Resolution CMN No. 3988 — Implementation of Capital Management Structure

RESOLUTION NO. 003988

Dispenses with the implementation of a capital management structure.

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 June 30, 2011, based on Articles 4, item VIII, of the aforementioned Law, 2, item VI, 8, and 9 of Law No. 4.728, of July 14, 1965, and 20 of Law No. 4.864, of November 29, 1965, in Law No. 6.099, of September 12, 1974, with amendments introduced by Law No. 7.132, of October 26, 1983, in Law No. 10.194, of February 14, 2001, with amendments introduced by Law No. 11.524, of September 24, 2007, and in Article 6 of Decree-Law No. 759, of August 12, 1969,

RESOLVES:

Article 1. Financial institutions and other institutions authorized to operate by the Central Bank of Brazil required to calculate Required Reference Equity (PRE) in the manner established in the caput of Article 2 of Resolution No. 3.490, of August 29, 2007, must implement a capital management structure compatible with the nature of their operations, the complexity of the products and services offered, and the dimension of their exposure to risks.

Sole Paragraph. The provisions of this Resolution do not apply to consortium administrators, which shall follow the regulations issued by the Central Bank of Brazil in the exercise of its legal competence.

Article 2. For the purposes of this Resolution, capital management is defined as the continuous process of:

I - monitoring and controlling the capital maintained by the institution;

II - assessing the need for capital to face the risks to which the institution is subject; and

III - planning capital targets and needs, considering the strategic objectives of the institution.

Sole Paragraph. In capital management, the institution must adopt a prospective posture, anticipating the need for capital resulting from possible changes in market conditions.

Scope

Article 3. The capital management structure must encompass all institutions in the financial conglomerate, according to the Accounting Plan of the Institutions of the National Financial System (Cosif).

Sole Paragraph. The capital management structure must also consider possible impacts on the capital of the financial conglomerate arising from risks associated with other companies included in the economic-financial consolidation, defined in Resolution No. 2.723, of May 31, 2000.

Capital Management Structure

Article 4. The capital management structure must provide, at a minimum:

I - mechanisms that enable the identification and assessment of relevant risks incurred by the institution, including those not covered by PRE;

II - policies and strategies for capital management clearly documented, establishing mechanisms and procedures intended to maintain capital compatible with the risks incurred by the institution;

III - a capital plan covering a minimum horizon of three years;

IV - simulations of severe events and extreme market conditions (stress tests) and assessment of their impacts on capital;

V - periodic managerial reports on capital adequacy for the board of directors and for the board of administration, if applicable; and

VI - Internal Capital Adequacy Assessment Process (Icaap).

Capital Plan

Article 5. The capital plan, mentioned in item III of Article 4, must be consistent with strategic planning and provide, at a minimum:

I - capital targets and projections;

II - main sources of capital of the institution; and

III - capital contingency plan.

Sole Paragraph. In preparing the capital plan, the following must be considered, at a minimum:

I - threats and opportunities related to the economic and business environment;

II - projections of asset and liability values, as well as revenues and expenses;

III - growth targets or market share targets; and

IV - results distribution policy.

Icaap

Article 6. The Icaap, mentioned in item VI of Article 4, must be implemented by institutions that:

I - have total assets exceeding R$100,000,000,000.00 (one hundred billion reais);

II - have been authorized to use internal models for market risk, credit risk, or operational risk; or

III - are members of a financial conglomerate, in accordance with the Accounting Plan of the Institutions of the National Financial System (Cosif), that has total assets exceeding R$100,000,000,000.00 (one hundred billion reais) and is composed of at least one multiple bank, commercial bank, investment bank, development bank, foreign exchange bank, or savings bank.

§ 1. Banks cooperative, credit cooperatives, savings and loan associations, mortgage companies, development agencies, securities brokerage firms, foreign exchange brokerage firms, securities distribution companies, leasing companies, microentrepreneur and small business credit companies, credit, financing and investment companies, real estate credit companies, as well as other institutions that do not fit within the provisions of items I to III are exempt from implementing the Icaap.

§ 2. The Central Bank of Brazil will establish the procedures and parameters for the Icaap.

Transparency

Article 7. The description of the capital management structure must be evidenced in a public access report, with a minimum annual frequency.

§ 1. The board of administration or, in its absence, the institution's management, must state in the report mentioned in the caput their responsibility for the disclosed information.

§ 2. The institutions mentioned in Article 1 must publish, together with the financial statements, a summary of the description of their capital management structure, indicating the public access address of the report cited in the caput.

§ 3. Institutions subject to the provisions of Circular No. 3.477, of December 24, 2009, must make available the report cited in the caput together with the information disclosed as established in the aforementioned Circular.

Governance

Article 8. The policies and strategies for capital management referred to in item II of Article 4, as well as the capital plan referred to in Article 5, must be approved and reviewed, at a minimum, annually, by the institution's management and by the board of administration, if applicable, in order to determine their compatibility with the institution's strategic planning and with market conditions.

Sole Paragraph. The institution's management and the board of administration, if applicable, must have a comprehensive and integrated understanding of the risks that may impact capital.

Article 9. The constitution of a single unit responsible is admitted:

I - for the capital management of the financial conglomerate and its respective member institutions; and

II - for the assessment of possible impacts on capital arising from risks associated with non-financial companies included in the economic-financial consolidation.

Sole Paragraph. The constitution of a single unit responsible for the capital management of a credit cooperative system is admitted, provided that it is located in an entity supervised by the Central Bank of Brazil that is part of the respective system.

Article 10. The institutions mentioned in Article 1 must indicate a director responsible for the processes and controls related to the capital management structure.

§ 1. For the purposes of the responsibility referred to in the caput, it is admitted that the indicated director performs other functions in the institution, except those related to the administration of third-party resources.

§ 2. For institutions that are part of a conglomerate that have opted for the constitution of a single capital management unit in accordance with Article 9, only the institution in which the mentioned unit is located must indicate a responsible director.

Article 11. The capital management process must be periodically evaluated by internal audit.

Final Provisions

Article 12. The capital management structure must be implemented by June 30, 2013, observing the following schedule:

I - by January 31, 2012: indication of the responsible director and definition of the organizational structure for the implementation of capital management;

II - by June 30, 2012: definition of institutional policy, processes, procedures, and systems necessary for its effective implementation;

III - by December 31, 2012: effective implementation of the capital management structure, with the exception of the Icaap, mentioned in item VI of Article 4; and

IV - by June 30, 2013: effective implementation of the Icaap, mentioned in item VI of Article 4, observing the provisions of Article 6.

Sole Paragraph. The definitions mentioned in items I and II of the caput must be approved by the management and the board of administration, if applicable, of the institutions mentioned in Article 1.

Article 13. If the assessment of the need for capital by the financial institution points to a value above the PRE, the institution must maintain capital compatible with the results of its internal assessments.

Article 14. This Resolution enters into force on the date of its publication.

Brasília, June 30, 2011.

Alexandre Antonio Tombini
President of the Central Bank