Resolution CMN No. 2723 — Establishes norms, conditions and procedures for the establishment of branches abroad and for direct or indirect equity participation in Brazil and abroad by financial institutions and other institutions authorized by the Central Bank of Brazil

RESOLUTION NO. 2723

Establishes norms, conditions and procedures for the establishment of branches abroad and for direct or indirect equity participation in Brazil 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 NATIONAL COUNCIL, in a session held on May 31, 2000, 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 considering the provisions of Article 22 of Law No. 6,385 of December 7, 1976, with the changes introduced by Article 14 of Law No. 9,447 of March 14, 1997,

RESOLVES:

Art. 1. It is established that the establishment of branches abroad and the direct or indirect equity participation in Brazil and 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 abroad are considered to be agencies and representation offices.

Paragraph 2. Representation offices installed abroad whose operations exceed those provided for in Resolution No. 2,592 of February 25, 1999, due to legal or regulatory provisions of the country in which they are located, are equated to agencies.

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

I - have been in operation for at least six years;

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

III - comply with the minimum limits of paid-in capital and net worth established in Annex II Regulation 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 Brazil, increased by a value equivalent to 300% (three hundred percent) of that required for the establishment of a commercial bank in Brazil;

IV - present an economic-financial feasibility study of the agency to be installed or the investment to be made as equity participation, including, at a minimum:

a) planned operational strategy, identifying the types of deposit 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, in order to ensure global consolidated supervision.

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

Paragraph 4. Equity participations in companies headquartered in countries with favorable taxation, as defined in tax legislation, are only admitted in cases where control by the participating institution is ensured, in accordance with Article 3.

Art. 3. The institutions referred to in Article 1, except credit cooperatives, must prepare their financial statements on a consolidated basis, including participations in companies located in Brazil and abroad in which they hold, directly or indirectly, alone or together with other partners, including due to the existence of voting agreements, partner rights that ensure them, alone or cumulatively:

I - preponderance in social deliberations;

II - power to elect or remove 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 the 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 equity participations for the purposes of this Resolution.

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

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

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

b) belonging to the public sector;

II - in institutions referred to in Article 1, where 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, where there is shared control with other conglomerates, financial or otherwise.

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

Art. 5. Equity participations, in Brazil and abroad, registered in current assets, not consolidated under this Resolution, observing the provisions of Article 6, paragraph 1, including those acquired through investment funds, directly or in the situations provided for 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.

Paragraph 1. In the case of the participation of the institutions referred to in Article 1 in a primary placement process of securities, the exclusion of the corresponding equity participations registered in current assets during the distribution period is admitted, and any excess must be eliminated within a maximum period of thirty days from the date of closure of said period.

Paragraph 2. From the amount of resources applied in permanent assets, including the equity participations referred to in the main text and observing the provisions of the previous paragraph, the amount exceeding 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 Net Worth (PLA), starting from April 3, 2000, for the purpose of verifying the requirement of net worth compatible with the risk degree of the asset structure, without prejudice to the application of sanctions provided for in current legislation and regulation.

Art. 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.

Paragraph 1. For the purpose of verifying compliance with the limit on the application of resources in permanent assets, the values corresponding to equity participations acquired, including through investment funds, by insurance companies, capitalization societies, open private pension entities, and local reinsurers, registered in current assets and permanent assets, offered and accepted as collateral for reserves and technical provisions of entities of the Private National Insurance System (SNSP), must be excluded, in accordance with specific regulation.

Paragraph 2. The provisions of this article do not exempt the institutions referred to in the main text from preparing and sending to the Central Bank of Brazil the consolidated statements regarding the financial conglomerate, in accordance with current regulation, nor from calculating the operational limits mentioned therein based on these statements.

Paragraph 3. The procedures established in Article 2 of Resolution No. 2,283 of 1996 do not apply to institutions subject to the preparation of consolidated financial statements under Article 3 of this Resolution.

Art. 7. Reciprocal equity participations between the institutions referred to in Article 1, carried out directly or indirectly, are prohibited.

