Brazil Takes a Step Forward in Fight Against Money Laundering with New Regulations on AML/CFT

Brazil has recently introduced a series of regulations aimed at enhancing its anti-money laundering (AML) and combating the financing of terrorism (CFT) framework, in line with recommendations from the Financial Action Task Force on Money Laundering (FATF).

Strengthening the AML/CFT Regime

The new rules are designed to strengthen Brazil’s AML/CFT regime, making it more effective in detecting and preventing illicit financial activities. The Brazilian Central Bank has issued Circular No 3,978/2020, which replaces earlier regulations and introduces a risk-based approach to AML supervision.

Risk-Based Approach to AML Supervision

Under this approach, financial institutions will be required to conduct internal risk evaluations to identify and classify their customers’ risks, and adopt measures proportionate to the level of risk posed. This will enable financial institutions to target their resources more effectively in addressing AML/CFT risks.

Enhanced KYC Requirements

The new regulation also expands the minimum know-your-customer (KYC) data required from customers, including personal information and analysis of their risk profile. Financial institutions must also have a specific KYC routine for employees, partners, and third-party service providers.

Transaction Monitoring and Reporting

In addition, Circular 3,978/2020 requires that all operations and transactions be registered in a manner that allows the institution to identify the parties involved, as well as the origin and recipient of resources. The regulation also defines politically exposed persons and provides guidelines on how financial institutions should deal with them.

Similar Regulations for Capital Market

The Brazilian Securities and Exchange Commission has issued CVM Ruling No 617 (ICVM 617), which introduces a similar risk-based approach to AML supervision in the capital market. ICVM 617 establishes new parameters for implementing AML policies, KYC procedures, monitoring and reporting operations, as well as enforcing coercive measures.

Challenges Ahead

The implementation of these regulations is expected to present challenges for financial institutions, particularly in allocating responsibility under the risk-based approach regime. However, experts say that the move is an important step forward in developing a more efficient AML system in Brazil, and will help to strengthen the country’s fight against money laundering and terrorist financing.

Quotes from Experts

“It’s a significant development in Brazil’s efforts to combat financial crime,” said José Luiz Homem de Mello, partner at Pinheiro Neto Advogados. “The risk-based approach is a more effective way of addressing AML/CFT risks, and will allow financial institutions to target their resources more effectively.”

“In this sense, the financial institution’s strategy has to take into account the applicable national legal, regulatory and supervisory frameworks,” said Homem de Mello. “It’s a significant challenge, but one that will ultimately lead to a more effective AML/CFT regime in Brazil.”

Timeline

The new regulations come into effect on 1 October 2020, giving financial institutions a six-month period to adapt to the changes. Experts say that it’s essential for institutions to carefully review their internal controls and procedures to ensure compliance with the new regulations.

In conclusion, the introduction of these regulations marks an important step forward in Brazil’s fight against money laundering and terrorist financing. Financial institutions must be prepared to adapt to the changes and implement effective measures to ensure compliance with the new regulations.