Peer Review of Brazil Review Report 19 April 2017 Peer Review of Brazil Review Report Table of Contents Foreword .................................................................................................................................... 3 Abbreviations ............................................................................................................................. 4 Executive summary .................................................................................................................... 6 1. Introduction ..................................................................................................................... 13 2. Trade reporting and systemic risk monitoring ................................................................ 14 3. Regulation and supervision of investment funds ............................................................ 29 Annex 1: Framework for the oversight of the financial system in Brazil ................................ 50 Annex 2: Structure of the financial system in Brazil ............................................................... 57 Annex 3: Data fields reported for different asset classes to TRs in Brazil .............................. 63 Annex 4: Examples of the use of TR data by authorities in Brazil.......................................... 65 Annex 5: Contagion analysis – The case of the “Car Wash” operation .................................. 73 Annex 6: Follow-up of other key FSAP recommendations ..................................................... 77 2 Foreword Financial Stability Board (FSB) member jurisdictions have committed, under the FSB Charter and in the FSB Framework for Strengthening Adherence to International Standards,1 to undergo periodic peer reviews. To fulfil this responsibility, the FSB has established a regular programme of country and thematic peer reviews of its member jurisdictions. Country reviews focus on the implementation and effectiveness of regulatory, supervisory or other financial sector standards and policies agreed within the FSB, as well as their effectiveness in achieving desired outcomes. They examine the steps taken or planned by national authorities to address International Monetary Fund (IMF)–World Bank Financial Sector Assessment Program (FSAP) and Report on the Observance of Standards and Codes (ROSC) recommendations on financial regulation and supervision as well as on institutional and market infrastructure that are deemed most important and relevant to the FSB’s core mandate of promoting financial stability. Country reviews can also focus on regulatory, supervisory or other financial sector policy issues not covered in the FSAP that are timely and topical for the jurisdiction itself and for the broader FSB membership. Unlike the FSAP, a peer review does not comprehensively analyse a jurisdiction's financial system structure or policies, or its compliance with international financial standards. FSB jurisdictions have committed to undergo an FSAP assessment every 5 years; peer reviews taking place 2-3 years following an FSAP will complement that cycle. As part of this commitment, Brazil volunteered to undergo a peer review in 2016. This report describes the findings and conclusions of the Brazil peer review, including the key elements of the discussion in the FSB’s Standing Committee on Standards Implementation (SCSI) in March 2017. It is the nineteenth country peer review conducted by the FSB, and it is based on the objectives and guidelines for the conduct of peer reviews set forth in the March 2015 version of the Handbook for FSB Peer Reviews.2 The analysis and conclusions of this peer review are based on the responses to a questionnaire by financial authorities in Brazil and reflect information on the progress of relevant reforms as of December 2016. The review has also benefited from dialogue with the Brazilian authorities as well as discussion in the FSB SCSI. The draft report for discussion was prepared by a team chaired by Anne Le Lorier (Deputy Governor, Banque de France) and comprising Daniel Lawlor (Central Bank of Ireland), Paul Eastment (Australian Securities and Investment Commission), Kevin Fine (Ontario Securities Commission) and Jeong Jae-Ryong (Financial Supervisory Service, Korea). Dimple Bhandia, Susan Nash, Costas Stephanou and Lawrence White (FSB Secretariat) provided support to the team and contributed to the preparation of the peer review report. 1 See http://www.fsb.org/2010/01/r_100109a/. 2 See http://www.fsb.org/2015/03/handbook-for-fsb-peer-reviews/. 