More than three years after discussions began on reforming the regulations regarding the prevention of money laundering and financing of terrorism (AML/FT) within the national financial system,[1] the new rules have a definite date of entry into force: July 1, 2020.

 

On that date, Bacen Circular No. 3978, which revokes Bacen Circular No. 3461, and CVM Instruction No. 617, which revokes CVM Instruction No. 301, take effect.

 

Taken together, the new regulations bring in important changes in AML/FT rules. We move from a model based on a filing approach, with standard rules and procedures (Bacen Circular No. 3461 and CVM Instruction No. 301), to a new, more flexible model, based on internal risk assessment (Bacen Circular No. 3978 and CVM Instruction No. 617).

 

With the entry into force of the new rules, the institutions authorized to operate by Bacen and the main service providers of the securities market[2] will be obliged to assess internally the risk not only for their clients, but also themselves, their operations, employees, partners, and service providers, also mandating the adoption of reinforced or simplified controls, according to the level of risk ascertained.

 

It is not yet clear, however, how the risk models of each institution will be assessed. Explaining further, under Bacen Circular No. 3461 and CVM Instruction No. 301, the obligations imposed on covered parties had a well-defined profile, so that any non-conformities could be easily characterized. In Bacen Circular No. 3978 and CVM Instruction No. 617, however, controls and procedures required of the institution are defined based on an internal risk assessment. In this manner, situations which, according to the old rules, could constitute irregularities may not be in accordance with the new rules.

 

In this scenario, the adoption of "best practices" and "standardized procedures" within certain markets may be an interesting alternative to eliminate risks and uncertainties. In the case of institutions regulated by the Bacen, however, there is a mitigating factor, which is the updating of the circular letter[3] that discloses the list of transactions and situations that may constitute evidence of AML/FT crimes.

 

Among the other novelties of AML/FT regulations for the Brazilian financial market, the following is also worth mentioning:

1) Bacen Circular No. 3978:

  • Strengthening governance requirements: in addition to being obliged to evaluate from time to time the quality and effectiveness of their internal procedures, institutions should detail the roles and responsibilities of the professionals appointed to work in AML/FT-related functions.
  • The reinforcement of know your client (KYC) procedures: institutions are now obliged to compare their internal data with that coming from public databases.
  • The increase in controls of cash transactions: it is now mandatory to identify the bearer in any cash transactions with a value exceeding R$ 2,000. More information will be required in the case of deposits in cash in an amount exceeding R$ 50,000.
  • The requirement to have access to information on final beneficiaries: the rule provides for the obligation for sub-purchasers to grant paying institutions access to information on final beneficiaries of payments.
  • Longer deadline for analysis of transactions: 30 to 45 days.

2) CVM Instruction No. 617:

  • The provision for specific duties to the responsible officer and to the senior management of the institutions.
  • The requirement that the AML/FT policy must establish mechanisms for the exchange of information between companies in the same conglomerate.
  • The obligation for the responsible officer to prepare an annual report to senior management regarding the internal AML/FT risk assessment.
  • The duty to identify, analyze, understand, and mitigate AML/FT risks inherent to their respective activity, even for institutions that have no direct relationship with the investor.
  • Detailed regulations regarding the duties arising from Law No. 13,810/19, which provide for the obligation to comply with sanctions imposed by resolutions of the United Nations Security Council.

[1] The discussions began on November 17, 2016, with the publication by the Brazilian Securities and Exchange Commission (CVM) of Public Hearing Notice SDM No. 09/2016, and were intensified after Public Consultation Notice No. 70/2019, released by the Central Bank of Brazil (Bacen) on January 17, 2019.

[2] More specifically, the following are subject to the CVM rule: (i) individuals or legal entities that provide services related to the distribution, custody, brokerage, or portfolio management of securities, (ii) organized market management entities and financial market infrastructure operators, (iii) independent auditors that operate within the scope of the securities market, and (iv) other persons referred to in specific regulations that provide services in the securities market, with the exception of publicly-held companies and securities analysts that do not perform any other of these activities.

[3] This is Bacen Circular Letter No. 4001, which also takes effect on July 1, 2020, and revokes Bacen Circular Letter No. 3542.