Resolution CMN No. 2302 — Establishes Norms and Procedures for the Establishment of Branches and for Direct or Indirect Equity Participation Abroad by Financial Institutions

RESOLUTION NO. 002302

Establishes norms and procedures for the establishment of branches and for equity participation, direct or indirect, abroad, by financial institutions and other institutions authorized to operate by the Central Bank of Brazil.

THE CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4,595, of December 31, 1964, makes public that the MONETARY COUNCIL NATIONAL, in a session held on July 25, 1996, considering the provisions of Articles 4, items VIII and XI, and 10, paragraph 1, of the aforementioned Law,

HAS RESOLVED:

Article 1. It is established that the establishment of branches and
equity participation, direct or indirect, abroad, by financial institutions and other institutions authorized to operate by the Central Bank of Brazil, shall be governed by the norms of this Resolution.

Paragraph 1. For the purposes of this Resolution, branches are considered to be agencies, subsidiaries, and representative offices.

Paragraph 2. The requirements established in current regulation for equity participations in the country apply to equity participations abroad.

Article 2. The establishment of a branch and equity participation,
direct or indirect, abroad depends on prior authorization from the Central Bank of Brazil and is subject to the following conditions:

I - the institution must have been operating for at least 6 (six) years;

II - the paid-in capital and net worth of the institution must be within the minimum levels established in Regulation Annex II of Resolution No. 2,099, of August 17, 1994, for the operation of the institution in the country, plus an amount equivalent to the sum of:

a) 200% (two hundred percent) of the amount required for the establishment of a commercial bank;

b) 30% (thirty percent) of the minimum value, in terms of paid-in capital and net worth, required for the establishment of the institution's headquarters in the country, per branch abroad;

c) 30% (thirty percent) of the amount referred to in item "a", per branch abroad;

III - the institution must present:

a) a declaration from the foreign supervisory authority guaranteeing access by the Central Bank of Brazil, for purposes of consolidated supervision, to information, data, and documents regarding the operations and accounting records of the branch or the financial institution or similar entity in which it participates, directly or indirectly, abroad;

b) a declaration, signed by its legal representatives and endorsed by the institution's board of directors and the board of administrators, if any, guaranteeing the provision, whenever requested by the Central Bank of Brazil, of information, data, and documents regarding the operations and accounting records of the non-financial institutions in which it participates, directly or indirectly, abroad;

c) an economic and financial feasibility study of the branch to be established or the investment to be made as equity participation, including, at a minimum:

1. planned operational strategy, identifying the types
   of deposit and lending operations it intends to carry out and the market segments it intends to reach;

2. expectation of future profitability, specifying
   terminals and expected return;

d) intended administrative structure.

Article 3. The preparation and submission to the
Central Bank of Brazil, in the manner defined by that Agency, of financial statements are mandatory:

I - of the branches abroad;

II - of the financial institutions and similar entities, abroad, in which it participates, directly or indirectly, with 25% (twenty-five percent) or more of the share capital;

III - consolidated, covering the operations of the institution in Brazil and its branches abroad;

IV - consolidated, in the manner of item 1.21 of the Accounting Plan of Financial Institutions of the National Financial System - COSIF, covering all institutions forming the financial conglomerate, including financial institutions and similar entities, abroad, in which it participates, directly or indirectly, with 25% (twenty-five percent) or more of the share capital.

Article 4. Financial institutions and other institutions
authorized to operate by the Central Bank of Brazil that hold a branch or equity participation in financial institutions or similar entities, abroad, are required to calculate, starting from January 1, 1997, operational limits based on consolidated financial data referred to in item IV of the previous article.

Article 5. For the purposes of Articles 3 and 4, the institution of the financial conglomerate responsible for the calculation and compliance with consolidated limits must be indicated, after holding a general meeting of each of the institutions forming
the conglomerate, in accordance with Resolution No. 2,283, of June 5, 1996.

