Financial Services Compliance - Contributing editor Annette L Nazareth - Pinheiro Neto Advogados
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Financial Services Compliance Contributing editor Annette L Nazareth 2018 © Law Business Research 2018
Financial Services
Compliance 2018
Contributing editor
Annette L Nazareth
Davis Polk & Wardwell LLP
Reproduced with permission from Law Business Research Ltd
This article was first published in April 2018
For further information please contact editorial@gettingthedealthrough.com
Publisher The information provided in this publication is
Law
Tom Barnes general and may not apply in a specific situation.
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© Law Business Research 2018CONTENTS
Introduction5 Japan39
Annette L Nazareth, Karen Chan and Michael Sholem Kunihiko Morishita, Takaharu Totsuka, Daisuke Tanimoto and
Davis Polk & Wardwell LLP Takahiko Yamada
Anderson Mori & Tomotsune
EU Overview 7
Michael Sholem Portugal45
Davis Polk & Wardwell LLP Inês Caria Pinto Basto and Miguel Stokes
Uría Menéndez – Proença De Carvalho
Belgium11
Johan Mouraux and Lucas De Four Singapore49
DLA Piper UK LLP Nish Shetty
Clifford Chance Pte Ltd
Brazil15 Janice Goh and Ho Wan Yi
Cavenagh Law LLP
José Luiz Homem de Mello and Fernanda Paula Salomão
Pinheiro Neto Advogados
Spain55
China20 Isabel Aguilar Alonso
Uría Menéndez Abogados SLP
Susan Munro and Edward Lin
Steptoe & Johnson LLP
Switzerland58
Germany26 François Rayroux, Patrick Schleiffer, Laurence Vogt Scholler,
Patrick Schärli and Guillaume Braidi
Andreas Dehio
Lenz & Staehelin
Linklaters LLP
United Kingdom 63
Hong Kong 30
Michael Sholem and Jennifer Duffy
Karen Chan, John A Atchley III and Laura Leung
Davis Polk & Wardwell London LLP
Davis Polk & Wardwell LLP
United States 67
Italy35
Annette L Nazareth, Hilary S Seo, Mark A Sater and Kelley L
Marco Penna, Giovanna Tassitano and Ruggero Maria Zanolini
O’Mara
Legance Avvocati Associati
Davis Polk & Wardwell LLP
2 Getting the Deal Through – Financial Services Compliance 2018
© Law Business Research 2018PREFACE
Preface
Financial Services Compliance 2018
First edition
Getting the Deal Through is delighted to publish the first edition of
Financial Services Compliance, which is available in print, as an e-book
and online at www.gettingthedealthrough.com.
Getting the Deal Through provides international expert analysis in
key areas of law, practice and regulation for corporate counsel, cross-
border legal practitioners, and company directors and officers.
Throughout this edition, and following the unique Getting the Deal
Through format, the same key questions are answered by leading
practitioners in each of the jurisdictions featured.
Getting the Deal Through titles are published annually in print and
online. Please ensure you are referring to the latest edition or to the
online version at www.gettingthedealthrough.com.
Every effort has been made to cover all matters of concern to
readers. However, specific legal advice should always be sought from
experienced local advisers.
Getting the Deal Through gratefully acknowledges the efforts of all
the contributors to this volume, who were chosen for their recognised
expertise. We also extend special thanks to Annette L Nazareth of Davis
Polk & Wardwell LLP, the contributing editor, for her assistance in
devising and editing this volume.
London
March 2018
www.gettingthedealthrough.com 3
© Law Business Research 2018Pinheiro Neto Advogados BRAZIL
Brazil
José Luiz Homem de Mello and Fernanda Paula Salomão
Pinheiro Neto Advogados
1 What national authorities regulate the provision of financial 4 What is the registration or authorisation regime applicable to
products and services? financial services firms and authorised individuals associated
Regulation and supervision of financial products and services are with those firms? When is registration or authorisation
mostly entrusted to the National Monetary Council (CMN), the Central necessary, and how is it effected?
Bank of Brazil (Central Bank) and the Brazilian Securities Commission The authorisation regime is effected by the Central Bank. Under the
(CVM). federal constitution, foreign ownership interests in a Brazilian financial
institution are subject not only to the Central Bank’s prior approval, but
2 What activities does each national financial services also to issuance of a decree by the President of the Republic confirm-
authority regulate? ing the national interest in and authorising such foreign equity holding.
