, of July 30, 2020; and

VII - CMN Resolution No. 4,864, of October 23, 2020.

Sole Paragraph. Due to the revocations promoted by Article 2, Sections 9 (Transitional Norms) and 10 (Disclassification and Reclassification) of Chapter 2 are excluded from the MCR.

Article 3. This Resolution enters into force on July 1, 2021.

Roberto de Oliveira Campos Neto
President of the Central Bank of Brazil

------------------------------------------------------------------ TITLE:
RURAL CREDIT
CHAPTER:
Basic Conditions - 2
SECTION:
Monitoring and Supervision - 7 (*)

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1 - The financial institution is responsible for the monitoring and supervision of rural credit operations, with the obligation to define the procedures applied, observing:

a) the requirements established in this Section;

b) the effectiveness of the adopted procedure in view of the characteristics of the financed undertaking; and

c) the application of consistent, verifiable criteria and methods subject to evaluation by the Central Bank of Brazil.

2 - The monitoring and supervision of rural credit operations aim to:

a) evaluate, based on the applicable rural credit regulation and the financing contract:

I - the adequacy of the undertaking's management by the borrower;

II - the status of the guarantees linked to the rural credit operation;

III - the compatibility of the undertaking or the borrower with the program or credit line subject to financing;

b) identify operations with indications of irregularities and prevent possible deviations of purpose in the contracting and management of financed undertakings, as defined in the applicable rural credit regulation, through practices such as:

I - mapping the composition of the rural credit portfolio;

II - cross-referencing information and using risk indicators;

III - generating risk alerts for irregularities, starting from credit analysis;

IV - proposing directed samples to the financial institution's supervision team;

c) recommend changes to the financial institution's internal processes, including controls in contracting and supervision actions.

3 - To comply with the provisions of item 2, the following analysis methods are permitted, individually or combined in the same operation:

a) remote sensing, through the acquisition and analysis of data from photographic, opto-electronic, or radar systems, capable of detecting and registering, in the form of images, the flow of electromagnetic radiation reflected or emitted by distant objects;

b) documentary, consisting of the analysis of supporting documentation;

c) on-site, consisting of the examination of the undertaking at the location where the financed activity takes place or where the financed asset or product is located.

4 - In applying the remote sensing method referred to in item 3, letter "a", the following specific conditions must be observed:

a) the images used must have sufficient quality, determined by spatial, temporal, spectral, and radiometric resolution parameters, to extract information regarding the undertaking's management by the borrower, such as:

I - application of credit in planted area;

II - developed crop; and

III - vegetative development of the cultivation;

b) the documentation related to the monitoring or supervision process must contain the record of the following information:

I - image satellite and sensor used, date of images, spatial resolution, radiometric resolution, and bands used;

II - methodology used to perform pre-processing and image processing;

III - explanations regarding how the images were used to monitor and supervise the operations;

c) image capture must be carried out in accordance with the purpose of the operations, observing the provisions of item 10.

5 - The structure responsible for the activities indicated in item 2 must have:

a) policies and strategies for monitoring and supervision of rural credit operations, clearly documented;

b) methodology for monitoring and supervision actions;

c) supervision management, with adequate reporting of actions performed and continuous evaluation of the effectiveness of risk mitigation strategies used;

d) systematic control of credit contracting, through the implementation of routines and procedures capable of identifying operations with indications of irregularities and establishing indicators of credit deviation.

6 - In supervision actions involving sampling, the sampling process must observe statistical criteria, according to a system established by the financial institution itself or based on technical norms or recommendations of federal control agencies.

7 - In its monitoring and supervision work, the financial institution may use, complementarily, other external sources of information available.

8 - Without prejudice to full responsibility for compliance with the provisions of this Section and other rural credit regulations, the financial institution may hire specialized individuals to execute its monitoring and supervision work.

9 - It is prohibited to exercise monitoring and supervision activities:

a) by an individual or legal entity contracted directly by the borrower to provide technical assistance to the undertaking;

b) by a company in which the borrower participates directly or indirectly.

