CMN Resolution No. 4019 on Preventive Prudential Measures for the National Financial System

RESOLUTION NO. 4019

Dispenses on preventive prudential measures aimed at ensuring the solidity, stability, and regular functioning of the National Financial System.

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 September 29, 2011, based on the provisions of Article 4, items VIII and XI, of the aforementioned Law, Law No. 4,728 of July 14, 1965, Article 20, § 1, of Law No. 4,864 of November 29, 1965, Article 6 of Decree-Law No. 759 of August 12, 1969, Law No. 6,099 of September 12, 1974, Law No. 10,194 of February 14, 2001, Article 7 of Decree-Law No. 2,291 of November 21, 1986, and Article 1 of Complementary Law No. 130 of April 17, 2009,

RESOLVES:

Article 1. This Resolution provides for preventive prudential measures applicable to financial institutions and other institutions authorized to operate by the Central Bank of Brazil, with the objective of ensuring the solidity, stability, and regular functioning of the National Financial System.

Sole Paragraph. The preventive prudential measures referred to in this Resolution shall be adopted by a reasoned decision of the Central Bank of Brazil, without prejudice to the application of penalties that may apply in the specific case.

Article 2. The Central Bank of Brazil, in its discretionary evaluation of the circumstances of each case, may determine the adoption of the preventive prudential measures indicated in Article 3 when it verifies the occurrence of any of the following situations, which compromise or may compromise the regular functioning of the National Financial System (NFS) or the institutions referred to in Article 1:

I - exposure to risks not included or inadequately considered in the calculation of the Required Reference Equity (PRE);

II - exposure to risk incompatible with the institution's management and internal control structures;

III - deterioration or perspective of deterioration of the institution's economic-financial situation, regardless of non-compliance with minimum capital requirements or other operational limits established in regulations;

IV - non-compliance with operational limits;

V - deficiencies in internal controls;

VI - incompatibility between the institution's structure and operations regarding the goals and commitments assumed in the business plan required in the qualification process for access to the NFS;

VII - insufficiency of elements to evaluate the institution's economic-financial situation or the risks incurred, due to deficiencies in the provision of information indispensable to the Central Bank of Brazil;

VIII - other situations that, at the discretion of the Central Bank of Brazil, may entail risks to the institution's solidity, the regular functioning, or the stability of the NFS.

Sole Paragraph. In evaluating the situations referred to in the caput, for the purpose of adopting preventive prudential measures, the Central Bank of Brazil shall consider, jointly or individually, the following indicators:

I - Reference Equity (RE), calculated according to current regulations;

II - leverage;

III - liquidity;

IV - concentration of active operations;

V - concentration of passive operations;

VI - contagion risk, including through transactions with related parties;

VII - stress tests;

VIII - internal processes for evaluating the need for capital;

IX - risk management structures;

X - internal controls;

XI - changes in the operating environment;

XII - capacity to generate results;

XIII - other relevant indicators for evaluating the institution's economic-financial situation or the risks incurred.

Article 3. When the prerequisites indicated in Article 2 are present, the Central Bank of Brazil may determine the adoption of one or more of the following preventive prudential measures, concurrently or successively:

I - adoption of additional operational controls and procedures;

II - reduction of the risk degree of exposures;

III - observance of values additional to the PRE;

IV - observance of more restrictive operational limits;

V - restoration of liquidity levels;

VI - adoption of co-management administration, as provided in Article 16 of Complementary Law No. 130 of April 17, 2009, in the case of a credit cooperative that has entered into the corresponding agreement;

VII - limitation or suspension of:

a) increase in administrators' remuneration;

b) payment of variable remuneration installments for administrators;

c) distribution of results or, in the case of credit cooperatives, surplus, in an amount exceeding the minimum legal limits;

VIII - limitation or suspension of:

a) practice of operational modalities or certain types of active or passive operations;

b) exploration of new business lines;

c) acquisition of participation, directly or indirectly, in the capital of other societies, financial or non-financial;

d) opening of new branches;

IX - alienation of assets.

Article 4. Without prejudice to the adoption of the preventive prudential measures provided for in Article 3, the Central Bank of Brazil, in view of any of the situations provided for in Article 2, may summon the legal representatives of the institution and its controllers to:

I - provide explanations regarding the causes of the situation that led to the adoption of preventive prudential measures;

II - present a plan to resolve the situation that led to the adoption of preventive prudential measures, indicating quantitative and qualitative targets to be achieved, the consent of all parties involved in the execution of the plan, and the establishment of a schedule for its execution.

§ 1. The plan referred to in item II, approved by the institution's board of directors and the board of directors, if any, must be submitted for evaluation and homologation by the Central Bank of Brazil within the timeframe established by it.

§ 2. The Central Bank of Brazil may determine that the independent auditor responsible for auditing the institution's financial statements prepares reports monitoring the execution of the plan mentioned in item II.

§ 3. The Central Bank of Brazil shall define the minimum frequency of the reports referred to in § 2, which must be made available to it.

Article 5. The following procedure applies to the preventive prudential measures referred to in this Resolution:

I - the representatives' appearance must occur within a maximum period of five days from the date of summons, which may be formalized in a specific term drawn up by the Central Bank of Brazil;

II - the plan must be presented to the Central Bank of Brazil within the timeframe established by it, which shall not exceed sixty days, counted from the date of the summons referred to in the previous item;

III - the plan must be executed within the period approved by the Central Bank of Brazil, which may not exceed six months, extendable for relevant reasons, at the discretion of the Central Bank of Brazil, by a maximum equal period.

Article 6. In situations constituting non-compliance with minimum capital requirements, the maintenance of a deposit in a linked account, in an amount sufficient for the institution's re-compliance, is admitted, provided that this deposit:

I - shall be considered for the purpose of calculating the institution's RE for a maximum period of ninety days;

II - may be made in cash or federal public securities, among those accepted in rediscount operations at the Central Bank of Brazil;

III - must be maintained in a specific custody account at the Central Bank of Brazil;

IV - shall be subject to prior authorization by the Central Bank of Brazil for release.

Article 7. The institution may only distribute results, under any title, in an amount exceeding the legal minimum, in situations where such distribution does not compromise compliance with the measures determined by the Central Bank of Brazil in accordance with Article 3 or the plan referred to in Article 4.

Sole Paragraph. The decision to distribute results in an amount exceeding the legal minimum must also take into account the present and future impact on compliance with minimum capital requirements and other operational limits mentioned.

Article 8. This Resolution enters into force thirty (30) days after its publication, when Resolution No. 3,398 of August 29, 2006, shall be revoked.

Brasília, September 29, 2011.

Alexandre Antonio Tombini
President of the Central Bank of Brazil