The CMN oversees the Brazilian monetary, credit, budgetary, fiscal This presidential decree is also required for a foreign-based financial
and public debt policies. It is chaired by the Minister of Finance, and institution to open a branch in Brazil.
is formed of the Minister of Planning and the President of the Central Licensing of new financial services firms, for which Central
Bank. The CMN regulates Brazilian financial institutions and currency, Bank approval is required, must follow the procedures prescribed by
supervises Brazil’s reserves of gold and foreign exchange, sets out Resolution 4,122 of 2 August 2012, and Circular 3,649 of 11 March 2013.
Brazilian savings and investment policies, and regulates the Brazilian Any interested party may apply for approval. However, the person in
capital markets to promote the economic and social development of charge of the licensing process must be technically qualified to conduct
Brazil. The CMN also oversees the activities of the Central Bank and the project at the Central Bank, and the group organising the institution
of the CVM. (in which the representatives of the future controlling group and future
The Central Bank is responsible for implementing CMN poli- holders of qualified interest will participate) must be identified.
cies on foreign currency and credit, means of payment, licensing and The application must contain:
regulation of Brazilian financial institutions, including as regards the • a draft statement of intent;
minimum capital and reserve requirements, disclosure of financial • an executive summary of the business plan;
information and transactions by financial institutions, and monitoring • the names and particulars of each member of the controlling group
and regulation of foreign investments in Brazil. of the financial institution and the holders of qualified equity inter-
The Central Bank also supervises, inspects and imposes penalties est (direct or indirect interest held by individuals or legal enti-
on private and public financial institutions; monitors and approves the ties, corresponding to 15 per cent or more of shares representing
incorporation, functioning, transfer of control and reorganisation of the total capital stock of the financial services firm), stating their
financial institutions; receives compulsory withholdings and volun- respective ownership interests;
tary demand deposits from financial institutions; executes rediscount • the names and particulars of individuals and legal entities that are
transactions and loans to financial institutions; and acts as depository part of the same economic group as the financial institution and
of gold and foreign currency reserves. that may directly or indirectly influence its business;
The CVM is tasked with implementing the policies established by • statements and documents evidencing that the economic group
the CMN for securities, with the purpose of regulating, developing, members are knowledgeable in the line of business and segment in
monitoring and inspecting the securities and derivatives market and which the institution intends to operate, and also in market dynam-
its participants (listed companies, investment funds, investors, custo- ics, sources of operating funds, management and risks related to
dians and other financial agents, asset managers, independent audi- the intended operations;
tors, consultants and securities analysts). It also regulates, supervises • identification of the origin of venture funds; and
and inspects publicly held companies; trades and brokerage in the • an authorisation from all members of the controlling group and
securities and derivatives markets; the organisation, functioning and from all holders of qualified equity interest to the Brazilian Federal
operation of stock markets, commodities and futures markets; and the Revenue Office and to the Central Bank granting access to relevant
management and custody of securities. information.
3 What products does each national financial services authority If the application is approved by the Central Bank, the applicant, before
regulate? the financial institution is authorised to begin operations, must:
• formalise the constituent documents of the financial institution,
The Central Bank regulates the products offered by financial institu-
arranging for their registration with the relevant commercial reg-
tions, such as credit instruments, consumer loans, fund transfers,
istry after approval by the Central Bank;
equity investments, buyer and supplier credit, leasing, mortgage, bro-
• implement the organisational structure (eg, corporate governance,
kerage, real estate lending; it also regulates means of payment and
business management, internal control and risk management
respective products (credit and debit cards, among others). For its part,
structure); and
the CVM regulates securities, publicly held corporations and public
• apply to the Central Bank for an inspection into actual implemen-
offerings, derivatives, investment advice, and investment funds and
tation of the organisational structure.
portfolios.
After the inspection, the applicant must show that the following proce-
dures have been adopted:
www.gettingthedealthrough.com 15
© Law Business Research 2018BRAZIL Pinheiro Neto Advogados
• amendment to the by-laws of the financial institution to make its Furthermore, the Central Bank currently imposes a host of com-
corporate capital correspond to the amount previously established pulsory reserve requirements. Financial institutions must keep those
in the business plan; reserves deposited with the Central Bank, which uses them to control
• election of senior managers and other members of the bodies of liquidity in the Brazilian financial system. Reserve requirements on
the financial institution; and time deposits, demand deposits and saving accounts represent almost
• evidence of the origin of funds used in the undertaking. the entirety of the amount that must be deposited with the Central
Bank.
