I INTRODUCTION

Brazil has a very sophisticated and solid banking system. As a very important component to foster economic growth, the Brazilian banking industry, and, consequently, Brazilian banking regulation, are constantly developing, providing local market participants with the tools required to enable the structuring of complex and innovative products.

Banking regulation has played a crucial role in setting the limits and procedures that allow local players to operate in one of the most important markets in the international economy,2 ensuring a secure environment for investors and for the public in general. On this topic, it is worth mentioning that the local regulators do not limit their activities to the issuance of rules and guidelines for the banking industry; they also closely supervise market participants to verify whether regulatory requirements are being duly complied with.

An example of this practice is the extensive amount of information that must be provided by banks and other entities to the regulators, sometimes on an intra-daily basis. As a result of this constant verification, in the past few years the Brazilian banking industry has not seen any unpredictable failing of local banks, as the Central Bank of Brazil (Central Bank) has intervened prior to the severe deterioration of a local bank. Banco Azteca do Brasil SA, in 2016, Banco BVA SA, in 2014 and Banco Cruzeiro do Sul SA, in 2012 are recent examples of intervention and subsequent extrajudicial liquidation of local banks, which, even though it did not completely eliminate, did help to reduce, the impact of insolvency on stakeholders and mitigate systemic risk that could arise thereunder.

The Brazilian banking system also provides mechanisms for liquidity problems faced by financial institutions. For instance, in the last quarter of 2015, Banco BTG Pactual SA (BTG Pactual), the eighth-largest Brazilian bank by total assets,3 was assisted by the Credit Guarantor Fund (FGC), a private non-profit organisation authorised to be incorporated by the National Monetary Council (CMN) and composed of local banks that was originally intended to protect investors of insolvent financial institutions. At the time, FGC made a credit facility of 6 billion reais available to BTG Pactual, which, among other measures taken by the bank, helped the institution to overcome such liquidity crisis.

In addition to the precautionary and reactive measures adopted by local regulators to prevent insolvency scenarios, the applicable rules also enable Brazilian banks to issue several types of funding instruments in Brazil and abroad to finance their operations, thereby maintaining acceptable liquidity levels. Such variety of instruments is a result of market demand and a positive response of regulators to the needs of market participants, which have recently resulted in new regulations permitting the issuance of new forms of funding instruments, as further addressed in Section V, infra.

By doing business in such a regulated but rather secure financial environment, Brazilian banks have been able to succeed and, many times, foster results in the middle of the economic crisis that Brazil has faced in the past. We address below some relevant matters involving the regulation of banks doing business in Brazil.

ii THE REGULATORY REGIME APPLICABLE TO BANKS

i General aspects

An important aspect to consider when discussing banking regulation in Brazil is that there is no legal definition of ‘bank’ under Brazilian law. Federal Law No. 4,595, of 31 December 1964 (Banking Law), which sets forth the basis of the national financial system (SFN),4 defines in Article 17 the term ‘financial institution’ as those public or private companies whose principal or secondary activity is the collection, intermediation or investment or custody of their own or third-party funds. It is therefore left to local regulators to determine the types of financial institutions and the activities that may be performed thereunder.

Banks are thus defined in terms of their permissible functions. The main categories of banks in Brazil are:

  • a commercial banks: financial institutions whose main activities, inter alia, are receipt time deposits, offering checking facilities, providing short-term lending, collection of trade acceptance bills and other credit documents, and accepting and processing utility bill payments;
  • b development banks: intended to foster the economic growth of specific regions or industrial sectors. Financing tends to be long-term and related to specific projects;
  • c multi-service banks: aggregate more than one type of banking activity, of which one must be either a commercial or investment. Thus, a multi-service bank may, for instance, apply for one or more of the following:

• commercial bank licence (if the entity was originally established as an investment bank);

• investment bank licence (if the entity was established as a commercial bank);

• real estate finance licence;

• consumer credit licence;

• leasing licence; and

• foreign exchange authorisation; and

  • d savings banks: federal and state-owned financial institutions very similar to commercial banks, which accept savings from individuals by means of deposits in checking accounts for a fixed term or in savings accounts, provide loans and perform various services in the public interest, such as the receipt of federal taxes and charges.

All such types of institutions are highly regulated entities. Different from individuals or corporations, which under Brazilian civil law are authorised to practise any act that is not expressly forbidden, regulated entities may only perform activities that have been expressly authorised by law or regulations. As such, the role of regulators has become very important in relation to this type of activity.

