Resolution CMN No. 2674 — Establishes Norms, Conditions, and Procedures for the Establishment of Foreign Branches and Corporate Participation by Financial Institutions

RESOLUTION NO. 002674

Establishes norms, conditions, and procedures for the establishment of branches abroad and for corporate participation, direct or indirect, in the Country and 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, in a session held on December 21, 1999, based on Articles 4, items VIII, XI, XII, and XIII, 10, paragraph 1, and 30 of the aforementioned Law and Law No. 4,728 of July 14, 1965, and having in view the provisions of Article 22 of Law No. 6,385 of December 7, 1976, with the amendments introduced by Article 14 of Law No. 9,447 of March 14, 1997,

HAS RESOLVED:

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

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

Paragraph 2. In the case of a financial conglomerate, the establishment of branches and corporate participation abroad shall only be permitted for one of the institutions comprising it.

Paragraph 3. The provisions of this Resolution apply to representative offices established abroad, whose operations exceed those provided in Resolution No. 2,592 of February 25, 1999, due to legal or regulatory provisions of the country in which they are located.

Article 2. The establishment of branches abroad and corporate participation, direct or indirect, in financial institutions or similar institutions abroad, depend on prior authorization from the Central Bank of Brazil and are subject to the following conditions by the participating institution:

I - being in operation for at least six years;

II - complying with the operational limits established in current regulations;

III - complying with the minimum limits of paid-in capital and net equity established in Regulation Annex II to Resolution No. 2,099 of August 17, 1994, with the wording given by Resolution No. 2,607 of May 27, 1999, for the operation of the institution in the Country, plus a value equivalent to 300% (three hundred percent) of that required for the establishment of a commercial bank in the Country;

IV - presenting an economic and financial feasibility study of the agency to be established or the investment to be made as participation, including, at minimum:

a) planned operational strategy, identifying the types of borrowing and lending operations it intends to carry out and the market segments it intends to reach;

b) expectation of future profitability, specifying timeframes and expected return.

Paragraph 1. The Central Bank of Brazil may, at its discretion, waive compliance with the condition set forth in item I.

Paragraph 2. The Central Bank of Brazil will only grant the authorization referred to in the main text in cases where it can have access to the information, data, and documents necessary to evaluate the active and passive operations of those investments abroad, so as to ensure global consolidated supervision.

Paragraph 3. In the case of corporate participations in companies subject to consolidation under Article 3, the authorization referred to in the main text implies that it is permitted, through the institutions referred to in Article 1, integral and unrestricted access by the Central Bank of Brazil to information regarding the risks assumed by the participations, regardless of their operational activity.

Paragraph 4. Corporate participations in companies headquartered in countries with favored taxation, as defined in tax legislation, are only admitted in cases where control by the participating institution is assured, under the terms of Article 3.

Article 3. The institutions referred to in Article 1 must prepare their financial statements on a consolidated basis, including participations in companies located in the Country and abroad in which they hold, directly or indirectly, individually or jointly with other partners, including due to the existence of voting agreements, partner rights that assure them, individually or cumulatively:

I - predominance in social deliberations;

II - power to elect or dismiss the majority of administrators;

III - operational control characterized by common administration or management, or by acting in the market under the same brand or trade name;

IV - corporate control represented by the sum of participations held by the institution, regardless of the percentage, with those held by its administrators, controllers, and affiliated companies, as well as those acquired, directly or indirectly, through investment funds.

Paragraph 1. Investments in shares made indirectly through investment funds must be treated as corporate participations for the purposes of this Resolution.

Paragraph 2. Corporate participations of the institutions referred to in the main text must be proportionally consolidated:

I - in companies located in the Country, except for the institutions referred to in Article 1:

a) in which there is shared control with other conglomerates, financial or otherwise;

b) belonging to the public sector;

II - in institutions referred to in Article 1, in which there is shared control with institutions belonging to distinct financial conglomerates, subject to supervision by the Central Bank of Brazil;

III - in companies located abroad, in which there is shared control with other conglomerates, financial or otherwise.

Article 4. Consolidation of financial statements proportional to the corporate participation held is admitted, in the case of the absence of corporate control, as defined in the terms of Article 3, provided that previously authorized by the Central Bank of Brazil.

Article 5. Corporate participations, in the Country and abroad, registered in current assets, not consolidated under this Resolution, including those acquired through investment funds, directly or in the manner of the situations provided in Article 3, item IV, must be computed for the purpose of verifying compliance with the limit on the application of resources in permanent assets, as set forth in Articles 3 and 4 of Resolution No. 2,283 of June 5, 1996, with the wording given by Article 1 of Resolution No. 2,669 of November 25, 1999.