Once the Central Bank confirms that the above conditions have been
satisfied, the financial institution is licensed to operate. 8 What additional requirements apply to financial services
On being authorised to do business in Brazil, financial institutions firms and authorised persons, such as those imposed by self-
become subject to the Central Bank’s supervision. Prior approval from regulatory bodies, designated professional bodies or other
the Central Bank is mandatory for all amendments to their acts of financial services organisations?
incorporation; election of directors and officers; capital increases and The Brazilian financial and capital markets are also subject to regula-
reductions; disposal of control; mergers, spin-offs and consolidation; tion issued by self-regulatory bodies: B3 – Brasil, Bolsa, Balcão SA; the
and other non-routine corporate acts of those financial institutions. National Association of Investment Banks – ANBIMA; the Brazilian
Financial institutions can also set up representative offices in Brazil Banks Federation – FEBRABAN; the Brazilian Association of Credit
with the Central Bank’s prior approval. These offices are meant to con- Card and Services Companies – ABECS; and the Brazilian Association
duct non-transactional operations, serving only as a point of contact of Publicly Held Companies – ABRASCA, among others.
between the foreign-based parent and clients domiciled in Brazil. A B3 manages organised exchange and over-the-counter markets,
representative office cannot engage in any activity that is solely attrib- offering trading, clearing and settlement systems for all main classes
utable to a Brazilian financial institution, or its authorisation will be of assets ranging from stocks and bonds to currencies and financial and
cancelled (without prejudice to other administrative and criminal commodity derivatives, also acting as central counterparty to trans-
sanctions). actions carried out in its environment. It also provides a platform for
Finally, entities operating in fields related to capital markets, such registration of over-the-counter transactions; acts as a central securi-
as asset managers and advisers, investment consultants and agents, ties depository; operates listing services for issuers of securities; and
custodians, and investment funds, are subject to authorisation or reg- licenses indices, software and market data, among other activities. Its
istration with the CVM. supervisory arm, BSM – BM&FBovespa Market Supervision, is a non-
profit organisation created for autonomous execution of self-regula-
5 What statute or other legal basis is the source of each tion in the markets operated by B3. BSM is tasked with supervising the
regulatory authority’s jurisdiction? B3 Group markets; monitoring operations, orders and trades executed
Besides the federal constitution, the main statutes that are the source in its trading environments; supervising market participants; and, if
of national authorities’ jurisdiction over financial products are Law necessary, applying penalties to infringers.
4,595 of 31 December 1964 (the Banking Law), which created the CMN ANBIMA represents and defends the interests of its members
and deals with monetary, bank and credit institutions and policies, including banks, asset managers, brokers, securities dealers and
among other issues, and Law 6,385 of 7 December 1976 (the Securities investment advisers. It issues and supervises implementation of com-
Market Law), which created the CVM and deals with securities market pulsory guidelines on a number of areas (eg, investment funds, public
activities. offerings, private banking). It is also responsible for accreditation in
specific areas.
6 What principal laws and financial service authority rules FEBRABAN is the main representative body of the Brazilian bank-
apply to the activities of financial services firms and their ing industry. FEBRABAN rules and directives (such as the self-regula-
associated persons? tion code of banking practice) are binding on its members.
In addition to the laws referred to under question 5, the CMN, Central In general, B3, ANBIMA, FEBRABAN and other entities set forth
Bank and CVM issue regulations (resolutions, circulars, rulings, among additional self-regulatory requirements such as guidelines and regula-
others). tions with regard to securities and derivatives transactions, investment
funds and public offerings.
7 What are the main areas of regulation for each type of
regulated financial services provider and product? 9 What powers do national financial services authorities have
to examine and investigate compliance? What enforcement
Brazilian financial institutions are subject to a number of limitations
powers do they have for compliance breaches? How is
and requirements. In general, these concern the offering of credit, risk
compliance examined and enforced in practice?
concentration levels, investment levels, operating procedures, loans
and other transactions in foreign currency, the administration of third- The Central Bank and the CVM have administrative powers to examine
party funds and micro-credit. Brazilian financial institutions must: and investigate compliance, and to punish infractions.
