Alerts
Covid-19 | Updates – Emergency support measures presented by the main agents of the financial market and other matters of interest
In another round of updates, we have selected below the main economic measures launched in the last two weeks by different financial markets agents to fight back the economic impacts resulting from Covid-19, as well as other matters of interest to the financial markets:
National Congress
Constitutional Amendment Bill (CA) No. 106, of 05.07.2020
The CA eases fiscal, administrative and financial rules during the public calamity period arising from Covid-19 pandemic.
We highlight the following main features of the CA:
- Establishes: (i) specific budget for expenditures to face the pandemic; (ii) the creation of expenses without the current restrictions, exempting the Executive Authority from complying with the “golden rule (regra de ouro)”; and (iii) the simplification of the process for purchasing and hiring personnel;
- Authorization to BACEN: BACEN may: (i) buy and sell credit rights and private securities in the secondary market with risk assessment as BB – or higher classified by international risk agencies; and (ii) buy and sell National Treasury securities in the local and international secondary markets; and
- Trade-offs: BACEN may require securities sellers to take certain measures yet to be enacted by the public body, in addition to refraining from: (i) paying interest on own capital and dividends above the mandatory minimum established by law or in the current bylaws in force on the date of entry into force of the CA; and (ii) increase the remuneration, fixed or variable, of officers, managers and members of the board of directors.
The CA will be automatically revoked on the closing date of the state of public calamity recognized by the National Congress.
Federal Government
Provisional Measure (PM) No. 958, of 04.24.2020
Until 09.30.2020, public financial institutions will be exempt from complying with certain obligations when renewing or granting new loans to individuals and legal entities, among which we highlight:
- the exemption from providing proof of payment of federal taxes, debt clearance certificate (CND), certificate of clearance from the Severance Funds (FGTS) and proof of electoral regularity; and
- the release of prior consultation with the Registry of Outstanding Credits of Federal Agencies and Entities (Cadin) for credit operations involving the application of public resources.
The PM has also revoked article 1,463 of the Brazilian Civil Code, which prohibited the pledging of vehicles without being previously insured against theft, damage and damage caused to third parties.
The PM is already in force and is valid for 60 days, extendable for another 60 days period. If the PM is not approved by the National Congress by the end of this period, it will cease to be valid.
Central Bank of Brazil (Banco Central – BACEN) and National Monetary Council (Conselho Monetário Nacional – CMN)
Circular BACEN No. 4,015, of 05.04.2020 and CMN and BACEN Joint Resolution No. 1, of 05.04.2020
Last week, by means of Circular BACEN No. 4,015, dated 05.04.2020, and CMN and BACEN Joint Resolution No. 1, dated 05.04.2020, CMN and BACEN regulated Open Banking (Sistema Financeiro Aberto) in Brazil.
The new regulation allows, upon the client’s prior consent, the standardized sharing of data and services through the opening and integration of systems, by financial institutions, payment institutions and other institutions authorized to operate by BACEN.
The new model aims at integrating financial services and reducing information asymmetry between financial service providers, with the expectation of increasing efficiency, competitiveness and transparency in the national financial system. One relevant consequence of the new regulation is also the enhanced control over financial data granted to consumer themselves, in line with a worldwide trend of heightened concerns over personal data.
The approved normative acts provide for, among other matters, the included scope of data and services of the participating institutions, the consent of the client and authentication, the convention to be signed between the participating institutions to define the technical standards and operational procedures for implementing Open Banking.
Open Banking will be implemented in 4 phases, commencing on 11.30.2020 and the expected completion date is 10.25.2021, considering the following phases:
- Phase I: public access to data from institutions participating in Open Banking on customer service channels and products and services related to deposit or savings accounts, payment accounts or credit operations;
- Phase II: sharing between participating institutions of client and representative registration information, as well as client transaction data regarding the products and services included in Phase I;
- Phase III: sharing of the payment transaction initiation service between participating institutions, as well as of the service of forwarding of credit operation proposal between financial institutions and correspondents in the country, which may have been contracted for this purpose; and
- Phase IV: expansion of the scope of data to include, among others, foreign exchange operations, investments, insurance and open supplementary pension plans, both in terms of publicly accessible data and transaction data shared between participating institutions.
