CMN Resolution No. 4,943 of September 15, 2021

CMN RESOLUTION NO. 4,943, OF SEPTEMBER 15, 2021

Amends Resolution No. 4,557, of February 23, 2017, which provides for the risk management structure, the capital management structure, and the information disclosure policy.

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 August 26, 2021, based on Articles 4, item VIII, of the aforementioned Law, 2, item VI, and 9 of Law No. 4,728, of July 14, 1965, 20, § 1, of Law No. 4,864, of November 29, 1965, 7 and 23, item “a”, of Law No. 6,099, of September 12, 1974, 1, item II, of Law No. 10,194, of February 14, 2001, 6 of Decree-Law No. 759, of August 12, 1969, and 1, § 1, of Complementary Law No. 130, of April 17, 2009,

RESOLVES:

Art. 1. Resolution No. 4,557, of February 23, 2017, shall enter into force with the following amendments:

“Art. 5. ............................................................................................................

§ 1. .................................................................................................................

I - the risk levels that the institution is willing to assume, in accordance with Article 6, main text, discriminated by type of risk and, when applicable, by different time horizons;

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“Art. 6. ............................................................................................................

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VI - social risk, as defined in Article 38-A;

VII - environmental risk, as defined in Article 38-B;

VIII - climate risk, as defined in Article 38-C; and

IX - other relevant risks, according to criteria defined by the institution, including those not covered in the calculation of risk-weighted assets (RWA), as provided in Resolution No. 4,193 of March 1, 2013.

§ 1. Risk management must be integrated, enabling the identification, measurement, assessment, monitoring, reporting, control, and mitigation of adverse effects resulting from interactions between the risks mentioned in the main text.

§ 2. For the purposes of the provision in § 1, interactions between the risks mentioned in the main text and the risk of use of the institution's products and services in the practice of money laundering or terrorist financing must also be considered, in accordance with regulations issued by the Central Bank of Brazil.” (NR)

“Art. 7. ............................................................................................................

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§ 4. The policies referred to in the main text, item I, must be compatible with the other policies established by the institution, including the Social, Environmental, and Climate Responsibility Policy (PRSAC) and the compliance policy.” (NR)

“Art. 34. ..........................................................................................................

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§ 2. The operational risk database must include operational losses associated with credit risk, market risk, social risk, environmental risk, and climate risk, regardless of whether they also appear in other databases.

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“Section VIII

Of the management of social risk, environmental risk, and climate risk

Art. 38-A. For the purposes of this Resolution, social risk is defined as the possibility of occurrence of losses for the institution caused by events associated with the violation of fundamental rights and guarantees or acts harmful to common interests.

§ 1. For the purposes of this Resolution, common interest is that associated with a group of people legally or factually linked by the same cause or circumstance, when not related to the definition of environmental risk, transition climate risk, or physical climate risk.

§ 2. Examples of social risk events are the occurrence or, as applicable, indications of the occurrence of:

I - acts of harassment, discrimination, or prejudice based on personal attributes, such as ethnicity, race, color, socioeconomic status, family situation, nationality, age, sex, sexual orientation, gender identity, religion, belief, disability, genetic or health condition, and ideological or political positioning;

II - practices related to work in conditions analogous to slavery;

III - irregular, illegal, or criminal exploitation of child labor;

IV - practices related to human trafficking, sexual exploitation, or criminal profit from prostitution;

V - non-compliance with social security or labor legislation, including legislation regarding health and workplace safety, without prejudice to the provisions of Article 32;

VI - irregular, illegal, or criminal acts that negatively impact indigenous and quilombola peoples or traditional communities, including the invasion or irregular, illegal, or criminal exploitation of their lands;

VII - acts harmful to public heritage, historical heritage, cultural heritage, or urban order;

VIII - irregular, illegal, or criminal practices associated with food or products potentially harmful to society, subject to specific legislation or regulation, including pesticides, substances capable of causing dependency, nuclear or radioactive materials, firearms, and ammunition;

IX - irregular, illegal, or criminal exploitation of natural resources, in relation to the violation of rights or fundamental guarantees or acts harmful to common interests, including water, forest, energy, and mineral resources, including, when applicable, the installation and dismantling of respective facilities;

X - irregular, illegal, or criminal treatment of personal data, without prejudice to the provisions of Article 32;

XI - environmental disaster resulting from human intervention, in relation to the violation of rights or fundamental guarantees or acts harmful to common interests, including dam ruptures, nuclear accidents, or spills of chemicals or waste into waters;

XII - changes in legislation, regulation, or the actions of government bodies, associated with rights or fundamental guarantees or common interests, that negatively impact the institution; and

XIII - acts or activities that, despite being regular, legal, and non-criminal, negatively impact the institution's reputation, as they are considered harmful to common interests.

Art. 38-B. For the purposes of this Resolution, environmental risk is defined as the possibility of occurrence of losses for the institution caused by events associated with environmental degradation, including excessive use of natural resources.

