Until March 30, 2012, Brazilian
financial institutions did not require the approval of the
Brazilian Central Bank or other authorities to directly or
indirectly invest in the capital stock of other legal entities
either in or outside Brazil. They only needed to inform the Central
Bank of their investment and divestments in other companies.
However, upon the enactment of
Resolution 4,062, of March 30, 2012, the monetary authorities have
established that with a few exceptions financial institutions
require the prior approval of the Central Bank to invest in any
company in or outside Brazil. The Central Bank has explained that
the purpose of this new requirement is to reduce the systemic risks
associated with those investments, to give more transparency to
such investments and also to follow international recommendation
particularly those of the Bank of International Settlements
– BIS.
The Central Bank approval is now
required for both the initial investment as well as for any
increase in any existing investment.
In addition, investments can only be
made in companies whose activities are compatible and/or ancillary
to those of the financial institution.
When applying for the authorization
it is necessary for the applicant to inform the activities of the
prospective invested company, how those activities will benefit the
financial institution, the synergy between the two companies and
how the strategy of the financial institution is in line with the
proposed investment.
The prior approval of the Central
Bank is not required in the case of typical portfolio investments
of development or investment banks or multiple banks authorized to
perform activities of investment banks. It is also unnecessary in
the case of temporary investments that are not accounted as
permanent assets provided that they are made in companies whose
financial statements are not consolidated with those of the
financial institution.
With respect to existing
investments, the Central Bank has now the authority to review them
and determine the adjustments it may deem fit.
Brazilian financial system was one
of the few that did not face a major setback with the 2008
financial crisis and one of recognized reasons for this is the
control exercised by the Brazilian monetary authorities. So, while
this new requirement might be viewed as a problem for a few
bankers, the authorities believe that it will show its value in the
future.
*Partner of the banking area.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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