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Brazil’s New Anti-Money Laundering Laws: A Risk-Based Approach
In a major overhaul of its anti-money laundering (AML) regulations, Brazil has adopted a risk-based approach to combat financial crimes. The new laws aim to increase efficiency and effectiveness in detecting and preventing money laundering and terrorist financing.
New Regulations and Circulars
The Brazilian Central Bank and the Brazilian Securities and Exchange Commission have issued new circulars and regulations to implement the risk-based approach. Circular No 3,978 dated January 23, 2020, replaces Circular No 3,461, dated July 24, 2009, and provides a more detailed AML procedure.
Risk-Based Approach
Under the risk-based approach, financial institutions are required to conduct an internal risk evaluation to identify and rate their customers’ risks. The institutions must then adopt controls proportionate to the level of risk posed by each customer or operation.
- Situations classified as having a low risk will have simplified controls.
- Those with a high level of risk will require more stringent measures.
Know-Your-Customer (KYC) Data
The new regulations also expand the minimum KYC data required from customers on their onboarding. Financial institutions must identify, qualify, and classify each customer by gathering and validating personal information and analyzing the customer’s risk profile.
Transaction Registration
Every operation and transaction must be registered in a manner that allows the institution to identify the parties involved, the origin and recipient of resources, and the receipt and transfer of funds. The regulations provide a list of people who must be considered as politically exposed persons.
Group-Wide Programs
Financial institutions are now allowed to implement group-wide programs against money laundering and terrorist financing, including policies and procedures for sharing information within the group for AML purposes. However, the analysis of suspicious transactions cannot be outsourced or conducted abroad, even if by an entity of the same economic group.
Implementation in the Brazilian Capital Market
The risk-based approach has also been implemented in the Brazilian capital market with the enactment of CVM Ruling No 617 on December 5, 2019, which entered into force on July 1, 2020. The new regulations establish new parameters for implementing AML policies, KYC procedures, monitoring and reporting operations, as well as coercive measures.
Challenges in Implementing the Risk-Based Approach
While the new AML regulation is only just enforceable, implementing a risk-based approach can present several challenges to financial institutions. Allocating responsibility under the risk-based approach regime is one of the main challenges, as it requires considering what the regulator expects and understands as reasonable.
Financial institutions must decide how to address their risks based on the regulator’s guidance, taking into account applicable national legal, regulatory, and supervisory frameworks. The Central Bank’s initiatives are an important leap forward in developing a more efficient AML system in Brazil, but local financial institutions will need to adapt their internal procedures to avoid exposing themselves to possible future liabilities.