Sole paragraph. Examples of environmental risk events are the occurrence or, as applicable, indications of the occurrence of:

I - irregular, illegal, or criminal conduct or activity against fauna or flora, including deforestation, causing fires in woods or forests, degradation of biomes or biodiversity, and practices associated with trafficking, cruelty, abuse, or mistreatment of animals;

II - irregular, illegal, or criminal pollution of air, water, or soil;

III - irregular, illegal, or criminal exploitation of natural resources, in relation to environmental degradation, including water, forest, energy, and mineral resources, including, when applicable, the installation and dismantling of respective facilities;

IV - non-compliance with environmental licensing conditions;

V - environmental disaster resulting from human intervention, in relation to environmental degradation, including dam ruptures, nuclear accidents, or spills of chemicals or waste into soil or waters;

VI - changes in legislation, regulation, or the actions of government bodies, due to environmental degradation, that negatively impact the institution; and

VII - acts or activities that, despite being regular, legal, and non-criminal, negatively impact the institution's reputation, due to environmental degradation.

Art. 38-C. For the purposes of this Resolution, climate risk is defined, in its aspects of transition risk and physical risk, as:

I - transition climate risk: possibility of occurrence of losses for the institution caused by events associated with the transition process to a low-carbon economy, in which greenhouse gas emissions are reduced or compensated and natural mechanisms for capturing these gases are preserved; and

II - physical climate risk: possibility of occurrence of losses for the institution caused by events associated with frequent and severe weather events or long-term environmental changes, which may be related to changes in climate patterns.

Sole paragraph. Examples of climate risk events are:

I - within the scope of transition climate risk:

a) changes in legislation, regulation, or the actions of government bodies, associated with the transition to a low-carbon economy, that negatively impact the institution;

b) technological innovation associated with the transition to a low-carbon economy that negatively impacts the institution;

c) changes in the supply or demand for products and services, associated with the transition to a low-carbon economy, that negatively impact the institution; and

d) unfavorable perception by customers, the financial market, or society in general that negatively impacts the institution's reputation regarding its degree of contribution to the transition to a low-carbon economy; and

II - within the scope of physical climate risk:

a) extreme weather conditions, including drought, flooding, storm, cyclone, frost, and forest fire; and

b) permanent environmental changes, including rising sea levels, scarcity of natural resources, desertification, and changes in rainfall or temperature patterns.

Art. 38-D. The management structure referred to in Article 7 must additionally provide, for social risk, environmental risk, and climate risk:

I - mechanisms for the identification and monitoring of social, environmental, and climate risks incurred by the institution due to its products, services, activities, or processes and activities performed by:

a) institution counterparties, as defined in Article 21, § 1, item I;

b) entities controlled by the institution, according to the criteria established in § 2 of this article; and

c) suppliers and third-party service providers of the institution, when relevant, based on criteria established by it;

II - identification, assessment, classification, and measurement of social, environmental, and climate risk based on consistent and verifiable criteria and information, including publicly accessible information;

III - recording of relevant data for management, including, when available, data regarding losses incurred by the institution, discriminated, as applicable, into social, environmental, or climate risk, with respective detailing of values, nature of the event, geographic region, defined based on clear and verifiable criteria, and economic sector associated with the exposure;

IV - timely identification of political, legal, regulatory, technological, or market changes, including significant changes in consumption preferences, that may significantly impact the social, environmental, or climate risk incurred by the institution, as well as procedures for mitigating these impacts;

V - monitoring of concentrations of exposures to economic sectors or geographic regions, defined based on consistent and verifiable criteria, most susceptible to suffering or causing social, environmental, or climate damage, and, when appropriate, establishment of limits for these exposures;

VI - timely identification of negative perception by customers, the financial market, and society in general regarding the institution's reputation, when this perception may significantly impact the social, environmental, and climate risk incurred by it; and

VII - performance of scenario analysis, within the stress testing program referred to in Article 7, item VII, which consider hypotheses of changes in climate patterns and transition to a low-carbon economy.

§ 1. When the hypothesis of occurrence of a social, environmental, or climate risk event implies the possibility of loss related to another risk mentioned in Article 6, main text, risk management and compliance with minimum prudential requirements, when applicable, must be observed for each of the risks involved.

§ 2. For the purposes of the provision in the main text, item I, item “b”, the institution's control relationship over an entity occurs when at least one of the following criteria is met:

I - the institution holds more than 50% (fifty percent) of the voting capital of the entity;

II - a voting agreement ensures the institution's predominance in the entity's social deliberations;

III - the institution holds the power to elect or dismiss the majority of the entity's administrators; or

IV - the institution holds predominance in the entity's operational management decisions.

§ 3. For the purposes of the provision in the main text, item III, the establishment of exclusive databases is not required, provided that the respective information can be extracted for the management of social, environmental, and climate risk.