Sole Paragraph. From the amount of resources applied in permanent assets, computing the corporate participations referred to in the main text, that which exceeds the percentages established in Articles 3 and 4 of Resolution No. 2,283 of 1996, with the wording given by Article 1 of Resolution No. 2,669 of 1999, respecting the reduction schedule fixed therein, must be deducted from the PLA, starting from April 3, 2000, for the purpose of verifying the requirement of net equity compatible with the risk level of the asset structure, without prejudice to the application of sanctions provided in current legislation and regulations.

Article 6. Financial institutions and other institutions authorized to operate by the Central Bank of Brazil subject to the preparation of consolidated financial statements under this Resolution must calculate the operational limits referred to in Article 1 of Resolution No. 2,283 of 1996 on a consolidated basis, observing the other conditions established therein.

Sole Paragraph. The provisions of this article do not exempt the institutions referred to in the main text from preparing and submitting to the Central Bank of Brazil the consolidated statements regarding the financial conglomerate, in accordance with current regulations, as well as from calculating the operational limits mentioned therein based on these statements.

Article 7. Reciprocal corporate participations between the institutions referred to in Article 1, made directly or indirectly, are prohibited.

Article 8. The institutions referred to in Article 1 must inform the Central Bank of Brazil, in the manner and timeframe to be published by that Autarchy, the corporate participations held in the capital of other companies located in the Country, as well as their partial or total divestment.

Article 9. Corporate participations, in the Country, in companies subject to consolidation imply that it is permitted, through the institutions referred to in Article 1, integral and unrestricted access by the Central Bank of Brazil to all information, data, documents, and verifications necessary to evaluate the active and passive operations and the risks assumed by the participations, regardless of their operational activity.

Article 10. It is mandatory, for financial institutions and other institutions authorized to operate by the Central Bank of Brazil that have branches or corporate participation abroad, the preparation and sending, to that Autarchy, together with their accounting documents, of financial statements:

I - of the branches located abroad, individually and jointly with the operations of the institution in Brazil;

II - of financial institutions or similar institutions located abroad in which it participates, directly or indirectly, with 20% (twenty percent) or more of the voting or total capital.

Paragraph 1. The financial statements referred to in the main text must be audited by an independent auditor, observing the provisions of Resolution No. 2,267 of March 29, 1996, and complementary regulations.

Paragraph 2. Starting from the social year beginning on January 1, 2000, the institutions referred to in the main text must include, in the contracts concluded with the independent auditor responsible for the audit of the financial statements of the institution in the Country, the obligation to sign an agreement between this and the independent auditor responsible for the audit of the operations practiced by the branches and companies referred to in items I and II, through which the independent auditor in the Country assumes responsibility regarding the results of the work performed abroad, for the purposes of Resolution No. 2,267 of 1996 and complementary regulations.

Paragraph 3. The Central Bank of Brazil will publish the manner and timeframe for sending the financial statements referred to in the main text.

Article 11. Delay in the delivery of consolidated financial statements subjects the institutions and their administrators to monetary fines in accordance with current regulations.

Article 12. The following acts and/or occurrences also depend on prior authorization from the Central Bank of Brazil:

I - allocation of new resources to branches located abroad;

II - subscription of capital increase of a financial institution or similar institution subject to corporate participation, direct or indirect, abroad;

III - increase in the relative position in the capital of a financial institution or similar institution subject to corporate participation, direct or indirect, abroad;

IV - spin-off, merger, and consolidation of a financial institution or similar institution subject to corporate participation, direct or indirect, abroad.

Article 13. The following acts must be communicated to the Central Bank of Brazil, within a maximum period of thirty days, counted from the date of the respective occurrence:

I - start and closure of activities of a branch located abroad, as well as the reallocation of resources between branches;

II - corporate participation held, directly or indirectly, in the capital of a company located abroad, as well as its partial or total divestment.

Article 14. Transfers of resources abroad, in national or foreign currency, resulting from the acts and occurrences referred to in Articles 12 and 13, are subject to registration with the Central Bank of Brazil, in accordance with current regulations.

Article 15. In cases of closure of a branch and divestment of corporate participation, direct or indirect, abroad, it must be ensured, with proof, the immediate return to the Country of the remitted resources, plus the results eventually obtained from the divestment of the investment.

Sole Paragraph. The reinvestment abroad of the resources obtained under the terms of this article depends on prior consent from the Central Bank of Brazil.