• meet minimum capital and reserve requirements, and must Compliance is examined through a number of periodical filings by
observe certain operational limits; financial services firms (including a number of online filings), coupled
• abide by the principles of selectivity, guarantee, liquidity and risk with site inspections carried out by the Central Bank and the CVM.
diversification;
• not lend more than 25 per cent of their regulatory capital to a single 10 What are the powers of national financial services authorities
person or group; to discipline or punish infractions? Which other bodies are
• observe the rules regarding prohibited activities in related party responsible for criminal enforcement relating to compliance
transactions; violations?
• comply with know-your-client anti-money laundering and anti- The Central Bank and the CVM can impose the following penalties on
corruption regulations; and firms and individuals for compliance breaches:
• put policies and internal procedures in place to monitor their finan- • admonishment;
cial, operating and management information systems, and their • cash penalty;
compliance with all applicable regulations. • prohibition from the exercise of certain activities or rendering cer-
tain services; and
Since January 2014, financial institutions must submit to the Central • cancellation of the licence to operate, partly or completely.
Bank, monthly and semi-annually, consolidated financial statements
based on the ‘consolidated enterprise level’ on a prudential basis of An administrative proceeding begins when the Central Bank or the
which the financial institution is a member, which serve as grounds CVM notifies the financial institution of the alleged infraction. The
for calculation of the level of regulatory capital applying to Brazilian financial institution then presents a defence. The Central Bank or the
institutions. CVM may request additional information and documents, and then
renders a decision. The financial institution may appeal to the Board of
16 Getting the Deal Through – Financial Services Compliance 2018
© Law Business Research 2018Pinheiro Neto Advogados BRAZIL
Appeals of the National Financial System (CRSFN), a collegiate body • contributing to disorder in the financial system or disrupting the
responsible for hearings at second and final administrative levels. The stability or smooth functioning of the national financial system;
CRSFN decision may be challenged in court. • concealing by any means the actual economic or financial condi-
The Banking Law originally provided the administrative penalties tion of a financial institution or any other institution supervised by
that the Central Bank and the CVM could impose on regulated entities. the Central Bank;
On 13 November 2017, the Brazilian President sanctioned Law 13,506 • seriously affecting the continuity of activities or operations within
modifying the administrative procedures and penalties applicable to the Brazilian payment system; and
regulated entities (with no effects in the criminal area). • causing the population to lose confidence in financial and payment
The four key changes are: instruments.
• The cap on fines has increased to 2 billion reais or 0.5 per cent of the
revenue of the institution (for fines imposed by the Central Bank); Specific orders followed by orders to comply are a feature of the day-
and 50 million reais, two times the amount of irregular securi- to-day supervisory roles of the Central Bank and the CVM. After start-
ties issue or transaction, three times the amount of the economic ing an administrative proceeding, settlement commitments have long
advantage gained or loss avoided due to the violation, or two times been used by the CVM to end cases quickly and avoid the costs of pros-
the losses caused to investors (for fines imposed by the CVM). ecution; only recently has Law 13,506 instituted a settlement commit-
• The new law establishes the possibility of signing a settlement ment for use at Central Bank level.
commitment, which does not include an acknowledgement of
guilt. 13 What requirements exist concerning the nature and content
• The act introduces the possibility of leniency agreements, by of compliance and supervisory programmes for each type of
which the defendant agrees to confess to and provide information regulated entity?
and evidence on the wrongdoing and, in exchange, receives a dis- According to Resolution 2,554, of 24 September 1998, financial institu-
charge or reduction of penalties. tions and other institutions authorised to operate by the Central Bank
• Harsher preventive measures are now in place, such as a request should establish internal policies and procedures to monitor their:
for information or cessation of an act that, in case of contempt, is • activities;
punishable by fines up to 100,000 reais per day (capped at 60 days) • financial, operational and management information systems; and
or injunction measures to remove senior managers from office. • compliance with all regulations they are subject to.
This new sanctioning regime is already in effect, and does not apply In this regard, a financial institution is responsible for:
retrospectively to misconduct that pre-dates the new legislation. • implementing an effective in-house monitoring structure;
In the criminal sphere, only the Public Prosecutor’s Office has pow- • defining responsibilities and monitoring procedures, setting out
ers to prosecute compliance violations before the criminal courts. the corresponding objectives at all levels of the institution; and
• verifying compliance with internal procedures.
