CMN Resolution No. 4090 — Establishes the liquidity risk management structure

The Central Bank of Brazil, pursuant to Article 9 of Law No. 4,595 of December 31, 1964, makes public that the National Monetary Council, in a session held on May 24, 2012, based on Articles 4, item VIII, of the aforementioned Law, 2, item VI, 8, and 9 of Law No. 4,728 of July 14, 1965, 20, § 1, of Law No. 4,864 of November 29, 1965, 23, letter “a”, of Law No. 6,099 of September 12, 1974, 1, item II, of Law No. 10,194 of February 14, 2001, and 6 of Decree-Law No. 759 of August 12, 1969,

RESOLVES:

Art. 1 Financial institutions and other institutions authorized to operate by the Central Bank of Brazil must maintain a liquidity risk management structure compatible with the nature of their operations, the complexity of the products and services offered, and the size of their exposure to this risk.

Art. 2 For the purposes of this Resolution, liquidity risk is defined as:

I - the possibility that the institution will not be able to efficiently meet its expected and unexpected, current and future obligations, including those arising from collateral linkage, without affecting its daily operations and without incurring significant losses; and

II - the possibility that the institution will not be able to trade a position at market price due to its large size relative to the volume normally traded or due to some discontinuity in the market.

Scope

Art. 3 The liquidity risk management structure must identify, assess, monitor, and control the risks associated with each institution individually and with the financial conglomerate, as defined in the Accounting Plan of Institutions of the National Financial System (Cosif).

Sole paragraph. The liquidity risk management structure must also consider the possible impacts on the liquidity of the financial conglomerate arising from risks associated with other companies included in the economic-financial consolidation, defined in Resolution No. 2,723 of May 31, 2000.

Art. 4 The board of directors of the institution and the board of directors, if any, must ensure that the institution maintains adequate and sufficient levels of liquidity.

Liquidity risk management structure

Art. 5 The liquidity risk management structure must provide, at a minimum:

I - policies and strategies for liquidity risk management clearly documented, which establish operational limits and procedures intended to maintain exposure to liquidity risk at the levels established by the institution's management;

II - processes to identify, assess, monitor, and control exposure to liquidity risk over different time horizons, including intraday, including, at a minimum, the daily assessment of operations with settlement periods of less than 90 (ninety) days;

III - assessment, with a minimum annual frequency, of the processes referred to in item II;

IV - funding policies and strategies that provide adequate diversification of funding sources and maturity dates;

V - a liquidity contingency plan, regularly updated, which establishes responsibilities and procedures to address liquidity stress situations;

VI - periodic stress testing with short-term and long-term, idiosyncratic, and systemic scenarios, the results of which must be considered when establishing or reviewing liquidity policies, strategies, limits, and the contingency plan; and

VII - assessment of liquidity risk as part of the approval process for new products, as well as their compatibility with existing procedures and controls.

§ 1 The policies and strategies for liquidity risk management referred to in item I, as well as the contingency plan referred to in item V, must be approved and reviewed, at least annually, by the institution's board of directors and the board of directors, if any.

§ 2 Liquidity risk management must consider all operations conducted in the financial and capital markets, as well as possible contingent or unexpected exposures, such as those arising from settlement services, provision of guarantees and collateral, and contracted and unused credit lines.

§ 3 The institution must consider liquidity risk individually in the countries where it operates and in the currencies to which it is exposed, observing any restrictions on the transfer of liquidity and currency convertibility, such as those caused by operational problems or by impositions made by a country.

Transparency

Art. 6 The description of the liquidity risk management structure must be disclosed in a publicly accessible report, with a minimum annual frequency.

§ 1 The board of directors or, in its absence, the board of directors of the institution, must state in the report mentioned in the main text their responsibility for the disclosed information.

§ 2 The institutions mentioned in Art. 1 must disclose, together with the published financial statements, a summary of the description of their liquidity risk management structure, indicating the public access address to the report cited in the main text.

§ 3 Institutions subject to the provisions of Circular No. 3,477 of December 24, 2009, must make the report cited in the main text available together with the information disclosed as established in the aforementioned Circular.

Governance

Art. 7 The liquidity risk management activity must be carried out by a unit segregated from business and internal audit units, in accordance with Art. 2 of Resolution No. 2,554 of September 24, 1998, as amended by Resolution No. 3,056 of December 19, 2002.

Art. 8 The establishment of a single unit responsible for:

I - the liquidity risk management of the financial conglomerate and its respective constituent institutions; and

II - the assessment of possible impacts on liquidity arising from risks associated with non-financial companies included in the economic-financial consolidation.

Sole paragraph. The establishment of a single unit responsible for the liquidity risk management of a credit cooperative system is permitted, provided it is located in an entity supervised by the Central Bank of Brazil that is part of the respective system.

Art. 9 The institutions mentioned in Art. 1 must designate a director responsible for liquidity risk management.

§ 1 For the purposes of the responsibility referred to in the main text, it is permitted that the designated director perform other functions, except those related to business areas and the administration of third-party funds.

§ 2 For institutions that are part of a conglomerate and have opted for the establishment of a single liquidity risk management unit in accordance with Art. 8, only the institution in which the aforementioned unit is located must designate a responsible director.

Final Provisions

Art. 10. This Resolution enters into force on January 1, 2013.

Art. 11. Resolution No. 2,804 of December 21, 2000, is revoked, effective January 1, 2013, and citations and the basis of validity of normative acts issued based on the revoked Resolution shall refer to this Resolution.

Alexandre Antonio Tombini
President of the Central Bank of Brazil