Financial Crime World

Brazilian Financial Institutions Must Meet Tough New Governance Standards

The Central Bank of Brazil has introduced new rules requiring financial institutions to adopt strict governance standards to ensure the stability and integrity of the country’s financial system.

Key Changes

  • All appointments to key positions at financial institutions must be approved by the Central Bank, based on subjective and objective parameters.
  • The bank will conduct regular oversight of financial institutions to ensure they are meeting the required standards.
  • Financial institutions must adopt policies and procedures to control their activities, financial information systems, and compliance with regulations.
  • They must also establish effective internal controls and risk management structures to prevent fraud and ensure the safety of customers’ deposits.

Compliance Requirements

  • Financial institutions must appoint an executive officer responsible for compliance with all regulations related to financial and auditing records.
  • They must also contract an independent auditor to evaluate their internal controls and report on any potential failings or non-compliance with regulations.
  • Payment institutions, subject to stricter requirements due to their higher level of clients and transactions, must appoint a statutory officer responsible for observing compliance with the new rule, starting in January 2024.

Cybersecurity Measures

  • Financial institutions must have strict cybersecurity measures in place to prevent breaches and protect customer data.

Minimum Capital Requirements

  • Financial institutions must also meet minimum capital requirements, which vary depending on the type of licence held.
    • Commercial banks: R$ 17.5 million
    • Credit unions: R$ 10,000 to R$ 6 million

Basel III Implementation

  • Brazil has implemented the Basel III rules, which set out new standards for bank capital, liquidity, and leverage ratios.
  • Financial institutions must calculate their capital requirements based on three types of risk:
    • Credit risk
    • Market risk
    • Operational risk

Consumer Protection

  • The Consumer Defence Code (CDC) is applicable to financial institutions, protecting end-consumers from unfair practices.
  • Financial institutions must follow specific rules issued by the CMN and the Central Bank when contracting transactions and providing services to customers and the public.

These new regulations are designed to ensure that financial institutions prioritize consumer protection and maintain the stability of the financial system.