We describe below the main regulators and their roles in the Brazilian banking system.

ii Regulators

There are three entities primarily entrusted with the role of regulating and overseeing of financial institutions in Brazil, including banks: the CMN, the Central Bank and the Brazilian Securities Commission (CVM).5

The CMN was created by the Banking Law and is the highest authority in the Brazilian financial system. Among the CMN’s responsibilities are supervising the monetary and currency exchange policies for the purpose of economic and social development of Brazil, as well as operating the Brazilian financial system.

Among its duties, the Central Bank has the obligation to assure the purchasing power stability of the national currency and the solidity of the national financial system. The Banking Law granted powers to the Central Bank to implement monetary and credit policies issued by the CMN, as well as to regulate public and private financial institutions and payment arrangements, arrangers and institutions.

The Central Bank is also responsible, inter alia, for exercising control over credit and foreign capital, receiving mandatory payments and voluntary demand deposits made by financial institutions, engaging rediscount transactions and providing funding to financial institutions, as well as exercising its function as depository of national gold and foreign currency reserves. The Central Bank is also responsible for controlling and approving the incorporation, functioning, transfer of control and corporate reorganisation of financial institutions and payment institutions.

The third regulator, the CVM, was created by Law No. 6,385, of 7 December 1976 (Capital Markets Law), which regulates the securities markets in Brazil. As securities activities are strictly connected with banking activities, especially investment banking, the CVM also has an important role as regulator of the banking industry.

Pursuant to the Capital Markets Law, the CVM shall implement policies pertaining to the organisation and operation of the securities industry. Accordingly, the CVM’s responsibilities encompass the regulation and supervision of all securities activities, including issuance, distribution and trading of securities; organisation and functioning of stock exchanges; and practices in the management of securities portfolios and their custody.

iii PRUDENTIAL REGULATION

i Relationship with the Central Bank

As indicated above, the Central Bank is the main regulator of banking activities, as it is responsible for supervising local banks’ and financial institutions’ banking activities. The supervision by the Central Bank relies on the following principles: supervision focused on risk, continuous supervision and transparency.

Inspection is an essential element of the supervision process to assess the economic and financial situation of supervised entities, and their management and compliance with the laws and regulations applicable to them. It aims to identify the relevant risks of financial institutions and evaluate their respective controls.

As per the information made available by the Central Bank for the improvement of the processes of supervision of financial institutions and conglomerates whose businesses encompass subsidiary entities in other countries, various procedures are adopted, such as:

  • a elaboration of supervision agreements with foreign authorities;
  • b monitoring of activities of international organisations in matters related to supervision;
  • c exchange of information with foreign supervisory authorities;
  • d coordination, support and follow-up of missions by foreign supervisors in the country; and
  • e dissemination of the Brazilian supervision to the international context.

In addition to the physical supervision mentioned above, financial institutions are subject to regular reporting requirements to the Central Bank. Several types of detailed reports and financial information are submitted by local institutions to the Central Bank, enabling the authority to keep a very close eye on the financial situation of the market players on a daily basis.

In addition to the reporting and inspection requirements, the applicable rules are very restrictive on the management of the banks. Prior to a final appointment as administrator of a financial institution, individuals must submit an exhaustive list of documents, information and declarations to the Central Bank, which may even prevent a person from being nominated if that person does not have a good reputation. We further address below some additional details relating to the management of Brazilian banks.

ii Management of banks

Pursuant to the organisation of a financial institution, it is important to highlight that with few exceptions, a financial institution, such as a bank, must be incorporated as a sociedade anônima, which is the corporate form that most closely resembles a joint-stock company or corporation. The legal requirements pertaining to joint-stock companies are governed by Law No. 6,404, dated of 15 December 1976 (Corporations Law).

Joint-stock companies are managed by an executive committee and, if applicable, a board of directors. In addition, a board of auditors may be instated in a provisional or permanent manner to inspect the activities performed by the other management bodies. The executive committee and the board of auditors must be composed of individuals residing in Brazil and meeting the requirements prescribed by law. Members of the board of directors do not need to reside in Brazil.

Members of administrative bodies of financial institutions are subject to civil liability, similar to the potential liabilities administrators of any company are subject to, in addition to further criminal and administrative liabilities applicable to managers of financial institutions.