11 What tribunals adjudicate criminal and civil financial
services infractions? These internal controls should be effective and in line with the nature,
Both federal and state courts have jurisdiction to adjudicate on claims complexity and risk of the transactions the institutions undertake.
and complaints dealing with financial matters. Additionally, financial institutions must be audited by independ-
Second-instance courts (represented by regional federal courts at ent accountants, and appoint an executive officer responsible for com-
federal level; and by appellate state courts at state level) typically have pliance with all regulations related to financial and auditing records.
chambers, panels or sections responsible for reviewing and ruling on Financial institutions should also comply with anti-money laun-
banking and financial matters. dering and know-your-client requirements, which, under Brazilian
The Superior Court of Justice (STJ) and the Federal Supreme Court law and regulations, are set forth in Law 9,613 of 3 March 1998, as
(STF) are the highest appellate courts in the Brazilian court system. amended, and in regulations issued by the Central Bank and the CVM.
These mainly adjudicate cases already decided by regional federal Anti-money laundering and know-your-client rules apply to financial
courts or appellate state courts. The STF jurisdiction is triggered when institutions and to a comprehensive list of entities engaging in financial
the regional federal court or appellate state court issues a decision and payment-related activities, which must observe certain require-
allegedly in breach of the federal constitution. The STJ’s jurisdiction is ments related to identification of clients and record keeping, including:
triggered by a decision that allegedly breaches a federal law. • identifying clients and keeping their records updated; and
• keeping a record of every transaction in Brazilian or foreign cur-
12 What are typical sanctions imposed against firms and rency, securities, credit instruments, metals or other assets con-
individuals for violations? Are settlements common? vertible into cash, when exceeding the thresholds set out by the
Law 13,506 also establishes the penalties against firms and individuals competent authorities.
for violations, which are:
• admonishment; 14 How important are gatekeepers in the regulatory structure?
• cash penalty up to: As stated above, financial institutions must be audited by independent
• two billion reais; or accountants and appoint an executive officer responsible for compli-
• 0.5 per cent of the financial services firm’s gross revenue from ance with all regulations related to financial and auditing records. In
financial services and products as ascertained in the year addition to audit reports, independent accountants are also tasked
before that of the breach, or, in case of an ongoing violation, in with:
the year before that of the last breach; • evaluating the financial institutions’ internal controls and proce-
• prohibition for up to 20 years from engaging in certain activities or dures for managing risks, presenting any potential failings verified;
rendering certain services (applicable in case of severe violation); and
• disqualification for up to 20 years from holding senior manage- • describing any non-compliance with regulations applicable to the
ment positions or from serving as a member of governing or super- statements and activities of financial institutions.
visory bodies of financial institutions (applicable in cases of severe
violation); and Further, the financial institutions that meet the requirements estab-
• cancellation of the authorisation to operate, partly or completely lished in CMN Resolution 3,198 of 2004 must have an audit committee,
(applicable in case of severe violation). whose principal functions are to:
• nominate the independent accountants to be elected by the board
Severe violation means practices that produce or may produce any of of directors;
the following effects: • supervise the work of independent accountants;
• causing damage to the liquidity, solvency or soundness or assum- • revise the financial records for each half-year period, as well as the
ing a risk incompatible with the economic condition of a financial administrative and auditing reports;
institution or any other institution supervised by the Central Bank;
www.gettingthedealthrough.com 17
© Law Business Research 2018BRAZIL Pinheiro Neto Advogados
• Duty of care: senior managers must devote to the company’s busi-
Update and trends ness the same standards of care and diligence that any active, dili-
gent and honest person uses in the administration of his or her own
New compliance policy requirements
business, using the powers conferred on them to achieve the goals
In August 2017, the CMN enacted a new rule establishing that
of the company and acting in the best interests of the latter.
Brazilian financial institutions and other institutions authorised
to operate by the Central Bank must implement and maintain a • Duty of loyalty: senior managers must act with loyalty, putting cor-
compliance policy compatible with the nature, size, complexity, porate’s affairs ahead of their own.
structure, risk profile and business model of the institution. This • Duty of acting without conflict of interests: senior managers must
compliance policy is intended to ensure an effective compliance always act with no conflicting interests, not intervening in any
risk management by the institution and may be established at the transaction that involves a conflict of interests with the company,
‘consolidated enterprise level’. or in any decision that the other board members may take about it.
