Financial Crime World

Brazil’s Financial Regulators Ramp Up Compliance Enforcement: A Look at Compliance Programs, Gatekeepers, and Standard of Care

In the rapidly evolving financial landscape of Brazil, regulatory compliance has taken center stage as the nation’s financial services regulators step up their enforcement efforts. This article explores the compliance programs, role of gatekeepers, and standard of care as mandated by the National Monetary Council (CMN), Central Bank of Brazil (BCB), and Securities and Exchange Commission of Brazil (CVM).

Strict Compliance Regimes: Nature and Requirements

The CMN and BCB hold significant sway over Brazil’s financial sector, regulating banking activities and related matters like credit, currency, and exchange.

CMN Compliance Programs

According to [Resolution CMN No. 4,968](https://www.banco central.gov.br/resolutions/consultar?id=67674), financial institutions and other entities authorized to operate by the BCB must maintain internal control systems to ensure regulatory compliance. Moreover, [Resolution CMN No. 4,595](https://www.banco central.gov.br/resolutions/consultar?id=59836) mandates a compliance policy compatible with the nature, size, complexity, structure, risk profile, and business model of financial institutions.

BCB’s Anti-Money Laundering and Counter-Terrorism Financing Procedures

The BCB has amended Circular BCB No. 3,978 [(January 23, 2020)](https://www.banco central.gov.br/consulta/boletim/sistBoletimDetalhe.asp?codMovimento=58811) focusing on politics, procedures, and internal controls related to anti-money laundering (AML) and counter-terrorism financing (CTF) procedures.

CVM Compliance Programs

The CVM has internal controlling rules outlined in Resolution CVM No. 50 concerning AML/CTF programs, risk assessments, and internal controls, amongst other regulations.

The Importance of Gatekeepers

Gatekeepers play a critical role within Brazil’s financial regulatory system, as established by regulators including the CMN, BCB, and CVM.

  • Independent audit
  • Internal audit
  • Internal controls
  • Compliance
  • Ombudsman services
  • Cybersecurity measures

CMN’s Gatekeeping Requirements

The CMN requires internal audit assessments covering specific areas, such as controls, risk management, corporate governance, compliance, asset safeguarding, and adherence to legal frameworks.

Directors’ Duties and Liability

Boards of directors of financial services firms hold significant duties and are subject to a specific standard of care.

According to the Brazilian Corporation Law No. 6,404, senior managers and members of advisory bodies are duty-bound to act with care, loyalty, transparency, and impartiality.

The BCB, CMN, and CVM additionally impose specific requirements on the directors and executive boards of financial institutions, ensuring their regulatory compliance. Directors are held individually accountable for damages caused in violation of law, infra-legal regulations, recommendations from regulatory bodies, and internal codes of conduct under Article 158 of the Corporation Law.

Private Rights of Action

Violations of rules and regulations issued by Brazil’s financial authorities can result in both administrative proceedings and private rights of action. While administrative hearings are managed by the authorities themselves, private parties can seek legal recourse in civil courts to defend their rights.

  • Contractual disputes: related to financial regulations, inadequate charges, unreasonable interest rates, insufficient liquidity, and flawed financial products or structures
  • Consumer protection: anyone whose rights are infringed or threatened has the right to access justice

Clear Communication of Contractual Obligations and Associated Risks

Regardless of the consumer’s sophistication or that of the counterparty, financial services providers are expected to ensure their offered products or services align with customers’ needs, interests, and objectives. They should utilize clear, objective, and understandable language when communicating contractual obligations and associated risks.

Rule-making and Consultation Processes

New regulations affecting Brazil’s financial services sector are subjected to extensive consultation processes and regulatory impact analyses. This helps regulators evaluate the economic impact of proposed legislation while gauging potential repercussions on the industry and users. When significant aspects of the national financial system are impacted, public consultations enable market participants and civil society to share their opinions before regulations are enacted, making regulations more effective, enforceable, and accepted by the financial sector and stakeholders.