Resolution CMN No. 4502

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, 2016, based on Article 4, item VIII, of the aforementioned Law, Article 9 of Law No. 4,728, of July 14, 1965, Article 20, § 1, of Law No. 4,864, of November 29, 1965, Articles 7 and 23 of Law No. 6,099, of September 12, 1974, Article 1, item II, of Law No. 10,194, of February 14, 2001, and Article 6 of Decree-Law No. 759, of August 12, 1969,

RESOLVES:

CHAPTER I

PRELIMINARY PROVISIONS

Section I

Object

Art. 1. This Resolution provides for the preparation and execution of a recovery plan with the objective of restoring adequate levels of capital and liquidity and preserving the viability of financial institutions and other institutions authorized to operate by the Central Bank of Brazil, in response to stress situations, contributing to the maintenance of the solidity, stability, and regular functioning of the National Financial System (SFN).

Section II

Scope of Application

Art. 2. The recovery plan, as established in this Resolution, must be prepared by multiple banks, commercial banks, investment banks, and savings banks whose Total Exposure/GDP ratio, defined by the Central Bank of Brazil in accordance with the regulations in force for the purpose of calculating the Additional Capital Systemic Importance Component (ACPSistêmico), is greater than 10% (ten percent).

§ 1. For the purposes of this Resolution, the Total Exposure/GDP ratio mentioned in the main text must be calculated based on information related to December 31 of the penultimate year relative to the current year.

§ 2. For the calculation of the Total Exposure/GDP ratio mentioned in the main text, referring to 2016, the Total Exposure value must correspond to the total asset value on the base date of December 31, 2014, recorded in the individual balance sheet or in the balance sheet of the financial conglomerate, if the institution is part of a financial conglomerate, in accordance with the Accounting Plan of the Institutions of the National Financial System (Cosif).

§ 3. The scope of the recovery plan must encompass:

I - all entities comprising the same prudential conglomerate, in accordance with Cosif; and

II - entities that perform critical functions or essential services, in accordance with item I of Article 4, belonging to an economic group integrated by an institution subject to the requirements established in this Resolution.

Art. 3. The Central Bank of Brazil may determine the preparation of a recovery plan by financial institutions and other institutions authorized to operate by it that are not included in the criterion established in the main text of Article 2, if it deems that the institution performs a critical function, in accordance with item I of Article 4.

Sole Paragraph. The deadline for sending the recovery plan as a result of the determination provided in the main text shall be set by the Central Bank of Brazil and may not be less than twelve months.

CHAPTER II

CONTENT OF THE RECOVERY PLAN

Section I

Preliminary Provisions

Art. 4. The recovery plan must contain, at a minimum, a detailed description of the following items:

I - critical functions and essential services performed by an entity included in the scope of the recovery plan;

II - monitoring program as described in Articles 6 to 8;

III - stress scenarios as described in Articles 9 and 10;

IV - recovery strategies as described in Articles 11 to 13 and criteria and procedures for their operationalization;

V - communication plan as described in Article 14;

VI - barriers and risks as described in Articles 15 and 16; and

VII - governance mechanisms as described in Articles 17 to 22.

§ 1. For the purposes of this Resolution, critical functions are activities, operations, or services whose discontinuation could compromise financial stability and the functioning of the real economy.

§ 2. For the purposes of this Resolution, essential services are activities, operations, or services, not covered by the provision of § 1 of this article, whose discontinuation could compromise the viability of the entities mentioned in the main text of Article 2 and in Article 3.

§ 3. The Central Bank of Brazil may determine the inclusion, in the recovery plan, of other activities, operations, or services performed by an entity included in the scope of the recovery plan when it understands that the discontinuation of the activity, operation, or service could compromise financial stability and the functioning of the real economy or the viability of the financial institution.

Art. 5. The adoption of recovery strategies, initiated by the institution, must be associated with the achievement of critical levels defined in the monitoring program and the potential realization of a stress situation.

Sole Paragraph. The institution's decision not to execute the recovery plan when the occurrence of the provision in the main text is verified must be duly justified and documented.

Section II

Monitoring Program

Art. 6. The monitoring program must comprise indicators and other quantitative and qualitative information that:

I - allow for the adequate monitoring of risks incurred by the institution;

II - reflect the magnitude and speed of change in the institution's economic-financial and liquidity situation;

III - allow for the timely adoption of recovery strategies;

IV - consider the horizon necessary for recovery strategies to produce effects; and

V - consider the business model, nature, complexity, and risk profile of the institution.

Sole Paragraph. The monitoring program must establish critical levels for the set of most relevant indicators, with a view to monitoring risks and the eventual execution of the recovery plan.