10 - Supervision actions must be carried out in accordance with the purpose of the operations, on the following occasions:

a) agricultural funding: before the expected harvest season;

b) livestock funding: at least once during the operation, at a time when it is possible to verify the correct application of resources;

c) marketing: during the operation;

d) industrialization: during the operation;

e) investment for:

I - construction, renovation, or expansion of improvements: at least once until the end of the execution schedule provided in the project, observing the need to verify the complete completion of works and facilities;

II - acquisition of machinery, equipment, implements, vehicles, tractors, harvesters, vessels, aircraft, and equipment used in crop measurement, all identified by factory number, when applicable: within 60 (sixty) days of credit release, observing that, in the case of using the method referred to in item 3, letter "b", the borrower must be required to present the acquisition invoice with the discrimination of the financed asset, the buyer, and the identification of the financial institution;

f) serving cooperative members, in the supply of inputs modality: after the registration of the cooperative member list in the Rural Credit and Proagro Operations System (Sicor) and up to 60 (sixty) days before the operation's maturity;

g) in other financings: within 120 (one hundred and twenty) days after each release, to prove the realization of works, services, or acquisitions.

11 - The financial institution must evaluate, based on the conclusions and recommendations of monitoring and supervision reports, the additional measures necessary to adapt the undertaking in view of the contracted credit.

12 - The borrower may be held responsible for the reimbursement of expenses incurred in the case of supervision:

a) frustrated due to their fault;

b) extraordinary, carried out due to irregularity in their conduct.

13 - It is up to the financial institution to decide on the disclassification and/or reclassification of operations according to specific regulation established in this Manual.

14 - The Central Bank of Brazil, in its monitoring and supervision activities of financial institutions, may determine the disclassification and/or reclassification of rural credit operations.

15 - In the event of the finding of criminal offenses or tax frauds, the financial institution must communicate the facts to the Public Ministry or tax authorities, forwarding, whenever possible, the supporting documents of the irregularities found, without prejudice to the observance of Complementary Law No. 105, of January 10, 2001, when applicable.

16 - In the case described in item 15, the financial institution must keep archived and available to the Central Bank of Brazil the communications made, for the period corresponding to the statute of limitations of the punitive claim.

17 - Financial institutions must keep the documentation generated in the supervision and monitoring process available to the Central Bank of Brazil, observing the legal and regulatory norms regarding the custody and conservation of documents related to rural credit operations.

18 - The Central Bank of Brazil is entitled to:

a) supervise rural credit operations carried out by financial institutions, including with borrowers, and the credit instrument must contain an explicit clause to this effect;

b) determine that financial institutions perform supervision on any rural credit operations, without burden to the Autarchy;

c) request the designation of a financial institution's supervisor to perform inspections on the rural property, jointly with representatives of the Autarchy and without burden to it; and

d) determine the substitution of the supervision sample by another considered adequate, when the inconsistency of the sampling method employed is verified.

------------------------------------------------------------------ TITLE:
RURAL CREDIT
CHAPTER:
Basic Conditions - 2
SECTION:
Disclassification and Reclassification - 8 (*)

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1 - The disclassification and reclassification of a rural credit operation must be adopted by the financial institution in the event of finding an irregularity, through the institution's own supervision action or by determination of the Central Bank of Brazil, according to procedures described in this Section.

2 - The operation must be classified as disqualified, totally or partially, in which an irregularity characterizing a deviation from the objectives of rural credit is found, represented by one or more of the following occurrences:

a) application of resources in an activity different from those provided in the rural credit regulation;

b) obtaining one or more financings for application in an undertaking or budget item already financed;

c) obtaining credit through a budget value higher than the normal or market cost of the undertaking;

d) obtaining credit through the interposition of other borrowers, including related parties;

e) obtaining credit for application in an undertaking located in an area whose use is prohibited by the legislation or regulation applicable to rural credit;

f) obtaining credit by a natural or legal person not classified as a beneficiary of rural credit or legally barred from accessing financing;

g) obtaining credit for:

I - financing the payment of debts;

II - enabling the recovery of invested capital;

III - favoring the speculative retention of assets;

IV - anticipating the realization of presumable profits;

h) obtaining credit above regulatory limits through false documents or declarations;

i) unproven application of resources;

j) any other occurrences that constitute a deviation from the objectives of rural credit.