Civil liability and exceptional rules

In the ordinary course of the transactions of financial institutions, the administrators’ (including directors and officers) civil liability is regulated by the Corporations Law. Article 158 of the Law provides that an administrator will not be deemed personally responsible for the obligations incurred on behalf of the company and on account of a regular act of his or her administration. However, such administrator will be responsible under civil law for losses caused by acts carried out with guilt or malice, and in violation of the law.

An administrator will not be responsible for unlawful acts practised by other administrators except when, for connivance therewith, he or she fails to reveal them or when, upon being aware thereof, he or she refrains from acting for the purpose of barring the practice thereof. There is joint liability of the administrators when the decisions are taken by collegiate bodies, such as the decisions taken by a board of directors. In this regard, any act or omission committed by a board is the personal responsibility of each of the members who form it, and to be exempt from any future responsibility, the dissident administrator should express his or her disagreement with the resolutions taken through a clear and express record in the minutes of the meeting of the relevant administrative body.

An administrator who agrees with the practice of acts in violation of the law or a company’s by-laws will be deemed jointly liable for the losses resulting therefrom, and also be compelled to provide indemnification for the losses caused.

The Corporations Law imposes the duty of diligence on administrators of institutions during the performance of their duties, providing that they shall be guided by the care and diligence that every active and honest person uses in the administration of his or her own business. Administrators are otherwise subject to the duty of loyalty to their company, and must maintain reserve and diligence when dealing with the company’s affairs.

On the other hand, there are also some exceptional rules. Pursuant to the terms of Article 40 of Law No. 6,024, of 13 March 1974 (Bank Bankruptcy Law), administrators of financial institutions under a special administration regime, intervention or extrajudicial liquidation are jointly responsible for the obligations undertaken by the institution during their terms of office until such obligations are actually satisfied (that is, liquidated). Pursuant to the terms of the sole paragraph of the mentioned provision, the administrators’ joint responsibility referred to therein shall be limited to the amount of the losses caused during their term of office.

Administrative responsibility

Administrative responsibility is subject to the same principles as criminal responsibility: that is, it does not admit an agent’s strict responsibility. This means that a penalty shall only be imposed on a person in the event that the act – commission or omission – committed is described in the law or the normative rule issued by the applicable authority, in particular the Central Bank of Brazil, as being an administrative infringement.

In fact, it is incontestable, in the opinion of jurists and case law, that administrative responsibility is always individual and subjective. Only those (the financial institution, administrators or controllers) who practise the punishable act (which may be an act or an omission) may be punished.

iii Regulatory capital and liquidity

In March and October 2013, the Central Bank published a set of resolutions and circulars relating to the adoption of the Basel III global standards of capital requirements. The new rules aim at increasing the capacity of financial institutions to absorb shocks, increasing the strength of the financial system and promoting sustainable economic growth.

By this set of rules, financial institutions may determine presumed credit based on the provisions made for doubtful receivables in each calendar year, whenever credits arise from temporary differences resulting from provisions for doubtful receivables existing in the preceding calendar year, and from the balance of the accrued fiscal losses of the preceding calendar year. New rules were also issued concerning financial bonds pursuant to which companies shall compose the prudential consolidated balance to be used in assessing the capital and requirements as well as the possibility for the Central Bank to limit payment of dividends by financial institutions in the event the latter should disregard the prudential requirements defined by the CMN.

The implementation of the new capital structures in Brazil began on 1 October 2013 and shall follow the agreed international time frame until the conclusion of the process on 1 January 2022. Changes regarding the capital ascertainment for credit risk that do not result in additional capital and that can easily be implemented by the institutions became effective as of the issuance of the new rules.

iv Recovery and resolution

The Bank Bankruptcy Law specifically governs the insolvency regimes of financial institutions. It essentially provides for two different regimes, the intervention regime and the extrajudicial liquidation regime, both administratively conducted by the Central Bank.

Intervention

If a financial institution is unable to stabilise and resume operations overcoming its financial crisis, or carry out an orderly liquidation, the intervention may be converted into an extrajudicial liquidation or bankruptcy liquidation, as applicable.

The Bank Bankruptcy Law stipulates that intervention may be decreed ex officio by the Central Bank for a period of six months (which may be postponed for an additional six months) when a financial institution suffers a loss due to mismanagement that generates risk for its creditors, or repeated breaches of banking laws are verified and not rectified after orders from the Central Bank. The intervention process is conducted by an individual appointed by the Central Bank.

After the intervention period, the Central Bank may decide to cease the intervention and allow the bank to return to its normal activities; to decree the extrajudicial liquidation of the bank; or to authorise the intervener to file for voluntary bankruptcy liquidation of the bank.

