Pursuant to Articles 50 and 51 of Law No. 4131, of September 3, 1962 (the "Foreign Capital Law"), foreign participation in Brazilian financial institutions is limited to 30% of the voting capital and 50% of the total capital. Financial institutions that already had foreign participation were allowed to maintain their status quo.
According to Article 192, III of the 1988 Constitution of Brazil, foreign equity investments in financial institutions will be regulated by a complementary law, which must be still enacted by the National Congress. Article 52 or the Act of Transitory Constitutional Dispositions established that:
"Article 52 - Until such time as the conditions referred to in Article 92, III are established, the following shall be prohibited:
I - installation in Brazil, of new branches of financial institutions domiciled abroad;
II - increase in the percentage participation of individuals and legal entities resident and domiciled abroad in the capital of financial institutions with head office in Brazil.
Sole Paragraph - The prohibition referred to in this article does not apply to authorization resulting from international agreements, reciprocity agreements or agreements of interest to the Brazilian government"
Therefore, as a result of such constitutional provisions, until the conditions for foreign participation in the Brazilian financial system were established by Congress, the installation of new foreign-controlled financial institutions in Brazil was prohibited, nor was any increase in existing foreign participations allowed.
Through Message No. 311, of August 23, 1995, published in the Official Gazette of the Union dated August 25, 1995, the President of Brazil, upon proposal of the Minister of Finance based on the sole paragraph of article 52 of the Act of Transitory Constitutional Dispositions, finally resolved to recognise as matters of interest of the Brazilian government, the participation or the increase of the percentile participation in the capital of financial institutions with head office in Brazil, by individuals or legal entities resident or domiciled abroad.
The request for authorization must be presented to the Bacen by each Brazilian financial institution interested in receiving foreign capital equity investments, on a case by case basis. Bacen will then submit each request to the appreciation of the CMN, as a condition precedent to the final decision of the President of the Republic.
The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.
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