CMN Resolution No. 4279 — Criteria for Extinction of Debtor Balances of Instruments Complementary Capital and Level II Reference Equity

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 October 31, 2013, based on Articles 4, items VIII and XI, of the aforementioned Law, 41, VIII, of Law No. 12,249 of June 11, 2010, and 11 of Law No. 12,838 of July 9, 2013, and considering the provisions of Resolutions Nos. 3,988 of June 30, 2011, and 4,192 of March 1, 2013,

R E S O L V E S:

Art. 1 This Resolution provides for:

I - criteria to be observed by the Central Bank of Brazil in determining the extinction of the debtor balance of instruments authorized to compose Complementary Capital and Level II of Reference Equity (PR) or the conversion of these instruments into shares of the issuing institution, as provided in Resolution No. 4,192 of March 1, 2013;

II - the preparation of an action plan for the eventuality of the extinction of the debtor balance of instruments authorized to compose Complementary Capital or Level II of PR or the conversion of these instruments into shares of the issuing institution; and

III - amendment of Resolution No. 4,122 of August 2, 2012, given the possibility that the conversion of instruments authorized to compose Complementary Capital or Level II of PR may result in the transfer of shareholding control, as well as in the acquisition of shareholding participation.

Art. 2 The Central Bank of Brazil may determine the extinction of the debtor balance of instruments authorized to compose Complementary Capital or Level II of PR or the conversion of these instruments into shares of the issuing institution, in accordance with Article 11 of Law No. 12,838 of July 9, 2013, when it considers the measure necessary to enable the continuity of that institution and, at the same time, to mitigate relevant risks to the regular functioning of the financial system.

§ 1 For the purposes of this Resolution, risk to the continuity of the institution is characterized by the non-compliance with a determination of the Central Bank of Brazil to increase the amounts of PR, Level I, or Principal Capital, and simultaneously, the calculation of at least one of the following situations:

I - material deterioration:

a) of the value and liquidity of its assets;

b) of its solvency status; or

c) of its credibility, characterized by a significant reduction in the volume of funding.

II - an increase in the risk of default resulting in the activation of guarantee mechanisms and safeguards of clearing houses and settlement service providers, in accordance with the specific legislation of the Brazilian Payments System (SPB).

§ 2 For the purposes of this Resolution, relevant risk to the regular functioning of the financial system is characterized by the possibility that the discontinuation of the institution may entail:

I - compromise of operations of other institutions or relevant market segments that could generate uncertainty regarding the solidity of the financial system; or

II - significant prejudice to the supply, at adequate levels, of a service considered essential to the financial system.

§ 3 Instruments authorized to compose Complementary Capital shall have their debtor balance extinguished or be converted into shares before instruments authorized to compose Level II.

§ 4 The Central Bank of Brazil may only determine:

I - the extinction of the debtor balance of an instrument that presents the extinction clause referred to in Article 17, item XV, or Article 20, item X, of Resolution No. 4,192 of 2013, as established therein; or

II - the conversion into shares of an instrument that presents the conversion clause referred to in Article 17, item XV, or Article 20, item X, of Resolution No. 4,192 of 2013, as established therein.

Art. 3 Issuing institutions of instruments authorized to compose PR must prepare and keep permanently updated an action plan for the eventuality of the extinction or conversion provided for in Article 17, item XV, and Article 20, item X, of Resolution No. 4,192 of 2013.

§ 1 The action plan referred to in the main text must include:

I - the measures to be taken to comply with any obligations and other operational procedures related to the extinction or conversion process;

II - the precautions and procedures necessary for the extinction or conversion to occur in a transparent and organized manner.

§ 2 The action plan mentioned in the main text must be part of the capital contingency plan established in Resolution No. 3,988 of June 30, 2011.

Art. 4 It is the responsibility of the Board of Directors or, in its absence, the Executive Board of the issuing institution of instruments eligible for PR:

I - to fully inform the holders of rights over these instruments about the action plan mentioned in Article 3;

II - to disclose and inform the Central Bank of Brazil, according to procedures established by this Autarchy, of the situations related to the extinction or conversion mentioned in the main text of Article 3.

Art. 5 Article 6 of Resolution No. 4,122 of August 2, 2012, shall be effective with the following wording:

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

II - control group: person, or group of persons linked by a voting agreement or under common control, who holds shareholder rights corresponding to the majority of the voting capital of a joint-stock company or to 75% (seventy-five percent) of the social capital of a limited liability company.” (NR)

Art. 6 Articles 4, 13, and 16 of the Regulation Annexed to Resolution No. 4,122 of 2012, shall be effective with the following changes:

“Art. 4 ........................................................

Sole Paragraph. In the case of shared control, the requirement referred to in item V of the main text may be met, at the discretion of the Central Bank of Brazil, by a portion of the members of the control group.” (NR)

“Art. 13. .....................................................

...............................................................

IV - conversion into shares of instruments authorized to compose Complementary Capital or Level II of Reference Equity (PR), as provided in Resolution No. 4,192 of March 1, 2013.” (NR)

“Art. 16. .......................................................

..................................................................

§ 3 The provisions of this article do not apply to qualified participation resulting from the conversion into shares of instruments authorized to compose Complementary Capital or Level II of Reference Equity (PR), as provided in Resolution No. 4,192 of 2013.

§ 4 The qualified participation referred to in § 3 must be communicated to the Central Bank of Brazil, within the timeframe established by it.” (NR)

Art. 7 This Resolution enters into force on the date of its publication.

                 Alexandre Antonio Tombini President of the Central Bank of Brazil