3 - The disclassification of the operation consists of the adoption of the following measures by the financial institution, within 60 (sixty) days from the date it became aware of the fact potentially characterizable as an irregularity, without prejudice to the observance of other measures provided in current legislation:

a) transfer of the balance of the "ongoing" operation from the Rural Financings (1.6.3.00.00-0) account of the Accounting Plan of Institutions of the National Financial System (Cosif) to another appropriate one and adoption of other adjustments in income, subsidies, provisions, or any other accounts affected;

b) adjustment of the operation's registration in the Rural Credit and Proagro Operations System (Sicor);

c) in cases where the operation is subject to economic subsidy and/or fiscal benefit, compliance with specific provisions of the legislation applicable to these matters;

d) in the case of operations carried out within the scope of the National Program for Strengthening Family Agriculture (Pronaf), communication of the occurrence to the ministry responsible for the agricultural area, with a copy to the Central Bank of Brazil.

4 - The operation must be reclassified, totally or partially, in which an irregularity in the application of resources is found, but which does not characterize a deviation from the objectives of rural credit, represented by one or more of the following occurrences:

a) obtaining credit above regulatory limits, resulting from operational error;

b) obtaining credit incompatible with the characteristics of the rural credit beneficiary;

c) execution of an undertaking incompatible with the program or credit line accessed;

d) application in an undertaking different from that provided in the budget, plan, project, or credit instrument;

e) any other irregularity that does not fall under the cases provided in the preceding letters or those subject to disclassification.

5 - The reclassification of the operation consists of the adoption of the following measures by the financial institution, within 60 (sixty) days from the date it became aware of the fact potentially characterizable as an irregularity, without prejudice to the observance of other measures provided in current regulation:

a) transfer of the balance of the "ongoing" operation to the appropriate titles or subtitles of the Rural Financings (1.6.3.00.00-0) account of Cosif;

b) adjustment of the operation's registration in Sicor;

c) in cases where the operation is subject to economic subsidy, compliance with specific provisions of the legislation applicable to this matter;

d) in the case of operations carried out within the scope of Pronaf, communication of the occurrence to the ministry responsible for the agricultural area, with a copy to the Central Bank of Brazil.

6 - The measures necessary as a result of the disclassification or reclassification of the operation will be adopted proportionally to the amount of credit applied irregularly, without prejudice to the adoption of other sanctions and penalties against the responsible party(ies) for the irregular act, provided in the legislation and this Manual.

7 - During the period stipulated in items 3 and 5, the financial institution must carry out all necessary diligence to characterize the irregularity.

8 - The settlement of the irregular operation, either by the lapse of the contracted repayment period or in advance, does not exempt the financial institution from effecting its disclassification or reclassification, adopting the measures provided in items 3 and 5, as applicable.

9 - Regarding the requirements for directed rural credit, the following conditions must be observed:

a) in the case of an irregularity originally found by the financial institution itself, for the purpose of fulfilling directions and sub-directions provided in this Manual, it is not necessary to exclude or reallocate balances related to the period prior to the disclassification or reclassification of the operation;

b) in the case of an irregularity found by the Central Bank of Brazil in its supervision activities, the Autarchy will define which procedures should be adopted in each case, observing the parameters established in items 2 to 6 of this Section.

10 - In the event of finding an irregularity with indications of criminal offenses or tax frauds, the financial institution must observe the specific determinations on the subject contained in the Section of this Chapter that deals with Monitoring and Supervision.

11 - Financial institutions must prepare, at the end of each civil year, a report containing a summary of the irregularities detected and the corrective measures adopted, which must be sent to the Central Bank of Brazil by March 31 of the subsequent civil year.