3 Abbreviations ANBIMA Brazilian Financial and Capital Markets Association ANVISA National Health Surveillance Agency BCBS Basel Committee for Banking Supervision BCB Brazilian Central Bank (Banco Central do Brasil) BNDES Brazilian development bank CAR Capital adequacy ratio CCP Central counterparty CD Certificate of Deposit CET1 Common equity tier 1 capital adequacy ratio CETIP Organized OTC market for securities and derivatives CIP Interbank Payments Clearinghouse (Câmara Interbancária de Pagamentos) CIP-C3 Credit Assignment Central (Central de Cessão de Crédito - C3) CIR Committee on Risk Identification CMN National Monetary Council CNPC National Council for Complementary Social Security CNPJ National Registry of Legal Entities CNSP National Council of Private Insurance (Conselho Nacional de Seguros Privados) COMEF Financial Stability Committee COMOC Technical Commission on Currency and Credit COPOM Monetary Policy Committee COREMEC Committee of Regulation and Supervision of Financial, Securities, Insurance and Complementary Pension Markets COSIF Accounting Plan for Institutions of the National Financial System CoVaR Conditional value-at-risk CPF Taxpayer Registration Number CPMI Committee for Payments and Market Infrastructure CRI Certificates of Real Estate Receivables CSD Central securities depository CVM Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários) CVMWEB CVM Web DESIG BCB’s Financial System Monitoring Department DI Interbank deposits D-SIB Domestic systemically important bank ETF Exchange-traded fund FGC Credit Guarantee Fund FGCoop Cooperative Guarantee Fund FSB Financial Stability Board FI Financial institution FIDC-IE Asset Backed Securities Fund – Infrastructure FMI Financial Market Infrastructure FSAP Financial Sector Assessment Program FX Foreign exchange GDP Gross Domestic Product IAIS International Association of Insurance Supervisors IBRACOR Brazilian Institute of Self-Regulation of Insurance Brokerage Market, Reinsurance, Capitalization and Open Pension Funds ILE Structural Liquidity Ratio INSS National Social Security Institute IMF International Monetary Fund IOSCO International Organization of Securities Commissions IRS Internal Revenue Service (Receita Federal do Brasil) 4 IVG-R Financed Residential Real Estate Collateral Value Index KAs Key Attributes of Effective Resolution Regimes for Financial Institutions LA Liquid Assets LCR Liquidity Coverage Ratio LEI Legal Entity Identifier LEI-ROC LEI Regulatory Oversight Committee LR Liquidity Ratio LTV Loan to Value MOF Ministry of Finance MOJ Ministry of Justice MoU Memorandum of understanding MPDG Ministry of Planning, Development and Management MSP Staff Manual of the Brazilian Central Bank NAV Net Asset Value NFSR Net Stable Funding Ratio NPL Non-performing loan OFIs Other financial intermediaries OTC Over-the-counter PCO Predicted Cash Outflow PFMI Principles for Financial Market Infrastructure PRC Credit Risk Profile PREVIC National Superintendence of Complementary Pensions (Superintendência Nacional de Previdência Complementar) RAET Temporary Special Administration Regime RAIS Annual Social Information Relation RBS Risk Based Supervision RI Intrinsic Risk SA-CCR Standardised Approach for measuring Counterparty Credit Risk SCR Credit Information System SFN National Financial System SIFI Systemically important financial institution SISBACEN Brazilian Central Bank System SPB Brazilian Payment System SME Small and medium-sized enterprise SRO Self-regulatory organisation SMM Liquidity and Market Risk Monitoring System STR Reserves Transfer System (Sistema de Transferência de Reservas) SUMEF Subcommittee for Monitoring the Stability of the National Financial System SUSEP Superintendence of Private Insurance (Superintendência de Seguros Privados) TEBU Bottom-up Stress Tests TEMTD Macroeconomic top-down stress test TR Trade repository VaR Value at Risk VCP Valued by Participant derivatives UPI Unique Product Identifier UTI Unique Transaction Identifier 5 Executive summary Background and objectives The main purpose of this peer review is to examine two topics that are relevant for financial stability in Brazil: trade reporting and its use in systemic risk monitoring, and the regulation and supervision of investment funds. The peer review focuses on the steps taken by the Brazilian authorities to implement reforms in these areas, including by following up on relevant FSB initiatives and recommendations. Main findings Significant progress has been made in recent years on the topics covered by the peer review. Brazil stands out among its FSB peers for the pioneering work it has carried out on trade reporting and its use in systemic risk monitoring. The regulatory and supervisory framework for investment funds has been strengthened, while regular monitoring of liquidity risk in the sector is underway. However, there is additional work to be done in both areas. On trade reporting, this involves intensified monitoring of any increased