Art. 7. The monitoring program must provide for the monitoring of the following items, at a minimum:

I - indicators that demonstrate the actual or potential deterioration of the institution's capacity to meet its capital needs;

II - indicators that point to the actual or potential deterioration of the institution's capacity to meet its liquidity and financing needs;

III - indicators that evidence the actual or potential variation in results or modifications in the pattern of revenue or expense sources;

IV - indicators that reflect the quality of active operations and their concentration in sectoral, geographic, and counterparty terms;

V - indicators that reflect the concentration of funding sources, their level of stability, and their costs;

VI - indicators and other information that signal activities or events that could significantly affect the image and operational or financial continuity; and

VII - indicators and other information that point to legal risks, contagion risks, and the effectiveness of internal controls.

§ 1. The monitoring program must cover all items required in the main text, with priority given to choosing the indicators and other information used in risk and capital management.

§ 2. The indicators referred to in item I of the main text must be consistent with the risk and capital management structures and with the Internal Capital Adequacy Assessment Process (ICAAP).

§ 3. The indicators referred to in item II must be consistent with the liquidity risk management structure.

§ 4. The Central Bank of Brazil may determine the inclusion of other indicators and additional information in the monitoring program, if it considers that their omission could prejudice the effectiveness of the recovery plan as established in this Resolution.

Art. 8. The institution must establish adequate processes and systems for monitoring the indicators, critical levels, and other information contained in the monitoring program linked to the recovery plan.

Sole Paragraph. The Central Bank of Brazil may request data related to the indicators and other information included in the monitoring program, in the form and periodicity to be defined by it.

Section III

Stress Scenarios

Art. 9. Stress scenarios must be comprehensive and encompass events that could threaten the continuity of business and the viability of the institution.

§ 1. Stress scenarios must encompass, at a minimum, hypotheses of asset devaluation, reduction in funding capacity, deterioration in the capacity to generate results, deterioration in the liquidity situation, or resulting from instabilities of a systemic or idiosyncratic nature, of national or external origin.

§ 2. With a view to testing the adequacy of the critical levels defined in the monitoring program, the feasibility, and the effectiveness of recovery strategies, stress scenarios must include the hypothesis of the unviability of the institution's business model.

Art. 10. The Central Bank of Brazil may determine the inclusion of additional stress scenarios in the recovery plan and the performance of stress tests that consider these scenarios.

Sole Paragraph. The deadline for the inclusion of scenarios and the performance of stress tests shall be set by the Central Bank of Brazil according to the complexity of the circumstances of each case.

Section IV

Recovery Strategies

Art. 11. The recovery plan must provide for a comprehensive and robust set of recovery strategies in response to different stress scenarios.

Art. 12. The institution must evaluate the inclusion, at a minimum, of the following recovery strategies:

I - strengthening of the capital and liquidity situation;

II - divestment of assets;

III - refinancing of debts;

IV - restructuring of liabilities;

V - access to financial support from entities belonging to the same economic group, if applicable;

VI - access to liquidity financial assistance lines, if applicable, regardless of the nature of the source;

VII - changes in the corporate or organizational structure, in the business strategy, or in the business model of the institution; and

VIII - maintenance of the supply of services provided by third parties, necessary for the operational continuity of the institution.

Art. 13. The recovery plan must contain the justification of the feasibility and analysis of the expected impact of the adoption of each recovery strategy individually and, where applicable, of the joint adoption of more than one strategy.

Sole Paragraph. The justification of feasibility and impact analysis mentioned in the main text must evidence the time necessary for recovery strategies to produce effects and the expected costs and benefits.

Section V

Communication Plan

Art. 14. The communication plan aims to contribute to the effectiveness of the strategies provided for in the recovery plan.

Sole Paragraph. The communication plan referred to in the main text must consider the relevance, adequacy, and timeliness of communication with stakeholders throughout the process of executing the recovery plan.

Section VI

Barriers and Risks

Art. 15. The recovery plan must identify any barriers to the effectiveness of recovery strategies and the risks associated with their execution.

Art. 16. When submitting the recovery plan to the Central Bank of Brazil, in accordance with Article 23, item II, the institution must indicate the actions to be taken to eliminate or mitigate the barriers and risks mentioned in Article 15.

Sole Paragraph. The deadlines associated with the adoption of the actions mentioned in the main text must be presented to the Central Bank of Brazil upon submission of the recovery plan.

Section VII

Governance

Art. 17. The recovery plan must describe the governance mechanisms necessary for the execution of the recovery plan.

Art. 18. The preparation and revision of the recovery plan must be integrated into the institution's information management, risk management, capital management, and crisis management processes, as well as contingency and capital plans.

Sole Paragraph. The Central Bank of Brazil may determine that the process of preparing the recovery plan and its revisions be subject to evaluation by an independent auditor, through the preparation of a specific report.

Art. 19. The recovery plan must be submitted for review by a unit of the institution independent of the areas responsible for its preparation.