Intervention has the following effects on the obligations of a financial institution:

  • a suspension of enforceability of matured obligations for the duration of the intervention;
  • b suspension of the flow or count of the term of maturity of the previously existing obligations;
  • c enforceability of all pre-intervention obligations is stayed for the duration of the intervention period; and
  • d creditors are generally prohibited from enforcing and collecting their respective claims against the financial institution undergoing an intervention irrespective of the cause of the event of default and the nature of the claim.
Extrajudicial liquidation

Extrajudicial liquidation of financial institutions may be decreed by the Central Bank ex officio or at the request of the intervener, in the event the relevant financial institution, inter alia, has its economic or financial conditions affected by relevant events, especially if it fails to punctually satisfy its commitments or could be declared bankrupt; seriously violates legal rules and regulations; or suffers a loss that subjects its non-privileged creditors to an abnormal risk. Extrajudicial liquidation is carried out by a liquidator appointed by the Central Bank, and may be defined as an administrative bankruptcy or liquidation proceeding.

The decree of extrajudicial liquidation will result in:

  • a the suspension of any action (for collection) or enforcement proceedings pending against the financial institution concerning its rights or interests (i.e., creditors will not be able to foreclose on respective collateral, since the assets of the financial institution will remain frozen until the end of the extrajudicial liquidation);
  • b automatic acceleration of the maturity of the obligations of the financial institution; and
  • c the interruption of the satisfaction of any obligations assumed by the financial institution.

In addition, interest ceases to accrue on the obligations assumed by the financial institution.

The extrajudicial liquidation will cease:

  • a when the Central Bank accepts that the necessary guarantees are in place to allow the institution to take back control;
  • b with the approval of the final accounts of the liquidator and registration of such accounts in the appropriate registry to evidence the termination of the legal entity; or
  • c with the decree of the entity’s bankruptcy when the assets of the entity are not sufficient to cover at least half of the non-preferred credits, or if there is evidence of bankruptcy crimes.

iv CONDUCT OF BUSINESS

As stated above, banking activities are highly regulated and require local financial institutions to comply with the extensive regulations issued by the CMN, the Central Bank and the CVM. An important aspect that local banks must observe is banking secrecy.

Banking secrecy and confidentiality have always been of major importance and are protected by the Brazilian Federal Constitution, which determines that intimacy and private life may not be violated. Exceptions to such constitutional right can only be resorted to in extreme cases, and as a rule require a judicial order.

Banking secrecy was regulated in 2001 by Complementary Law 105 (Bank Secrecy Law), determining that financial institutions should maintain secrecy in all of their passive and active transactions, as well as in any services rendered.

The Bank Secrecy Law, however, granted tax authorities a special authorisation to obtain banking information in the event an administrative proceeding had been initiated. Such exception was highly debated and discussed in a series of lawsuits contesting the constitutionality of referred permission, as it would, according to the arguments presented, result in a breach of the constitutional intimacy and privacy rights of individuals, among others.

In February 2016, however, the Brazilian Supreme Court declared, under a majority of nine votes in favour and two votes against, the constitutionality of the authorisation for the Federal Revenue to access taxpayers’ financial information under the Bank Secrecy Law. The Brazilian Supreme Court interpreted that the referred-to laws determined the sharing of information by the Central Bank and the Federal Revenue, but maintained secrecy obligations by both parties, which should not be considered a breach of the individual’s rights.

Even in situations in which a financial institution is authorised to breach confidentiality, all measures required for the defence of the interests of individuals must be complied with. Thus, institutions must show sufficient duty of care in selecting the information to be disclosed and verifying whether the legal requirements for such disclosure have been met.

v FUNDING

Funding of Brazilian banks is traditionally composed of cash deposits and time deposits. Other alternatives, such as the issuance of bonds in the international markets or other forms of cross-border funding, have also been broadly adopted, as interest rates in foreign markets have been historically lower than local interest rates.

Nevertheless, to foster the funding of local banks and, especially, in an effort to reduce banking interest rates in Brazil (which are among the highest of the world), local lawmakers and regulators have created new instruments to provide new funding alternatives to local banks.

In January 2015 Federal Law No. 13,097 was enacted, providing for the issuance of covered bonds (LIGs) in Brazil. Such law is a conversion of Provisional Measure 656, issued by the federal government in October 2014. Widely used in sophisticated markets (such as in Europe and the US), the LIG has finally been regulated after great expectations by the local market for the past few years, and is expected to reduce funding costs for institutions acting in the real estate market and, by extension, expand the availability of real estate credit at a lower cost to consumers.

