Brazil Strengthens Anti-Money Laundering Efforts with New Regulatory Framework

Introduction

Brazil has taken a significant step in its efforts to combat money laundering and terrorist financing by adopting a new regulatory framework for financial institutions. This shift towards a risk-based approach is expected to improve the country’s efficiency in tackling these crimes.

Key Provisions of the New Framework

• Risk-Based Approach: Financial institutions must conduct an internal risk evaluation and classify their customers based on their risk profile.
• Know-Your-Customer (KYC) Requirements: Regulated entities must gather and validate personal information, as well as analyze the compatibility of the customers’ risk profile with the nature of the business relationship.
• Operation and Transaction Registration: Every operation and transaction must be registered in a manner that allows identification of parties involved.

Expanded KYC Data and Group-Wide Programs

The new regulation also introduces the following key changes:

• Group-Wide Programs: Financial institutions that are part of worldwide economic groups must implement group-wide programs against money laundering and terrorist financing.
• No Outsourcing to Foreign Entities: Analysis of suspicious transactions cannot be outsourced to foreign entities, even if they belong to the same economic group as the financial institution.

Impact on Brazil’s Capital Market

The new AML regulation has also been enforced in Brazil’s capital market. CVM Ruling No 617, which entered into force on July 1st this year, establishes new parameters for implementing AML policies, KYC procedures, monitoring and reporting operations.

Conclusion

While the new framework presents challenges to financial institutions in allocating responsibility under the risk-based approach regime, it is expected to improve Brazil’s efficiency in combating money laundering and terrorist financing.