The regulation for Open Banking in Brazil can be highlighted for its notable advancement in relation to other regulatory proposals around the world. With the enactment of these new rules and the publication of a well-defined schedule for implementation, this scenario creates opportunities for new business models in the financial sector and makes room for new products and services that take advantage of the considerable competitive potential created by the integration of financial systems and information.
Central Bank of Brazil (Banco Central – BACEN) and National Monetary Council (Conselho Monetário Nacional – CMN)
Circular BACEN No. 4,016, of 05.04.2020 and Resolution CMN No. 4,815, of 05.04.2020
Last week, by means of Circular No. 4,016 and Resolution No. 4,815, both dated 05.06.2020, CMN and BACEN regulated the digitalisation of trade bills.
According to financial authorities, the regulation will oblige financial institutions to trade these securities in an electronic depositary system, which will be managed by a depositary entity, regulated and supervised by BACEN.
These depositary entities must create, within 120 days from the entry into force of Circular No. 4,016 (06.01.2020), conventions among themselves to universalize data, guarantee the robustness and uniqueness of trade bills and effectively register them digitally.
Currently, the trade bill does not contribute to foster the credit market, especially for small and medium-sized companies, as there is strong uncertainty about their liability, in view of the high rate, for example, of duplicity and fraud.
In effect, this scenario suppresses the will of financial institutions using trade bills as collateral in credit operations.
With the proposed changes and the digital registration of the trade bills, the financial institutions will have greater symmetry over the information both in relation to the title itself and to the company in search of credit (company income history, for example). Naturally, with greater liability, credit should likely become cheaper and more abundant.
The rule of gradual transition to this system will take place according to the size of the borrower. For large companies (with annual income above R$300 million), the requirement becomes effective 360 days after the BACEN approval of the depositary entities’ convention. For medium-sized companies (annual income between R$4.8 million and R$300 million), the requirement becomes effective 540 days after the convention is approved and, finally, for small companies (annual income between R$360 thousand and R$4.8 million), in 720 days after said approval.
Central Bank of Brazil (BACEN)
Circular BACEN No. 4,013, of 04.28.2020
It amends the Circular BACEN No. 3,590, of 04.26.2012, which regulates the filing and the review of merger control filings in the National Financial System by BACEN.
The Circular increases the list of transactions and agreements involving, directly or indirectly, financial institutions subject to approval by BACEN as merger control filings:
- the transfer of business;
- the signing of contracts or the creation of corporate structures for cooperation in the financial sector;
- the acquisition of minority interest that results, from the acquiring institution or its parent company, in direct or indirect equity interest of 5% or more of the voting capital of the acquired institution; and
- the last acquisition that results, directly or indirectly, to the acquiring institution or its parent company, an increase equity interest greater than or equal to 5%, in cases the investor holds 5% or more of the voting capital of the acquired company.
The Circular provides a 30 days term, counting from the execution of first legal transaction, to submit the filing to BACEN.
The Circular will enter into force on 06.01.2020.
Monetary Policy Committee (COPOM) of the Central Bank (BACEN)
On 05.06.2020, COPOM has decided to cut the target for basic interest rates (SELIC) by another 0.75%, changing the SELIC rate from 3.75% to 3% per year, reaching its lowest level in Brazilian history.
The new benchmark interest rate for the Brazilian economy comes into force as of 05.07.2020 and may, possibly, have a positive impact on financing costs in general.
Our team of Project Finance, Credit Operations, Banking Law and Capital Markets will be available for any clarification required and to assist in respect of the above measures.