The main feature related to the LIG is the fact that the pool of assets (mainly real estate financing credits) backing the issuance of the LIG will be treated as a segregated pool of assets, by which the underlying credit rights as well as the other assets and rights relating to them will be kept separately from the issuer’s own assets. Hence, in cases of default, intervention, extrajudicial reorganisation or bankruptcy of the issuer, the non-commingling pool of assets will not be affected and will thus be earmarked solely for settlement of the debts owed under the corresponding LIG. If the pool of assets is not sufficient to settle all debts owed to the relevant investors, these will be entitled to enrol their outstanding credits in the bankruptcy estate ranking pari passu with the other unsecured creditors of the issuer.

On 30 January 2017, the Central Bank published Notice of Public Consultation No. 50, disclosing a draft resolution regulating the issuance of LIGs by multiservice banks, commercial banks, investment banks, credit, financing and investment companies, savings banks, mortgage companies, and savings and loans associations. The final term to submit suggestions to the Central Bank is 30 April 2017, after which the Central Bank will consider such comments for purposes of preparing the final rules. Upon enactment of the rules in final form, such financial institutions will be able to use this new instrument as a new form of funding.

Another funding alternative recently created in Brazil is the structured operations certificate (COEs), which are similar to structured bonds negotiated in international markets. COEs are, pursuant to the applicable rules, certificates issued against an initial investment, and represent an indivisible group of rights and obligations with an income structure similar to derivative instruments.

In addition to the application of local indexes, COEs may also have foreign indexes applied as references to their remuneration. Thus, financial institutions may issue COEs based on, inter alia, variations in foreign currencies, stock or commodities prices.

Although COEs were originally regulated in 2013, the rules relating to the public offerings of COEs have only been enacted in final form by the CVM in October 2015. As a result, we have seen an increasing offer of different types of COE in the local market since then.

vi CONTROL OF BANKS AND TRANSFERS OF BANKING BUSINESS

As a prerequisite to operate in Brazil, a financial institution must apply for a prior authorisation before the Central Bank. The documents that must be presented to the Central Bank include:

  • a a formal letter of application for authorisation of the intended transaction;
  • b a statement declaring the intent of the applicant to incorporate a financial institution;
  • c a statement of the inexistence of restrictions;
  • d a study of the financial and economic feasibility of the project, including a business plan;
  • e definition of the corporate governance patterns;
  • f details on the controllers of the institution; and
  • g evidence of financial and economic capability.

The acquisition of a controlling or significant interest in an existing bank also requires prior approval from the Central Bank and entails, basically, the same procedures.

In addition to the ordinary documentation indicated above, the incorporation or acquisition of financial institutions by foreign entities or individuals must be submitted to the Presidency of the Republic for the issuance of an executive decree acknowledging the national interest underlying the proposed transaction. As a result, whenever a foreign entity intends to set up a financial institution in Brazil, or to acquire an equity interest in a domestic financial institution, the transaction may only be closed after the granting of a presidential decree.

vii THE YEAR IN REVIEW

Several recent developments have become effective in late 2016 and early 2017 as a result of the regulators’ intention to strengthen the national economic system and financial institutions.

Such measures are part of ‘Agenda BC+’, which was disclosed by the Central Bank in December 2016 as a series of measures and actions that will be taken by local monetary

authorities in the next few years. Such programme focuses on certain areas, as described below:

  • a cheaper credit: a series of measures is to be implemented to reduce credit costs in Brazil, as interest yields are among the most expensive in the world. Several measures have been or will be taken for this purposes, such as a reduction of operational complexity to reduce operational costs, the creation of a positive list of clients and the regulation of electronic bills of credit to facilitate collateralisation of financial transactions;
  • b financial citizenship: measures to elevate the financial education of the Brazilian population so that, in general, people can make better financial decisions; and
  • c modern regulations and an efficient system: measures to update the prevailing regulations and reduce bureaucracy to increase the system’s efficiency. Among such measures, a possible bill of law to establish operational, administrative and financial independence to the Central Bank is being considered.

Some resolutions, which we describe below, have been enacted by the Central Bank in this context.