The compliance policy must be approved by the board of • Duty to inform: this applies specifically to publicly held
directors, which is tasked with ensuring adequate management of
corporations.
the compliance policy throughout the institution; its effectiveness
and continued application; its communication to all employees
and service providers; and making integrity and ethical standards 16 When are directors typically held individually accountable
part of the institutional culture. The board of directors is also for the activities of financial services firms?
responsible for ensuring the application of measures in cases of In general, the liability of senior managers of joint stock companies is
non-compliance, and for providing the necessary resources for set forth in article 158 of the Corporation Law. Senior managers will not
adequate conduct of compliance functions. be deemed personally liable for obligations assumed on behalf of the
Compliance policies had to be implemented by 31 December
company by virtue of a regular act of management. However, senior
2017.
managers are individually held accountable for any damage caused by
Overhaul of the administrative sanctioning acts committed with fault or intent; or in violation of the law or by-laws.
On 13 November 2017, the President sanctioned Law 13,506 modify- Senior managers are liable in the civil sphere for damage caused
ing the administrative procedures and penalties applicable to finan- when acting with fault (negligence, recklessness or incompetence) or
cial services entities. See questions 10 and 12. intent, even if they have not acted beyond their purposes or powers. An
abuse of power occurs when a senior manager exceeds the powers or
authority prescribed by law or under the by-laws, acting contrary to the
• supervise accounting and auditing, including compliance with interests of the company, its shareholders or third parties; a misuse of
internal procedures and applicable regulations; power is held to exist when a senior manager performs apparently legal
• evaluate whether the financial institution’s management complies acts (formal legality) other than for the purpose for which he or she was
with the guidelines provided by independent accountants; granted the powers of ordinary management.
• offer guidance to directors and officers with regard to internal con- Further, senior managers are liable:
trols and procedures to be adopted; and • for the damage originating from breach of the duties imposed by
• meet with directors and officers, independent accountants and law to ensure the normal functioning of the financial institution;
internal accountants to verify compliance with its guidelines. • for breach of banking rules, especially in their specific areas of
expertise; and
Financial institutions must also set an ombudsman’s department to • in case of intervention and non-judicial liquidation of financial
ensure compliance with the rules on consumer rights and to act as an institutions (bank resolution) as provided by Law 6,024 of 13 March
interface between the financial institution and its customers and other 1974.
users of its products and services, also serving as mediator in conflicts.
More recently, the financial institutions have been required to have Finally, unlike in most countries, in Brazil, the controlling shareholders
a compliance policy establishing the scope and purpose, organisational are jointly and severally liable for the liabilities exceeding assets of the
structure, and the personnel allocated to the compliance function; and financial institution in case of bank resolution.
establishing a segregation of roles among personnel to avoid conflicts
of interest (see ‘Update and trends’). 17 Do private rights of action apply to violations of national
In addition to the above, financial services firms must also set up financial services authority rules and regulations?
an adequate continuous and integrated risk management structure, Article 5 of the federal constitution establishes that the law shall not
as provided by Resolution 4,557, of 23 February 2017, and maintain an exclude any injury or threat to a right from consideration by the judici-
internal audit activity commensurate with the nature, size, complexity, ary. Accordingly, it is possible for individuals – as well as for consumer
structure, risk profile and business model of the institution, as estab- protection associations or the Public Prosecutor’s Office – to bring suit
lished by Resolution 4,588, of 29 June 2017. for the alleged violation of financial regulations.
Civil lawsuits related to financial and banking matters are numer-
15 What are the duties of directors, and what standard of care ous and spare no financial institution – from banks and payment agen-
applies to the boards of directors of financial services firms? cies to banking correspondents and investments funds, among others.
