Brazil’s Central Bank, CVM aim to streamline foreign investment | Markets

The regulators aim to reduce friction and expand investment opportunities. According to the public consultation notice, the changes would result in “a better business environment in Brazil, increased attractiveness for foreign capital, and greater development and efficiency of the financial and capital markets.” This evolution, the text noted, would consider maintaining legal security and the needs for statistics and supervision to prevent illicit activities.

Roberto Paolino, director of the Brazilian Financial and Capital Markets Association (ANBIMA), pointed out that the regulation seeks to address two key areas: streamlining processes for non-resident international investors and encouraging new investors, particularly individuals, to enter the Brazilian market. Mr. Paolino explained that the idea is for the regulation to attract more investments, although this would not happen overnight. “In the medium to long term, you will have an environment that fosters this.”

Among the changes, the notice proposes the elimination of certain document requirements, such as the Electronic Declaratory Registration, Portfolio Module (RDE-Portfólio), used for registering foreign capital, as well as exempting non-resident individuals from needing a representative if their monthly transactions do not exceed R$1 million. The public consultation notice also mentions a “simplified regime” for individuals, including for “flows directed to the Tesouro Direto Program.”

The regulation is expected to be published in November, but a final decision is still pending. Brazil’s Central Bank said it depends on “the development of studies, coordination among regulators, and any potential need for further engagement with stakeholders.” The consultation text indicated that the regulation would take effect on January 1, 2025.

The consultation was conducted in the form of a subsidy gathering, meaning a draft regulatory text was not presented, but rather a series of principles and potential changes. Rodrigo Caldas de Carvalho Borges, a partner at law firm CBA Advogados, noted that the Central Bank’s intention to simplify the rules “is clear.” The lawyer emphasized the flexibility and the concern for harmonizing regulations with international standards. “The trend is for us to have this facilitation so that foreign investors can seek new products and opportunities here in Brazil.”

Mr. Paolino from ANBIMA explained that the Central Bank’s move to waive the requirement for representatives for non-resident individuals with monthly transactions up to R$1 million is “very interesting.” However, he pointed out some potential operational challenges, such as determining how to monitor whether an investor exceeds the monthly limit.

Mr. Paolino noted that an investor could hold multiple accounts, and even if they have just one, it would only be known afterward if they handled beyond the R$1 million limit. “The text is very important for understanding how we will assign responsibilities. Who will be responsible for this, what the penalties will be, and what control mechanisms we can implement,” he said.

The Central Bank said it has been discussing the norms with regulators and representatives from related sectors. According to the institution, over 160 contributions were received during the public consultation, which contained “relevant” content for drafting the regulation. There has not yet been a decision on a potential new consultation with the market regarding the draft, but the Central Bank said “if necessary, it may be discussed with interested parties.”

The public consultation text also provides that the representative, custodian, and the institution executing the financial transaction can determine the information and documents that must be requested from the parties involved in the investment. According to the notice, to assess the necessary documents, institutions must consider the client evaluation and the characteristics of the transaction.

Márcio Estrela, a former Central Bank official and consultant for the Brazilian Exchange Association (ABRACAM), pointed out that the flexibility needs to be more aligned with supervisory actions. The specialist explained that this is not only an issue for the regulation under public consultation but also extends to other regulations established after the Legal Framework for Foreign Exchange. “If you are easing regulations, it is necessary for the conduct and supervision to align more closely with what the regulation has already relaxed; otherwise, it creates significant market insecurity,” he said.

Leonardo Roesler, a corporate law specialist and partner at RMS Advogados, said the elimination of formal requirements and the expansion of autonomy must be accompanied by a “regulatory framework” to prevent illegal practices such as money laundering and tax evasion.