Art. 38-E. The treatment of interactions between social, environmental, and climate risk, within the integrated management referred to in this Resolution, and between these and other risks incurred by the institution must include:

I - criteria, clearly documented and verifiable, for identifying social, environmental, and climate risk as a significant source of the risks mentioned in Article 6, main text;

II - mechanisms for considering aspects related to social, environmental, and climate risk in granting, classifying, and monitoring operations subject to credit risk, as defined in Article 21, including:

a) due diligence in identifying the counterparty;

b) definition of indicators for the qualification and periodic classification of the counterparty according to social, environmental, and climate risk;

c) assessment and monitoring of possible impacts on the counterparty's credit quality in the event of social, environmental, or climate risk events; and

d) criteria for the periodic assessment of the sufficiency of guarantees, collateral, and other credit risk mitigants in the event of social, environmental, or climate risk events;

III - assessment of the impact of social, environmental, and climate risk on positions subject to market risk and IRRBB, as defined in Articles 25 and 28, respectively, based on criteria established by the institution;

IV - policies, strategies, and procedures for mitigating operational risk, as defined in Article 32, which may be associated with events of social, environmental, or climate risk, including:

a) establishment of minimum conditions in contracts signed by the institution to mitigate legal risk, as defined in Article 32, § 1;

b) definition of decision criteria regarding the outsourcing of services and selection of service providers, in accordance with Article 33, item I, which consider aspects of social, environmental, and climate risk; and

c) consideration of aspects related to social, environmental, and climate risk in scenario analysis referred to in Article 33, item VI, with the objective of estimating the institution's exposure to rare and high-severity operational risk events; and

V - policies, strategies, and procedures for mitigating liquidity risk, as defined in Article 37, which may be associated with events of social, environmental, or climate risk, including:

a) assessment of the impact of social, environmental, and climate risk on the stock of liquid assets and funding sources, as provided in Article 38, item I, items “b” and “d”; and

b) within the liquidity contingency plan, as provided in Article 38, item II, establishment of responsibilities, strategies, and procedures to address stress situations associated with the possibility of occurrence of social, environmental, or climate risk events.

Sole paragraph. The indicators referred to in the main text, item II, item “b”, must consider, among other aspects:

I - the most relevant economic sectors of the counterparty's operations;

II - the most relevant geographic regions of the counterparty's operations, defined based on clear and verifiable criteria;

III - the economic sectors and geographic regions of the operations, when such identification is possible; and

IV - when relevant, based on criteria established by the institution:

a) the counterparty's history of compliance with specific legislation applicable to its activities, products, and services;

b) the counterparty's ability to manage social, environmental, and climate risk incurred by it, including the existence, in the counterparty, of a governance structure compatible with this process and monitoring of risks associated with its suppliers and third-party service providers; and

c) the existence of a report prepared by an independent specialized audit company hired by the counterparty, addressing its procedures and controls regarding social, environmental, and climate aspects.

Art. 38-F. The management reports referred to in Article 7, item X, must address the following additional aspects regarding social, environmental, and climate risk:

I - data on relevant losses incurred, in accordance with Article 38-D, item III; and

II - information on concentrations of social, environmental, and climate risk, as provided in Article 38-D, item V.” (NR)

“Art. 59. ..........................................................................................................

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X - comply with the provisions of Article 45, §§ 4 to 6, in the constitution of the risk committee;

XI - timely identify negative perception by customers, the financial market, and society in general regarding the institution's reputation, when this perception may significantly impact the social, environmental, and climate risk incurred by it, as provided in Article 38-D, item VI; and

XII - perform scenario analysis, within the stress testing program, which consider hypotheses of changes in climate patterns and transition to a low-carbon economy, as provided in Article 38-D, item VII.” (NR)

“Art. 60. ..........................................................................................................

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XIX - constitute a risk committee in accordance with Article 45;

XX - timely identify negative perception by customers, the financial market, and society in general regarding the institution's reputation, when this perception may significantly impact the social, environmental, and climate risk incurred by it, as provided in Article 38-D, item VI; and

XXI - perform scenario analysis, within the stress testing program, which consider hypotheses of changes in climate patterns and transition to a low-carbon economy, as provided in Article 38-D, item VII.” (NR)

“Art. 67-A. The following provisions of this Resolution must be observed from December 1, 2022:

I - for institutions classified in S1 or S2, Article 38-D, item VII; and

II - for institutions classified in S3 or S4, Article 6, items VI, VII, and VIII, and § 2, Article 7, § 4, Article 34, § 2, regarding social, environmental, and climate risk, and Articles 38-A, 38-B, 38-C, 38-D, 38-E, and 38-F, observed the provisions of Articles 59, items XI and XII, and 60, items XX and XXI.

§ 1. While the provisions mentioned in the main text, item II, are not applicable to institutions classified in S3 or S4, the provisions of Resolution No. 4,327, of 2014, regarding socio-environmental risk, which must be managed in an integrated manner with other risks incurred, in accordance with Article 6, § 1, apply to such institutions.

§ 2. Institutions classified in S1 or S2 will cease to observe the provisions of Resolution No. 4,327, of 2014, regarding socio-environmental risk, from July 1, 2022.” (NR)

Art. 2. The sole paragraph of Article 6 of Resolution No. 4,557, of 2017, is repealed.

Art. 3. This Resolution enters into force on July 1, 2022.

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