CMN Resolution No. 5,089 — Amending Resolution No. 4,557 and Resolution No. 4,606 on Risk Management, Capital, and Disclosure

CMN RESOLUTION NO. 5,089, OF JUNE 29, 2023

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, and 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 continuous risk management structure.

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 June 29, 2023, based on arts. 4, item VIII, of the aforementioned Law, 20, § 1, of Law No. 4,864, of November 29, 1965, 7 and 23, letter “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,

R E S O
L V E D:

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

“Art.
6
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VIII - climate risk, as defined in art. 38-C;

IX - country risk and transfer risk, as defined in art. 38-G, to which the institution is subject in a relevant manner; and

X - other relevant risks, according to criteria defined by the institution, including those not covered in the calculation of the amount of risk-weighted assets (RWA), in accordance with current regulations.

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“Art.
21.
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II - restructuring of financial instruments: renegotiation in accordance with art. 2, item XXI, of CMN Resolution No. 4,966, of November 25, 2021.

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“Art.
23.
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§ 1 .................................................................................................................

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IV - the expectation of credit recovery, including the granting of advantages, execution costs, and timeframes; and

V - the impacts of country risk and transfer risk, referred to in art. 38-G, on the probability mentioned in item III and on the expectation of credit recovery mentioned in item IV.

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“Art. 24. For the purposes of credit risk management, the characterization and decharacterization of exposure as a problem asset must occur in accordance with art. 3 of CMN Resolution No. 4,966, of 2021.” (NR)

“Section IX
Of the management of country risk and transfer risk

Art.
38-G. For the purposes of this Resolution, it is defined:

I - country risk as the possibility of occurrence of losses associated with events related to a foreign jurisdiction, including also:

a) sovereign risk, in the case of exposure assumed towards the central government of a foreign jurisdiction; and

b) indirect country risk, in the case of an event related to a foreign jurisdiction different from that where the counterparty or the issuer of a risk-mitigating instrument associated with exposure assumed by the institution is located, when the counterparty or the issuer may be significantly impacted by the respective event; and

II - transfer risk as the possibility of occurrence of obstacles in the foreign exchange conversion of resources necessary for the settlement of an obligation towards the institution, in the case where these resources are located in a jurisdiction different from that where the respective settlement will be carried out.

Sole paragraph. For the purposes of the provision in the caput, item I, letter “b”, the definition of counterparty established in art. 21, § 1, item I applies.

Art.
38-H. The management structure referred to in art. 7 must additionally provide, for country risk and for transfer risk:

I - mechanisms for the management of country risk and transfer risk by counterparty, by jurisdiction, and, in the existence of relevant common risk factors, by set of jurisdictions, this set defined based on clear and verifiable criteria;

II - processes for the timely identification of political, legal, regulatory, market, and other changes that may significantly impact the country risk and transfer risk incurred by the institution, as well as procedures for mitigating these impacts;

III - recording of data relevant for the management of country risk and transfer risk, including, when available, data regarding the respective losses incurred by the institution; and

IV - monitoring of significant concentrations of exposure to country risk and transfer risk.

§ 1 The management referred to in the caput must also consider, when relevant, interdependent operations and operations carried out between institutions that are part of the same prudential conglomerate.

§ 2 The managerial reports referred to in art. 7, item X, must additionally address, for country risk and for transfer risk, the reporting of relevant exposures, grouped, as the case may be, by jurisdiction and, in the existence of relevant common risk factors, by set of jurisdictions.” (NR)

Art.
2 The Resolution No. 4,606, of October 19, 2017, shall enter into force with the following changes:

“Art.
25.
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§
1
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II - restructuring of financial instruments: renegotiation in accordance with art. 2, item XXI, of CMN Resolution No. 4,966, of November 25, 2021.

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“Art. 27. For the purposes of credit risk management, the characterization and decharacterization of exposure as a problem asset must occur in accordance with art. 3 of CMN Resolution No. 4,966, of 2021.” (NR)

Art. 3 The following are revoked:

I - § 2 and items II and III of § 3 of art. 21, item I of § 3 of art. 23, and items I and II and §§ 1, 2, and 3 of art. 24 of Resolution No. 4,557, of 2017; and

II - § 2 of art. 25 and items I and II and §§ 1, 2, and 3 of art. 27 of Resolution No. 4,606, of 2017.

Art. 4 This Resolution enters into force:

I - on January 1, 2024, regarding the following provisions referring to Resolution No. 4,557, of 2017:

a) changes in art. 6;

b) inclusion of Section IX and arts. 38-G and 38-H, which compose it; and

c) revocation of items II and III of § 3 of art. 21 and item I of § 3 of art. 23; and

II - on January 1, 2025, regarding the remaining provisions.

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