On 30 January 2017, the CMN enacted Resolution No. 4,553, which establishes the segmentation of the set of financial institutions and other institutions authorised to operate by the Central Bank in order to proportionally apply the prudential regulation requirements. The Resolution distributes the institutions or conglomerates, as the case may be, into five segments (S1, S2, S3, S4 and S5) and establishes the framework criteria applicable to each segment. The regulator’s intent is to increase efficiency and reduce the cost of compliance by making regulation more compatible with the size and risk profile of each institution.

Moreover, on 30 June 2016, the CMN published Resolution No. 4,502 to establish the minimum requirements that must be observed by financial institutions and other institutions authorised to operate by the Central Bank when preparing and executing recovery plans. The intent of the regulators upon issuance of such rule is to create a mechanism whereby such institutions may restore adequate capital and liquidity levels to preserve the viability of such institutions, ensuring the solidity, stability and regular operation of the SFN, reinforcing the change by Central Bank from a reactive to a preventive prudential regulation model in Brazil.

In a separate matter, on 24 November 2016, the CMN enacted Resolution No. 4.539, which provides the principles that shall be accomplished by financial institutions and other institutions authorised to operate by the Central Bank – excluding payment institutions and consortium administrators – in their relationship with customers and users of financial products and services. With this new regulation, the Central Bank provides a uniform regulatory protection that shall be observed by institutions with respect to all their customers and users of products and services.

The principles set out in the Regulation broadly reflect many of the good practices that have already been adopted by the market in conducting its operations, such as ethics, accountability, transparency and diligence. Among the measures that were listed in the Regulation, the Central Bank emphasises that financial institutions are bound to take the measures necessary to provide ‘fair and equitable’ treatment to customers and users, which includes providing information to customers and users in a clear and precise way about the products and services; meet the demands of customers and users in a timely manner; and eliminate unreasonable barriers, criteria or procedures for the termination of the contractual relationship regarding products and services, as well as for the transfer of the relationship to another financial institution at the request of a customer.

The Resolution was published on 28 November 2016, and will become effective 360 days after the date of its publication.

Considering all of the above, and in spite of the turmoil in Brazil’s politics and economy, especially owing to the impeachment of the President in 2016 and the disclosure of certain corruption scandals involving members of the executive and legislative branches, the CMN and the Central Bank presented a positive posture by implementing reforms and enacting new rules to strengthen and modernise the Brazilian financial market.

viii OUTLOOK and CONCLUSIONS

In addition to effective recent developments, such as those mentioned herein, there are important matters that are still the focus of discussions by the local market.

There are ongoing discussions in Brazil regarding the enactment of new rules relating to the process for perfection and enforcement of security interests over financial assets, enabling the use of a similar system as the one currently adopted with securities, effective since last year.

Market participants and regulators are currently discussing the implementation of said rules and the possible enactment of additional regulations to enable the utilisation of the new systems for financial assets, which will be of major importance for local banks. Such matter will certainly be a relevant issue for the bank industry in the near future and shall remain a relevant focus of discussions throughout 2017.

The ‘FinTech’ industry, which is growing rapidly in Brazil, is likely to be subject to regulation by the CMN and the Central Bank soon. The structure currently adopted by such entities still requires, owing to legal and regulatory constraints, the involvement of financial institutions, bringing additional costs and regulatory challenges to this new industry. As a result, international players have to create ‘tropicalised’ models to operate in Brazil, which is not cost efficient and creates operational hurdles. That said, considering the modern and cost-efficient mindset presented by local authorities in the past few months, we may expect new regulations to be issued in the upcoming months, which may include regulation of the FinTech industry.

Finally, the modernisation trend recently presented by the Central Bank may also result in changes to several areas of the banking industry, strengthening the financial services industry in Brazil.

1 Tiago A D Themudo Lessa is a partner, Rafael José Lopes Gaspar and Gustavo Ferrari Chauffaille are associates and Vittoria Cervantes de Simoni is a legal aid at Pinheiro Neto Advogados.

2 In 2015, Brazil had the ninth-largest economy in the world by gross domestic product according to data provided by the World Bank on its website (data.worldbank.org/data-catalog/GDP-ranking-table).

3 Pursuant to 2014 financial data made available by the Central Bank.

4 Government-owned and private financial institutions form the SFN. Private financial institutions include commercial banks, investment banks, universal banks, exchange banks, credit, financing and investment companies, securities dealerships, brokerage firms, credit unions and leasing companies.

5 If a bank opts to also have an investment banking department, it will be subject to CVM regulatory authority with respect to its investment banking activities.