A financial institution may be managed by a board of directors, execu- Banking litigation typically arises in disputes on financial transactions,
tive officers or both (senior management). interest rates, improper charges, pricing, and defective products or
The board of directors is a decision-making body with authority to services.
establish the company’s business policy in general; to elect and dismiss
executive officers; to set the duties and monitor the day-to-day mana- 18 What is the standard of care that applies to each type of
gerial actions taken by the executive officers; to express an opinion in financial services firm and authorised person when dealing
advance on any matters to be submitted to the shareholders; and to with retail customers?
approve the implementation by the executive officers of specific mat- Brazil’s legal system is based on the Civil Code, under which a duty to
ters prescribed by law or under the company’s by-laws. redress is subject to the existence of an illicit act, and to a causal rela-
The executive officers, among other duties, represent the company tion between the illicit act and the loss caused to the aggrieved person.
in its business interactions with third parties. The by-laws may estab- In principle, there is no separate legal framework for financial insti-
lish that certain managerial decisions should be taken in executive tutions based on a special duty of care. But the CMN and the Central
officer meetings only. Bank have issued a number of different rules to protect consumers,
Law 6,404 of 15 December 1976 (the Corporation Law) sets forth and the STF, in a landmark decision on 7 June 2006, has held that the
the fiduciary duties and liabilities applicable to senior managers. Consumer Protection Code applies to the relationship between banks
The fiduciary duties applicable to senior managers and to members and consumers as well. The STJ has sided with this view, and has issued
of technical or advisory bodies assisting them (provided such bodies from time to time interpretative rulings establishing the liability of
were created through the company’s by-laws) are summarised below: financial institutions on specific matters.
18 Getting the Deal Through – Financial Services Compliance 2018
© Law Business Research 2018Pinheiro Neto Advogados BRAZIL
19 Does the standard of care differ based on the sophistication of • debt collection actions cannot be threatening or expose the client
the customer or counterparty? to embarrassment; and
Yes. As noted under question 18, financial institutions are subject to a • amounts charged improperly in bad faith must be returned at twice
dual system of liability in Brazil: the excess payment (except for excusable error, such as a system or
• for corporate clients, the basic principles of civil law liability; and operational error).
• for consumers, a more protective system based on rules issued by
the supervisory authorities and based on the Consumer Protection 20 How are rules that affect the financial services industry
Code. adopted? Is there a consultation process?
It is common that the regulations issued by the CMN, Central Bank and
In addition, there are a number of rules requiring disclosure of prod- CVM, when involving relevant aspects of the national financial system,
ucts and services, and limiting the fees and other amounts charged to are first taken to public consultation, during which they are open to sug-
consumers on such products and services. gestions and statements from the general public.
The trend is that court rulings will increasingly lean toward appli-
cation of the Consumer Protection Code to banking agreements and 21 How do national financial services authorities approach
toward revision of these agreements to make them less burdensome cross-border issues?
for consumers. In addition, the CMN and the Central Bank issue from With regard to cross-border issues in Brazil, no regime of mutual rec-
time to time specific rulings on consumer rights in the banking industry. ognition, substituted compliance or exemption applies. The Central
The basic consumer rights with regard to financial institutions are Bank and the CVM regulate financial institutions in all aspects. They
as follows: may, however, enter into international arrangements for the exchange
• the burden of proof is reversed in court; of information, in benefit of international financial and monetary
• financial institutions must ensure that proper and clear informa- integration.
tion is provided on the different products and services offered, with
accurate specifications for quantity, characteristics, composition, 22 What role does international standard setting play in the rules
quality and price, and on any risks such products may pose; and standards implemented in your jurisdiction?
• the products and services being offered or recommended must be
Brazil is a member of the Group of Twenty (G20), the premier forum
adequate to the needs, interests and objectives of clients and users
for its members’ international economic cooperation and decision-
(suitability);
making. Further Brazil has adopted the Basel Committee’s accords.
• financial institutions are prohibited from releasing misleading or
As for the securities market, the CVM was a founder member and
improper advertisement or information about their contracts or
of the International Organization of Securities Commissions (IOSCO).
services, as well as promoting overbearing or disloyal commercial
The Central Bank supervises the Brazilian banking system in
practices;
accordance with the Basel Committee on Banking Supervision (Basel
• financial institutions are liable for damage caused to their clients
Committee) guidelines and other applicable regulations, including
by any misrepresentation in their advertisement or information
the Basel II and Basel III accords, under which a bank’s own resources
provided;
must cover its principal risks, including credit risk, market risk and
• interest on consumer credit and related transactions must be pro-
operational risk.
portionally reduced in case of early payment of debts;
José Luiz Homem de Mello jhmello@pn.com.br
Fernanda Paula Salomão fsalomao@pn.com.br
R. Hungria, No. 1,100 Tel: +55 11 3247 8400
São Paulo, SP Fax: +55 11 3247 8600
01455-906 www.pinheironeto.com.br
Brazil
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