Approved New Law On Administrative Proceedings In Financial System

Law No. 13,506, dated November 13, 2017, amended the rules applicable to punitive procedures conducted by the Central Bank of Brazil (BCB) and the Brazilian Securities Commission (CVM).

With respect to BCB, which is the scope of this article, the new law affects all entities under the surveillance of BCB, such as banks and members of the Payment and Consortium Systems. It also impacts individuals and corporations developing activities under the surveillance of BCB, rendering certain audit services to such entities or holding management positions therein.

Infractions

When compared to Law No. 4,595, dated December 31, 1964 (which governs the National Financial System - "SFN"), the new law broadened the list of administrative infractions to which individuals and companies are subject. The new list is long and includes the failure to provide information required by law or regulation to BCB (such as the declaration of Brazilian assets abroad), the performance of transactions prohibited or not aligned with BCB's authorization and the exercise of management positions in financial or similar institutions without BCB's approval.

Prohibited transactions include: (i) issuance of debentures; and (ii) acquisition of real estate properties not intended for use of the acquiring entity, except those received as payment of non-performing loans or when expressly authorized by BCB, in compliance with rules to be issued by the National Monetary Council (CMN).

The restriction on the issuance of debentures is not new. The rules on acquisition of distressed assets, on the other hand, were amended by the new law.

Under the previous system, distressed assets needed to be sold within one year, extendable two times at BCB's discretion. Those assets were usually sold at a very low percentage of the par value, since the banks were forced to get rid of them within the legal term in any circumstances. As of the publication of the new law, CMN is allowed to provide for more flexible sales criteria, taking into account urgent matters, as crisis in the real estate market.

Penalties

Law No. 13,506/17 provides for the following penalties, separately or cumulatively: (i) public admonition (which is the disclosure of the sentence, including the name of the convicted party and the description of the infraction incurred); (ii) fines; (iii) prohibition to engage in certain activities or transactions for a maximum period of 20 years; (iv) suspension of permission to hold positions...