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National Financial System - SFN
The national financial system is commonly divided into three components: policy boards, supervisory entities and operators.
Policy boards are created by statute with specific responsibilities. They set general guidelines to the financial system, but do not have executive functions. When deciding on an issue, they generally use the technical structures provided by supervisors. After a board sets guidelines, the relevant supervisory entities issue their own regulations thereof and become responsible for enforcing them.
There are currently three policy boards: CMN – Conselho Monetário Nacional (National Monetary Council), the highest board within the SFN; CNSP – Conselho Nacional de Seguros Privados (National Private Insurance Council); and CNPC – Conselho Nacional de Previdência Complementar (National Complementary Pension Council), which sets policies for closed-end pension funds.
There are four supervisory entities in Brazil, which have both executive functions, such as inspections, and standard-setting responsibilities. Standards regulate statutory provisions or guidelines set by the policy boards. The entities are: CVM, Central Bank (Banco Central do Brasil – BCB), Private Insurance Regulator (Superintendência de Seguros Privados – SUSEP) and Complementary Pension Regulator (Superintendência Nacional de Previdência Complementar – PREVIC).
Finally, operators include other public or private institutions directly or indirectly involved in obtaining, intermediating or investing resources within the SFN. It is quite common to subdivide them into monetary institutions, official entities, other financial institutions, other financial intermediaries, supplementary institutions, and insurance or pension institutions.
Below you will find a brief description for the institutions mentioned and their main responsibilities.
SFN’s highest body, the CMN was created in 1964 by Law No. 4,595 (“Banking Reform Act”), replacing a former body known as SUMOC – Superintendencia da Moeda e do Crédito (Currency and Credit Body). At that time the financial system underwent profound structural and regulatory changes.
CMN’s statutory purpose is to set monetary and credit policies aimed at economic growth and social progress. CMN’s policies pursue the following objectives:
· Adapt the volume of the means of payment to the economy’s needs;
· Regulate the currency’s value and the equilibrium of the balance of payments;
· Set guidelines for the application of financial institutions’ funds;
· Enable financial institutions and financial instruments to improve;
· Ensure financial institutions’ liquidity and solvency;
· Coordinate monetary, credit, budgetary policies, as well as the policies for internal and external public debt.
The CMN is currently comprised of three members:
· Minister of Finance (President);
· Minister of Planning, Budget and Management; and
· President of the Central Bank.
Working alongside the CMN is the Currency and Credit Technical Commission [Comissão Técnica da Moeda e do Crédito] – COMOC, whose responsibilities include technical consulting services in the formulation of currency and credit policies. Other consultative commissions on specific market segments also operate within the CMN.
Approved regulations are called Resolutions, all of them published in the Brazilian Federal Gazette and in the Central Bank of Brazil’s website.
CNSP is the policy board for the insurance market. It was created in 1966 by Decree-Law No. 73. Initially it was designed to set general governmental policies regarding private insurance and capitalization. Later, open-ended private pension schemes also fell into its purview.
After the publication of Law No. 10190 in 2001, the following individuals are CNSP members:
· Minister of Finance or a nominee (CNSP Chair);
· SUSEP chairman (CNSP Vice-Chair);
· A representative of the Ministry of Justice;
· A representative of the Ministry of Social Security;
· A CVM representative;
· A Central Bank representative.
CNSP responsibilities include:
· Setting general policies and guidelines for private insurance;
· Regulating the constitution, organization, functioning, enforcement and sanctioning of those who operate under the National Private Insurance System;
· Setting the basic features of insurance, private pension and capitalization contracts;
· Setting criteria for the incorporation of insurance companies and for open-end pension / capitalization firms, determining technical and legal limits of their operations;
· Regulating brokerage and related professions.
The CNPC regulates complementary pension schemes operated by the so-called “closed-end complementary pension entities” (pension funds).
CNPC is composed of the Social Security Minister (who acts as CNPC Chair) and representatives of PREVIC, SPPC (Special Secretariat for Pension Policies, under the Chief of Staff at Ministerial Level), Ministry of Finance, Ministry of Planning, as well as delegates from pension funds, pension fund sponsors and pension fund beneficiaries.
The Central Bank of Brazil was created in 1964 through the Banking Reform Act (Law No. 4,595), the same statute that created the National Monetary Council.
Its main institutional mission is to maintain the purchasing power of the currency and the soundness of the National Financial System – SFN.
BCB’s responsibilities include:
· Execution of monetary policy through National Treasury bonds;
· Determining the reference rate (known as “SELIC”) for one-day repo agreements;
· Control of the credit operations performed by institutions that comprise the SFN;
· Formulating, executing and following up the currency exchange policy and the financial relations policies with foreign countries;
· Inspection of commercial banks;
· Printing paper money;
· Supplying the demand for money needed for economic activities;
· Maintaining price levels (inflation) under control;
· Maintaining control of currency and credit expansion and of the interest rate;
· Operating in the rediscount market and open market, and monitor banks’ compulsory deposits;
· Execution of inflation targeting system;
· Announcing the decisions made by the National Monetary Council;
· Keeping gold and foreign currency assets to operate in foreign exchange markets;
· Managing of Brazil’s international reserves;
· Ensure that financial institutions are liquid and solvent;
· Authorize the operation of financial institutions.
The CVM was created on 7 December 1976 by Law No. 6,385 to inspect and develop the securities market in Brazil. It is an independent agency linked to the Ministry of Finance, but not under hierarchical subordination.
With a view to strengthen its autonomy and its inspecting powers, Law 10,411/2002 (article 5) turned the CVM into a "special independent agency, subject to a special regime, linked to the Ministry of Finance, with its own assets, independent administrative authority, under no hierarchical subordination, with fixed term and stability of its board, and financial and budgetary autonomy" (article 5).