Sole Paragraph. The review provided for in the main text must:

I - involve the evaluation of critical functions and essential services, the adequacy and robustness of the monitoring program and stress scenarios, the mapping of barriers and risks to the effectiveness of recovery strategies, governance, and other criteria and procedures associated with the operationalization of the plan; and

II - be performed at least every three years, or whenever there is a relevant change in the economic-financial scenario, operating strategies, business model, organizational structure, or processes linked to the critical functions and essential services mentioned in item I of Article 4.

Art. 20. The recovery plan must be approved and revised by the executive board and the board of directors, if applicable, annually or whenever there is a relevant change in the economic-financial scenario, operating strategies, business model, organizational structure, or processes linked to critical functions and essential services.

Art. 21. The executive board and the board of directors, if applicable, must:

I - ensure the timely identification of those responsible for the execution of the recovery plan;

II - have a comprehensive and integrated understanding of critical functions and essential services, indicators and other information contained in the monitoring program, stress scenarios, recovery strategies, barriers, and risks associated with the plan, ensuring their compatibility with the institution's strategic planning; and

III - ensure the preparation of feasible and effective recovery strategies, including those involving other companies belonging to the economic group.

Art. 22. The executive board and the board of directors, if applicable, are responsible for the adoption of the strategies provided for in the recovery plan.

§ 1. The specific responsibilities of each director and member of the board of directors, if applicable, must be detailed in the recovery plan.

§ 2. The director responsible in accordance with Article 23, item I, must immediately inform the executive board and, if applicable, the board of directors and the audit committee, when indicators referred to in Article 6 reach the previously established critical levels.

CHAPTER III

FINAL PROVISIONS

Art. 23. The institutions mentioned in the main text of Article 2 and in Article 3 must:

I - indicate a director responsible for complying with the requirements established in this Resolution; and

II - submit the recovery plans to the Central Bank of Brazil annually, or whenever there is a relevant change as provided in Article 20, within thirty days after their approval by the executive board and the board of directors, if applicable.

Art. 24. Institutions that cease to meet the criterion established are exempt from the obligations established in this Resolution:

I - in the main text of Article 2 on three consecutive base dates; or

II - in Article 3, by evaluation of the Central Bank of Brazil.

Art. 25. The following must be communicated promptly to the Central Bank of Brazil:

I - the achievement of a critical level established in the monitoring program;

II - the realization of a stress situation;

III - the decision to adopt a recovery strategy; and

IV - the justified decision not to adopt any of the recovery strategies, when the occurrence of the provisions in items I or II is verified.

Sole Paragraph. The Central Bank of Brazil may set a specific deadline for each type of communication provided for in the main text.

Art. 26. The Central Bank of Brazil may, at its discretion:

I - determine adjustments in the content of the recovery plan; and

II - determine the total or partial execution of the recovery plan, with the objective of maintaining the solidity, stability, and regular functioning of the SFN.

Sole Paragraph. The execution of the recovery plan does not prevent the adoption, by determination of the Central Bank of Brazil, of preventive prudential measures as described in Resolution No. 4,019, of September 29, 2011.

Art. 27. The recovery plan of the institutions referred to in Article 2 must be submitted by December 31, 2017, observing the following schedule:

I - by October 31, 2016: indication of the director responsible in accordance with item I of Article 23;

II - by December 31, 2016: presentation of the detailed description of the governance mechanisms in accordance with Article 17;

III - by March 31, 2017: presentation of the detailed description of the critical functions and essential services referred to in item I of Article 4;

IV - by June 30, 2017: presentation of the detailed description of the monitoring program and stress scenarios referred to, respectively, in items II and III of Article 4; and

V - by December 31, 2017: presentation of the detailed description of the recovery strategies and criteria and procedures for their operationalization; the communication plan; and the barriers and risks referred to, respectively, in items IV to VI of Article 4.

Sole Paragraph. A financial institution that comes to meet the criterion established in the main text of Article 2 from January 1, 2017, must prepare and submit the recovery plan to the Central Bank of Brazil by December 31 of the year of inclusion.

Art. 28. From July 1, 2018, a brief description of the recovery plan must be available in the specific section of the institution's website containing information related to risk management, as defined by the Central Bank of Brazil in accordance with the regulations in force.

§ 1. The location of the information mentioned in the main text must be informed together with the published financial statements.

§ 2. The institution is exempt from including information it considers strategic in the description mentioned in the main text.

Art. 29. The documentation supporting compliance with the provisions of this Resolution must be kept available to the Central Bank of Brazil for a period of five years counted from the date of submission of the recovery plan, in accordance with item II of Article 23.

Art. 30. This Resolution enters into force on the date of its publication.

Ilan Goldfajn
President of the Central Bank of Brazil