BRAZIL Law and Practice Contributed by: Thomas Gibello Gatti Magalhães, André Dágola Brostoline and Luisa Grespan Danhoni Neves, Magalhães & Zettel
and resolution regimes, either in order to restore the normal course of operation or to interrupt its activities in an orderly manner, mitigating the contagion risk. The legal framework that defines these meas - ures and the performance of BCB as a Resolu - tion Authority comprises the following: • Law No 6,024/1974, which provides for the intervention and out-of-court liquidation of financial institutions; • Decree Law No 2,321/1987, which instituted, in defence of public finances, the Temporary Special Administration Regime (RAET) in pri - vate and non-federal public financial institu - tions; and • Law No 9,447/1997, which provides for the joint and several liability of controllers of institutions subject to the regimes referred to in Law No 6,024/1974 and Decree Law No 2,321/1987, the freezing of their assets, the liability of accounting audit companies or independent accounting auditors, and the pri - vatisation of institutions the shares of which are expropriated. The preservation of financial stability is the public good that BCB seeks to preserve by analysing the scenarios and defining the moment, strat - egies and tools to act on an institution whose operational continuity proves to be unfeasible or compromises the health of the financial system. In view of the potential negative effects on both the financial market and economic activities that are affected by the enactment of a resolution regime, BCB primarily seeks for institutions to adopt market solutions that preserve value and productive activity, without prejudice to sanc - tioning those responsible for any irregularities
that contributed to the institution’s non-feasi - bility. In this sense, when a financial institution pre - sents a serious impairment of its assets or dif - ficulty in complying with its commitments, BCB may direct its controllers to contribute the nec - essary resources, transfer control, reorganise the company or adopt recovery measures, also known as market solutions. In this sense, recovery tools are strategies adopt - ed by the institution while it is still in operation, with the purpose of restoring the feasibility of its transactions. CMN Resolution No 4,502/2016 determines that larger institutions prepare a recovery plan, which consists of a set of infor - mation and strategies that can be adopted when any indicator shows a deterioration, present or expected, in the economic or liquidity situation. The recovery plan can be defined, therefore, as the set of actions presented by the institution to restore its solidity and feasibility, in case it faces a situation that jeopardises the continuity of its business. Without prejudice to the actions taken by the institution itself, CMN Resolution No 4,019/2011 authorises BCB to determine the adoption of preventative prudential measures by the institu - tion, such as: • the adoption of additional controls and oper - ating procedures; • a reduction of the degree of exposure risk; • compliance with additional amounts to PRE; • compliance with more relative operating limits; • recomposition of liquidity levels; • the adoption of management on a co-man - agement basis, in the case of a credit union;
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