It is managed by the Board of Commissioners, composed of the Chairman and four Commissioners, who are appointed by the President of the Republic and approved by the Federal Senate. Its members serve a five-year staggered mandate, from which they may only be removed "due to renunciation, legal conviction under a final decision or disciplinary administrative procedure" (article 6§2).
Its headquarters are located in Rio de Janeiro and there are regional offices in São Paulo and Brasília.
CVM's statutory responsibilities include:
· Ensure that stock exchanges, commodities & futures exchanges and OTC markets operate in an efficient manner;
· Protect investors against irregular issuance of securities and illegal actions by public company management and by portfolio managers;
· Combat fraud or manipulation schemes that create artificial demand, supply or securities price conditions;
· Ensure proper access of the public to information on the trading of securities and on its issuers;
· Ensure equitable practices in the securities market;
· Ensure that credit use conditions set by the National Monetary Council are complied with in the securities market;
· Register and inspect independent auditors, portfolio managers, tied agents, consultants and securities analysts, among others, enforcing applicable regulation;
· Supervise and inspect publicly held companies and investment funds, enforcing applicable regulation;
· Investigate, through administrative inquiries, illegal actions and non-equitable practices by public company management and other market participants, applying the penalties set forth in the law;
Superintendence of Private Insurance – SUSEP
SUSEP was created in 1966 by Decree-Law No. 73, which also established the CNSP, with the statutory objective of supervising and inspecting entities that participate in the following markets: insurance, capitalization, open-end social security and reinsurance.
It is an agency linked to the Ministry of Finance administered by a Directive Council, comprised by a Superintendent and by four Directors.
Its main responsibilities are:
· Executing CNSP policies by inspecting the incorporation, organization, functioning and operation of insurance companies, capitalization companies, open-end social security entities and reinsurance companies;
· Protect people’s funds invest employed to insurance and the other above mentioned activities;
· Protect consumers’ interests in the referred markets;
· Promote the enhancement of the institutions and instruments within the referred markets, aiming at improving them;
· Promote the stability of the referred markets;
· Ensure that the entities within those markets are liquid and solvent;
· Monitoring and supervising investments made by the entities above, especially those that serve as collateral for technical provisions;
· Execute activities determined by the CNSP and enforce its deliberations;
· Function as CNSP’s Secretariat.
PREVIC is a governmental agency linked to the Ministry of Social Security, responsible for supervising and inspecting close-end complementary pension entities (pension funds) and for executing the policies set for complementary pensions.
Banco do Brasil is the oldest commercial bank in Brazil, having been created on 12 October 1808 by Prince D. João (who later became King D. João VI of Portugal). It is a state-owned enterprise and a company listed at BM&FBOVESPA.
BB also operates as a financial agent for the Federal Government and it is the main executor of rural and industrial credit policies. Today it resembles a traditional universal bank.
Created in 1952 as a federal agency, it is today a state-owned company linked to the Ministry of Planning. It is responsible for the long-term investment policies the Federal Government considers to be needed to strengthen the private sector.
Aiming at strengthening the capital structure of private companies and the development of capital markets, BNDES offers lines for long-term financing at competitive costs for the development of investment projects and for the commercialization of new machinery and equipment manufactured in Brazil, as well as for incrementing Brazilian exports.
Loans are provided by using BNDES’ own resources, borrowings and donations from national and foreign entities and from international entities such as the IDB. A portion of PIS and PASEP resources (Brazilian government programs for workers, financed by businesses) is also used.
It has two subsidiaries: FINAME and BNDESPAR (BNDES Participações), created with the objective of financing the commercialization of machinery and equipment and to render feasible the underwriting of securities in the Brazilian capital market, respectively. Together, all three companies encompass the so-called "BNDES System".
Caixa was created on 12 January 1861 by Dom Pedro II to provide incentives to saving accounts and to grant loans under pledge. A 100% state-owned company, it is the financial institution responsible for operating the Federal Government's policies for popular housing, basic sanitation and infrastructure.
Besides the common activities of a commercial bank, Caixa also assists workers – through the payment of the FGTS [Fundo de Garantia por Tempo de Serviço, a trust fund for dismissal], PIS [Social Integration Program] and the unemployment-insurance program –as well as the beneficiaries of government social programs. It also runs federal lotteries.
OTHER FINANCIAL INSTITUTIONS
Monetary Financial Institutions
Refers to institutions authorized to hold client current account deposits. Current authorization categories include commercial banks, universal banks with commercial activity, Caixa and credit cooperatives.
Other Financial Institutions
Refers to institutions not authorized to hold client current account deposits. Examples include:
· State-level development agencies;
· Savings and loans associations;
· Foreign exchange banks;
· Development banks;
· Investment banks;
· Mortgage Companies ;
· Central credit cooperatives;
· Real Estate Credit Companies;
· Credit, Financing and Investment Companies;
· Microenterprise credit companies.
Other Financial Intermediaries
The following are also considered intermediaries of the SFN:
· Consortium managing firms1;
· Leasing companies;
· Foreign exchange brokers;
· Securities brokers;
· Securities dealers.
Entities that manage organized securities markets in Brazil are considered to complement the SFN. They include stock, commodities or futures exchanges and organized OTC markets.
In addition to all the above entities, insurance companies, capitalization companies, pension funds and open-ended private pension schemes.
1In this case, consortium means a financing mechanism designed for purchasing certain items by installments (e.g., appliances, cars, real estate) whereby possession of the item is provided after periodic draws over the life of the financing term. Chance will determine if possession is granted at the beginning or at the end of that term.