Brazil: Private Banking In Brazil

According to the current policy recently adopted by the Central Bank of Brazil (Banco Central do Brasil – Bacen), the opening and functioning of representative offices of foreign banks1 continues to be subject to the prior approval of Bacen but now is only limited to those international financial institutions that still do not have a branch or subsidiary in Brazil and would like to know the local market more closely in order to decide whether it would be convenient or not to establish a bank in our jurisdiction in the future.

The business undertaken by a representative office is and has always been severely restricted. At no time it may act as a bank or undertake banking business. It may, however, promote the services and facilities which the foreign bank offers and thereby solicit clients for the bank. Furthermore, the representative office may obtain and supply the foreign bank with information regarding a variety of matters and act as a point of contact between the principal place of business and its clients. If the representative office exceeds these limits, its approval to function in Brazil may be cancelled by Bacen.

Therefore, private banking activities in Brazil must be exclusively performed by banks duly authorized to operate in the country and cannot be carried out by representative offices.

Although the Brazilian Banking Law (Law No. 4.595 of December 31, 1964, as amended) does not define the term "bank" or "banking activity", it does define the term "financial institutions". Article 17 of the Banking Law defines "financial institutions" as public or private corporations2 whose principal or secondary business is the collection, brokerage, or investment of financial resources belonging to themselves or to third parties, in domestic or foreign currency, and the custody of assets belonging to third parties. Furthermore, individuals who undertake any such business, either regularly or sporadically, are regarded as financial institutions for the purposes of the Brazilian Banking Law.

The term "private banking activity" is not limited to wealth management but comprises the rendering of other financial services. In this regard, the Self-Regulation Code of the Brazilian Association of Entities of the Financial and Capital Markets (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais – ANBIMA)3 contains the following definition:

"Article 6. The Private Banking Activity shall incorporate:

  1. rendering of banking services, whether of a financial and/or credit nature the;
  2. understanding of client profile and investment objectives through mutually agreed forecasts for returns proportional to credit risk and market standards, need for liquidity, period of return and volatility levels acceptable to the clients and in accordance with their current and future economic and financial needs;
  3. an analysis of client net worth;
  4. advice in the allocation and reallocation of financial and non-financial assets;
  5. execution of the transactions in line with the established objectives; and
  6. supply of information that helps the client in decision-making.

First Paragraph – the Private Banking Activity may also include:

  1. consolidation of the information on the assets held with other institutions;
  2. risk analysis of investment portfolios; and
  3. identification of the needs of clients in relation to various markets, such as, art and antiques, it being further understood, that questions related to family and business succession as well as tax or real estate aspects, even if only dealt with in a generic way by the Participating Institution4, shall be evaluated by the client based on specialized professional opinions, the Participating Institutions not being liable for any act or fact on the part of the professionals rendering these opinions.

Second Paragraph – This Code applies to similar activities to the Private Banking Activity defined above, irrespective of the fact that such activities may be classified under various denominations by the Participating Institutions, such as, albeit not limited to, Wealth Management or Private Bank."

From now on, in addition to follow and obey these restrictions, any international financial institution that intends to open a representative office in Brazil will be required to present a long-term business plan, which must be deemed viable and disclose in the business plan its operational strategy, detailing the short and medium-term activities to be performed and the reasons justifying its entry into the Brazilian market.

Traditionally, the supervision and inspection by Bacen was more rigorous in the case of branches and subsidiaries of the foreign banks compared to representative offices. However, the Brazilian regulatory authorities identified that many of the representative offices also carried out private banking activities without being authorized to do so, violating the current regulations.

As a result of this new policy, all the foreign banks that already have Brazilian branches and subsidiaries and also maintained representative offices were induced to close their representative offices and concentrate their activities in the respective branches or subsidiaries5.

The explanation given by Bacen to the market in relation to this new policy is that the rules will have to be improved because Brazil has been recognized as an investment grade country and it is paramount to converge to the best banking regulation practices adopted internationally. Nobody can question that!


1. The opening and functioning of representative offices of foreign banks in Brazil is regulated by the Brazilian Monetary Council (Conselho Monetário Nacional – CMN) by means of CMN Resolution No. 2.592, of February 25, 1999, as amended, and Bacen Circular No. 2.943, of October 20, 1999.

2. Article 17 does not mention corporation; it only contains the expression "public or private legal entities". Article 25 of the Brazilian Banking Law expressly prescribes that "private financial institutions, except credit cooperatives, shall be incorporated as corporations, with only nominative voting shares".

3. ANBIMA is the main representative of the entities operating in the Brazilian financial and capital markets and its aim is to strengthen the domestic financial and capital markets as an instrument for fostering Brazilian development. It was formerly known as National Association of Investment Banks (Associação Nacional dos Bancos de Investimento – ANBID). As of October 21, 2009, ANBID absorbed the activities of the National Association of Institutions of the Financial Market (Associação Nacional das Instituições do Mercado Financeiro – ANDIMA) and its name was changed to ANBIMA.

4. Participating Institutions, for the purposes of the ANBIMA´s Self-Regulation Code (the "Code") are the institutions associated to ANBIMA, as well as institutions that, while not associated, have expressly adhered to the Code. To be eligible for a service under the Private Banking Activity, whether as an individual or collectively, the client must meet the minimum investment capacity requirement – defined for each Participating Institution -, which may not be less that the equivalent or R$ 1 million, irrespective of other criteria which may eventually be adopted by the Participating Institutions. All the important institutions operating in Brazil have adhered to the Code.

5. Just to mention some examples, among the entities that closed their Brazilian representative offices, are Credit Suisse and its controlling Swiss bank Clariden Leu, Merrill Lynch, UBS, the Swiss private banking area of AIG, the Israeli banks Hapoalim and Leumi, Wachovia Securities. Royal Bank of Canada incorporated a distributorship company (sociedade distributidora) that absorbed its representative office. Goldman Sachs started its private banking area in Brazil through its local universal bank (banco múltiplo).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
Adriana Maria Gödel Stuber
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