The Brazilian FX regulatory framework currently in force began to be constituted in the 1920s, a time in which the economic policies, technological tools and business models were very different from their correspondents in modern Brazil. Considering such discrepancies and anachronism, by the end of 2019, the Brazilian Minister of Economy and the President of the Central Bank of Brazil forwarded a Bill of Law (Bill No. 5,387/19) to the Presidency of Brazil intending to consolidate and modernise the Brazilian FX legislation, as well as to align it with the most recent guidelines promoted by the Organization for Economic Co-operation and Development (OECD) and the Financial Action Task Force (FATF).
Among the proposed changes, the Bill sets forth that the Central Bank will hold competence, for instance, to authorise new entities to operate in the FX market, aiming at expanding the number and types of players in the sector, thus fostering competition, and to regulate the foreign currency accounts held in Brazil, what can potentially broaden the types of entities entitled to hold such accounts (currently limited to players such as insurers and credit card issuers).
The Bill also provides for international bank correspondence relations, enabling banks authorised to operate in the FX market to perform payment orders received from abroad using deposit accounts held by foreign institutions. Additionally, it addresses the prohibition of international credits/debits offsetting (which was established in Brazil in the 1930s), setting forth that the Central Bank will hold the competence to provide for exceptions to such prohibition, which can potentially enable business models and products currently not feasible in Brazil.
Another relevant change proposed is the competence of the National Monetary Council to establish exceptions to the legal tender of the Brazilian currency (Real) when such exceptions can mitigate the FX risk or increase the efficiency of the transaction. Also, the Bill provides for the possibility of banks in Brazil to invest or offer credit abroad using funds raised in the country, observed the regulatory limits set forth by the National Monetary Council and the Central Bank of Brazil (especially prudential limits).
Finally, the Bill provides for the possibility of FX peer-to-peer platforms (for instance, platforms in which FX transactions would be performed without an authorised institution), provided that such transactions be performed on a non-professional and occasional basis, and up to the limit of USD 1,000.
Bill No. 5,387/19 will be a game-changer for the Brazilian FX market. Since the beginning of the last century, the FX regulatory framework posed hurdles for the foreign investment and for the establishment of new business models involving cross-border payments. After its approval, many of such hurdles can finally be surpassed in benefit of the business environment, the foreign trade, the development and diversification of the financial and capital markets, as well as the foreign investors and the consumers in Brazil.
About Pedro Eroles
Partner at Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados in Brazil. Pedro is a specialist in advisory topics for financial institutions, payment institutions, fintechs and in the most diverse types of transactions involving regulated entities, such as financing (local and cross-border), mergers and acquisitions and debt transactions. He is a consultant for the Journal of the General Counsel for the Central Bank of Brazil and coordinator of volumes 1, 2 and 3 of the collection "Fintechs, Digital Banks and Means of Payment: regulatory aspects of new financial technologies", published by Quartier Latin.
About Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados
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