Article 16. The institution will have a maximum period of 180 days, counted from the date of the authorization granted by the Central Bank of Brazil, to file the request for the establishment of a branch or corporate participation with the competent authority abroad, observing that the timeframe for the effective start of operations of the branch abroad will be one year, counted from the date of the authorization for its operation granted by the local authority.

Sole Paragraph. Non-compliance with the timeframes provided in this article must be justified to the Central Bank of Brazil, which, at its discretion, may cancel the authorization granted under Article 2.

Article 17. Institutions that have branches or corporate participation abroad must send to the Central Bank of Brazil reports, inquiries, or questions directed to their branches and participated institutions of which they hold control, as defined in the terms of Article 3, or participate, directly or indirectly, with 20% (twenty percent) or more of the voting or total capital, abroad, possibly formulated by foreign regulatory or supervisory entities, as well as the respective responses.

Article 18. It is prohibited to carry out any operations between financial institutions and other institutions authorized to operate by the Central Bank of Brazil and companies located abroad, affiliated or whose control, as defined in the terms of Article 3, is held, directly or indirectly, by the same controllers, resident and domiciled in the Country, of those institutions, except in the cases:

I - in which consolidated under this Resolution;

II - of resource borrowing for a period of one day without issuance of a certificate.

Paragraph 1. The prohibition referred to in this article applies to operations carried out through or in the interest of companies located in the Country, affiliated or subject to the same control of the institutions referred to in the main text, as defined in the terms of Article 3.

Paragraph 2. For the purposes of this article, institutions and companies are considered affiliated when:

I - one participates with 10% (ten percent) or more of the capital of the other, directly or indirectly;

II - administrators or their respective spouses and relatives up to the second degree of one participate, jointly or individually, with 10% (ten percent) or more of the capital of the other, directly or indirectly;

III - partners or shareholders with 10% (ten percent) or more of the capital of one participate with 10% (ten percent) or more of the capital of the other, directly or indirectly;

IV - possess a common administrator.

Article 19. The provisions of this Resolution do not apply to minority corporate participations in organizations and financial institutions abroad, made exclusively for the purpose of obtaining access to instruments for export financing and international transfer of resources.

Sole Paragraph. The remittance of resources destined to the corporate participations referred to in this article is subject to registration with the Central Bank of Brazil, in accordance with current regulations.

Article 20. Any eventual misalignment of paid-in capital and net equity, verified on the date of entry into force of this Resolution, due to the new requirements provided in Article 2, must be regularized by August 31, 2001, with 50% (fifty percent) by August 31, 2000.

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

Article 21. Financial institutions and other institutions authorized to operate by the Central Bank of Brazil that, on the date of entry into force of this Resolution, held branches abroad or corporate participations, in the Country and abroad, in disagreement with the provisions now established, with the exception of those contained in Articles 5 and 20, must regularize them by July 31, 2000.

Paragraph 1. Non-compliance with the provisions of this article will imply, starting from August 1, 2000, the deduction, from the net equity of the institution, adjusted in the manner of current regulations, for the purpose of calculating the risk diversification limit and verifying the requirement of net equity compatible with the risk level of the asset structure, of the investments related to each branch, abroad, or corporate participation, in the Country and abroad, in an irregular situation, without prejudice to the application of sanctions provided in current legislation and regulations.

Paragraph 2. The Central Bank of Brazil may cancel the authorization granted under Article 2 in the case referred to in the previous paragraph.

Paragraph 3. 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 Article 2, paragraphs 2 and 3, is verified.

Paragraph 4. Institutions in the situation referred to in the main text are prohibited, while remaining in that condition, from establishing branches abroad and acquiring corporate participations, in the Country and abroad, as well as from increasing the percentage of those already existing.

Paragraph 5. The adoption of the measures provided in this article does not exempt the institution from observing, until July 31, 2000, the norms contained in Resolution No. 2,302 of July 25, 1996.

Article 22. The Central Bank of Brazil may issue norms and adopt measures deemed necessary for the execution of the provisions of this Resolution.

Article 23. This Resolution enters into force on the date of its publication.

Article 24. Resolutions Nos. 2,302 of 1996, 2,522 of July 16, 1998, and 2,660 of October 28, 1999, Article 2 of Resolution No. 2,669 of 1999, Circular No. 2,258 of December 22, 1992, and Circular Letter No. 2,812 of August 26, 1998, are hereby revoked.

Brasília, December 21, 1999

Arminio Fraga Neto
President