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

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

Art. 10. For financial institutions and other institutions authorized to operate by the Central Bank of Brazil that have branches or equity participation abroad, the preparation and sending to that Autarchy, together with their accounting documents, of financial statements are mandatory:

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

II - of financial institutions or similar entities located abroad in which they participate, 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 regulation.

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 celebrated with the independent auditor responsible for the audit of the financial statements of the institution in Brazil, the obligation to sign an agreement between this auditor and the independent auditor responsible for the audit of the operations carried out by the branches and companies referred to in items I and II, through which the independent auditor in Brazil assumes responsibility regarding the results of the work performed abroad, for the purposes of Resolution No. 2,267 of 1996 and complementary regulation.

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

Art. 11. Delay in delivering the consolidated financial statements, as well as those referred to in the previous article, subjects the institutions and their administrators to a monetary fine in accordance with current regulation.

Art. 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 entity subject to direct or indirect equity participation abroad;

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

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

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

Art. 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 regulation.

Art. 15. In cases of closure of a branch and divestment of direct or indirect equity participation abroad, the immediate return to Brazil of the resources remitted, plus any results eventually obtained from the divestment of the investment, must be provided, under proof.

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

Art. 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 installation of a branch or equity participation with the competent authority abroad, observing that the timeframe for the actual 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 for in this article must be justified to the Central Bank of Brazil, which, at its discretion, may cancel the authorization granted under Article 2.

Art. 17. Institutions that have branches or equity participation abroad must send to the Central Bank of Brazil reports, inquiries, or questions directed to their branches and controlled investee institutions, as defined in Article 3, or in which they 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.

Art. 18. Any operations between financial institutions and other institutions authorized to operate by the Central Bank of Brazil and companies located abroad, in which there is participation held by the same controllers of those institutions or control under Article 3, when said controllers are residents and domiciled in Brazil, are prohibited, except in the cases:

I - where consolidated;

II - of resource collection for a period of one day without issuance of a certificate;

III - of resource collection linked to export and import operations.

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

Paragraph 2. For the purposes of this article, participation is considered when:

I - a company participates with 10% (ten percent) or more of the capital of another, directly or indirectly;

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

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

IV - they share a common administrator.

Art. 19. The provisions of this Resolution do not apply to minority equity participations in financial organizations and institutions abroad, carried out exclusively for the purpose of obtaining access to financing instruments for exports and international transfer of resources.

Sole Paragraph. The remittance of resources intended for the equity participations referred to in this article is subject to registration with the Central Bank of Brazil, in accordance with current regulation.

Art. 20. Any non-compliance with paid-in capital and net worth requirements, verified on December 23, 1999, due to the requirements set forth 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 direct or indirect equity participations abroad will imply the need for prompt compliance with the minimum limits of paid-in capital and net worth established in Article 2.

Art. 21. Financial institutions and other institutions authorized to operate by the Central Bank of Brazil that, on December 23, 1999, held branches abroad or equity participations in Brazil and abroad, in disagreement with the provisions 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 institution's net worth, adjusted in accordance with current regulation, for the purpose of calculating the risk diversification limit and verifying the requirement of net worth compatible with the risk degree of the asset structure, of the investments related to each branch abroad or equity participation in Brazil and abroad in an irregular situation, without prejudice to the application of sanctions provided for in current legislation and regulation, and the Central Bank of Brazil may, in addition, cancel the authorization granted under Article 2.

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 Article 2, paragraphs 2 and 3, is verified.

Paragraph 3. Institutions in the situation referred to in the main text are prohibited, while remaining in that condition, from establishing branches and acquiring equity participations abroad, as well as from increasing the percentage of those already existing.

Paragraph 4. The adoption of the measures provided for 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.

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

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

Art. 24. Resolution No. 2,674 of December 21, 1999, is hereby repealed, and the regulatory basis and citations contained in Circular No. 2,981 of April 28, 2000, and Letter-Circular No. 2,910 of May 4, 2000, shall have this Resolution as their reference.

Brasilia, May 31, 2000

Arminio Fraga Neto
President