CMN Resolution No. 4,944 — Amends Resolution No. 4,606 of October 19, 2017 Regarding the Simplified Methodology for PRS5 and Additional Risk Management Requirements

Resolution No. 4,944

CMN RESOLUTION
NO. 4,944, OF SEPTEMBER 15, 2021

Amends
Resolution No. 4,606, of October 19, 2017, which provides for the optional simplified methodology for calculating the minimum requirement for Simplified Reference Equity (PRS5), the requirements for opting for this methodology, and the additional requirements for the simplified structure for continuous risk management.

The Central Bank of Brazil, in accordance with Art. 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 Arts. 3, item VI, and 4, items VIII and XI, of the aforementioned Law, 9 and 10 of Law No. 4,728, of July 14, 1965, 20, § 1, of Law No. 4,864, of November 29, 1965, 7 and 23 of Law No. 6,099, of September 12, 1974, and 1, § 1, and 12 of Complementary Law No. 130, of April 17, 2009,

R E S O
L V E U :

Art. 1. Resolution No. 4,606, of October 19, 2017, shall enter into force with the following amendments:

“Art. 20. ..........................................................................................................

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II - credit risk, as defined in Art. 25, for institutions belonging to Group I or Group II and, when relevant, for institutions belonging to Group III;

III - social risk, as defined in Art. 27-A;

IV - environmental risk, as defined in Art. 27-B;

V - climate risk, as defined in Art. 27-C; and

VI - other risks to which the institution is exposed in a relevant manner.” (NR)

“Section III-A

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

Art. 27-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 interest.

§ 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 the case may be, 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 Art. 22;

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 assets, 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 dependence, nuclear or radioactive materials, firearms, and ammunition;

IX - irregular, illegal, or criminal exploitation of natural resources, regarding the violation of a right or fundamental guarantee or an act harmful to common interest, 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 Art. 22;

XI - environmental disaster resulting from human intervention, regarding the violation of a right or fundamental guarantee or an act harmful to common interest, including dam breaks, nuclear accidents, or spills of chemicals or waste into waters;

XII - changes in legislation, regulation, or the actions of government bodies, associated with a right or fundamental guarantee or common interest, that negatively impact the institution; and

XIII - acts or activities that, although regular, legal, and not criminal, negatively impact the institution's reputation, as they are considered harmful to common interest.

Art. 27-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 the excessive use of natural resources.

Sole Paragraph. Examples of environmental risk events are the occurrence or, as the case may be, indications of the occurrence of:

I - irregular, illegal, or criminal conduct or activity against fauna or flora, including deforestation, setting 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, regarding 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, regarding environmental degradation, including dam breaks, 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, although regular, legal, and not criminal, negatively impact the institution's reputation, due to environmental degradation.

Art. 27-C. For the purposes of this Resolution, climate risk, in its aspects of transition risk and physical risk, is defined as:

I - transition climate risk: possibility of occurrence of losses for the institution caused by events associated with the process of transition 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 sea-level rise, natural resource scarcity, desertification, and changes in rainfall or temperature patterns.

Art. 27-D. The simplified structure for continuous management referred to in Art. 21 must additionally provide, for social risk, environmental risk, and climate risk:

I - mechanisms for identifying and monitoring the social, environmental, and climate risks incurred by the institution as a result of its products, services, activities, or processes and the activities carried out by:

a) the institution's counterparties, as defined in Art. 25, § 1, item I;

b) entities controlled by the institution, in accordance with the criteria established in the sole paragraph of this article; and

c) the institution's suppliers and outsourced service providers, 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 - procedures for adapting the management of social, environmental, and climate risk to political, legal, regulatory, technological, or market changes that may impact the institution in a relevant manner; and

IV - criteria, clearly documented and verifiable, for identifying social, environmental, and climate risk as significant sources of the risks mentioned in Art. 20.

Sole Paragraph. For the purposes of the provision in the caput, item I, letter “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 operational management decisions of the entity.” (NR)

Art. 2. This Resolution enters into force on December 1, 2022.

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