On December 3, 2024, the Central Bank of Brazil (“BCB”) and the Brazilian Securities and Exchange Commission (“CVM”) released Joint Resolution No. 13 (“Joint Resolution 13”). This resolution enhances the regulations for foreign portfolio investments in the Brazilian financial and capital markets (“Portfolio Investment”).
Joint Resolution 13 provides that foreign portfolio investors shall have access to the same financial instruments and modalities available to resident investors. They also face similar registration requirements and operational limits.
The requirement for Portfolio Investments to be carried out in the regulated environment remains in force, meaning that no off-the-market transfer of assets is permitted, except as provided in CVM Resolution No. 13, of November 18, 2020.
Joint Resolution 13 also expanded the list of entities authorized to provide representation services for foreign investors. This now includes clearing and settlement agents supervised by the BCB, in addition to previously authorized financial institutions and other entities.
MAIN CHANGES BROUGHT BY THE NEW REGULATION
Among the innovations, we highlight the following.
(i) Foreign investors can now use deposit or prepaid payment accounts held with financial or BCB-authorized payment institutions to carry out Portfolio Investments.
(ii) There is no requirement to redeem or unwind positions if a foreign investor changes its tax residence; meaning that the investment shall remain subject to the originally agreed conditions.
(iii) In certain situations outlined below, foreign investors are exempt from hiring a representative and registering with the CVM.
(iv) The types of underlying assets and securities admitted for depositary receipts have been expanded.
(v) Foreign investors are prohibited from using non-resident reais account held in Brazil ("NRA") to make investments on behalf of Brazilian residents.
(vi) Financial settlements or collaterals related to Portfolio Investments cannot be paid directly abroad, except for transactions arising from fixed-term, futures, and options agreements made by foreign investors in Brazil that involve agricultural products.
Exemption from Hiring a Representative in Brazil
The exemption from hiring a representative and registering with the CVM has been granted to foreign legal entities when investing in financial assets through an NRA (this exemption does not apply to investments in securities).
Foreign investors (individuals) are now exempt from the obligation to (i) appoint a representative for investments in securities, including investments made using funds transferred from an NRA, as well as investments in financial assets from an NRA; this exemption also applies to financial assets not transacted through an NRA, provided the total monthly contributions do not exceed BRL2 million through each intermediary; and (ii) register with CVM, in accordance with regulations that have been in place since 2020. Therefore, in these cases, the only requirement for the Portfolio Investment is the onboarding of the foreign investor with the selected intermediary financial institution in Brazil that will assist with the Portfolio Investment.
However, foreign investors (individuals and entities) must still appoint the representative in Brazil for tax purposes, as currently required.
New types of underlying assets for Depositary Receipts
The new regulations now allow for securities issued by securitization companies, investment funds or other entities supervised by the CVM to serve as underlying assets for deposit certificates issued and traded abroad ("Depositary Receipts")1.
If the issuance of Depositary Receipts could change the corporate control of financial institutions and other entities authorized to operate by the BCB, the political rights associated with such assets shall be suspended until the BCB approves the transfer or change in corporate control.
Discretionary cadastral assessment, provision of information
The institutions involved in the Portfolio Investment, such as representatives, broker dealers, intermediaries, now have the discretion to determine the information and supporting documents they require from investors. This assessment will be based on the institution’s internal policies and the specific characteristics of the intended Portfolio Investment.
As the appointment of a custodian in Brazil for the purposes of Portfolio Investment is no longer mandatory under Joint Resolution 13, the institutions responsible for the bookkeeping, custody, registration, deposit of financial assets and securities belonging to foreign investors must now provide information to the BCB and CVM regarding these Portfolio Investments.
Aligned with Law No. 14,286, of December 29, 2021 (Foreign Exchange Law), Joint Resolution 13 has eliminated the need for registration of Portfolio Investments in the BCB’s system (previously known as RDE-Portfolio). It also removed the requirement for executing simultaneous exchange transactions without actual fund inflows or outflows (referred to as symbolic foreign exchange transactions) for conversions between Portfolio Investments and various types of foreign capital.
Joint Resolution 13 will come into force on January 1, 2025.
The Financial Services and Corporate and Law Governance team at Cescon Barrieu is available to provide clarification and guidance regarding the changes highlighted in this Informa.
1. In addition to other assets that were provided in former regulations, i.e. securities issued by Brazilian publicly-held companies, credit securities eligible to compose the Reference Equity – PR issued by financial institutions and other publicly-held institutions authorized to operate by the BCB and Guaranteed Real Estate Bonds.