Article 6. The financial statements referred to in
Article 3 must be audited by an independent auditor, maintaining the respective opinions and reports available at the Central Bank of Brazil, at the institution's headquarters.

Sole Paragraph. The opinion of the independent auditor responsible for the audit of the institution's operations in the country must also cover the operations conducted abroad.

Article 7. The following acts/occurrences also require prior authorization from the Central Bank of Brazil:

I - subscription of capital increase of a company subject to equity participation abroad;

II - increase in the relative position in the capital of a company subject to equity participation abroad;

III - spin-off, merger, and consolidation of a company subject to equity participation abroad.

Article 8. Transfers of resources abroad for:

I - establishment, capitalization, or maintenance of branches;

II - investment in equity participations, including capital increases, are subject to procedures regarding the exit of foreign or national currency and specific conditions provided in current regulation for the realization of Brazilian investments abroad, depending on prior approval from the Central Bank of Brazil.

Article 9. The institution will have a maximum period of 180 (one hundred and eighty) days, counted from the date of authorization granted by the Central Bank of Brazil, to file the request for establishment of a branch or equity participation with the competent authority abroad, provided that the period for the actual start of operations of the branch abroad will be up to 1 (one) year, counted from the date of authorization for its operation granted by the local authority.

Sole Paragraph. Failure to comply with the deadlines referred to in this article will result in the automatic cancellation of the authorization and the repatriation of the remitted capital, plus the respective earnings earned abroad.

Article 10. Financial institutions and other institutions
authorized to operate by the Central Bank of Brazil must send to that Agency reports, inquiries, or questions directed to their branches and companies in which it participates, directly or indirectly, with 25% (twenty-five percent) or more of the share capital, abroad, as may be formulated by foreign regulatory or supervisory entities, as well as the respective responses.

Article 11. Any non-compliance with paid-in capital and net worth, resulting from the new requirements provided in Article 2, must be regularized within a maximum period of 2 (two) years, counted from the date of publication of this Resolution.

Sole Paragraph. The granting of authorization for the establishment of new branches or for new equity participations, direct or indirect, abroad, will imply the need for prompt compliance with the minimum limits of paid-in capital and net worth established in Article 2.

Article 12. Institutions that have branches or equity participations, direct or indirect, abroad, have until December 31, 1996, to submit the declarations referred to in items "a" and "b" of item III of Article 2.

Article 13. Failure to comply with the provisions of the previous article will result in the deduction, from the institution's adjusted net worth, for the purpose of calculating operational limits, of the assets related to each branch or participation in an irregular situation, in the following manner:

I - starting from January 1, 1997, 25% (twenty-five percent) of the total assets of the branch or the participated institution existing on the last day of the penultimate month immediately preceding the calculation of the limits;

II - starting from July 1, 1997, 50% (fifty percent) of the total assets of the branch or the participated institution existing on the last day of the penultimate month immediately preceding the calculation of the limits;

III - starting from January 1, 1998, 75% (seventy-five percent) of the total assets of the branch or the participated institution existing on the last day of the penultimate month immediately preceding the calculation of the limits;

IV - starting from July 1, 1998, the total assets of the branch or the participated institution existing on the last day of the penultimate month immediately preceding the calculation of the limits.

Paragraph 1. When the participation referred to in this article is less than 25% (twenty-five percent) of the share capital of the entity located abroad, the value of the investment will be deducted.

Paragraph 2. The deduction referred to in this article also applies to cases where the ineffectiveness or insufficiency of the information, data, and documents referred to in the declaration provided by the foreign authority or by the institution itself, as applicable, is verified.

Article 14. The Central Bank of Brazil may issue norms and adopt measures deemed necessary for the execution of the provisions of this Resolution.

Article 15. This Resolution enters into force on the date of its publication.

Article 16. Resolution No. 1,974, of December 4, 1992, and Article 3 of Regulation Annex II of Resolution No. 2,099, of August 17, 1994, are hereby repealed.

Brasília, July 25, 1996

Gustavo Jorge Laboissière Loyola
President