On September 29, 2014, the Brazilian Monetary Council (Conselho Monetário Nacional – CMN) issued Resolution No. 4373 (CMN Res. 4373/2014) that improves the regulation on investments made by non-residents in the Brazilian financial and capital markets, including those made through the Depositary Receipts (DRs) mechanism. The changes result from the joint work of the Central Bank of Brazil (Banco Central do Brasil – Bacen) and the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM).

CMN Res. 4373/2014 simplifies procedures and clarifies the applicable provisions in order to reduce the compliance costs and to increase the legal certainty of the transactions.

According to Bacen, the main changes introduced by the new regulation are the following:

  • Possibility of making investments in Brazilian currency with funds maintained in Brazil at a bank account held in the name of the non-resident investor or through a payment order in Reais originated from abroad. This form of payment is already permitted for direct foreign currency investments and foreign credit transactions.

  • DRs may be backed in securities of any kind issued by Brazilian publicly-held corporations. Previously, only shares were admitted for this purpose. In the case of financial institutions and other publicly-held entities authorized to operate in Brazil by Bacen, DRs may also be backed in credit instruments eligible to compose their Equity Reference (Patrimônio de Referência – PR).
  • All the provisions regarding non-resident portfolio investments are now aggregated in one sole normative act. Repetitive and expendable rules have been eliminated and the forwarding of information to the regulators was optimized, contributing to the cost reduction.

The new regulation must still be supplemented by additional rules to be enacted by Bacen and CVM and enters into full force and effect on March 30, 2015.

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