Adler Martins – lawyers


Brazil eases restrictions to foreign investment in the banking industry

I study regulations on foreign investments from many countries. From experience I know that it is never a good sign when a company needs authorization from the President himself before it can incorporate in a given place.

Brazil, embarrassingly, required a presidential decree, no less, before authorizing any foreign financial institutions to invest in Brazil (even though foreign investment in other areas, including mining, cattle and farming, is mostly unrestricted).

Fortunately, this rule has changed. As from September 27, 2019, the Brazilian Central Bank will be the sole responsible for authorizing foreign investments in the financial sector in two cases:

  1. Opening of new Brazilian branches of foreign institutions;
  2. Increase in the participation of foreign investors in the equity of Brazilian financial institutions.

It should be noted that the Brazilian Central Bank (Bacen) is not only a Central Bank, in the financial sense, but it is also the main regulatory agency for the financial sector in Brazil. It is well known as one of the agencies with the most professional staff and with highly trained technicians.

Because of that, the process of approval is expected to become more objective and less dependent on political favours.


New financial institutions in Brazil

Hyunday, the South Korean conglomerate, wanted to set up a new financial institution in Brazil. Probably in order to finance the sale of cars to its consumers.

A Presidential decree from September 18 2017 approved the investment and allowed Hyunday to own up to 100% of the total shares in the new Brazilian bank.

The same happened to Komatsu, the mining equipment company, which obtained authorization on 2015, according to this decree.

Just recently, on May 2019, ED&F Man, the commodities merchant, also got authorization to incorporate a financial business in Brazil.

Purchase of equity in an existing financial institution

The concept of financial institutions in Brazil includes many businesses: foreign exchange brokers and distributors of securities, for example.

Any of those companies would require a presidential authorization before accepting foreign investors in its list of shareholders. Even relatively small companies dedicated to FOREX, sometimes with less and 1 million USD in total equity, were subject to this rule.

The same was valid for big banks.

Under this system, the presidential decree would have to name the Brazilian company receiving the investment and would also define the percentage of equity assigned to the foreign partner.

For example, decree n.  Nº 9.652 from December 2018 authorized Bank Moneo S.A. to add a foreign partner holding no more than 49,99% of the bank’s total voting capital.

On May, 2019, a 50% foreign investment was authorized in Financeira Itaú CBD S.A. and in Investcred Unibanco S.A. Bank (link here).

New branches of foreign financial institutions

In theory, new branches of foreign bank companies would also have to be authorized by the President. However, this was not a widely adopted practice, for two reasons:


  • The procedure for opening a branch was already too bureaucratic, since all branches of foreign companies need authorization from the Federal Government (through the Ministry of Economy/Commerce) to operate in Brazil;

NOTE: In spite of the hard regulation on branches, new companies controlled by foreign investors can be created directly at the state’s commercial registry, as discussed in this post: Branch or subsidiary in Brazil https://brazilianlawblog.blogspot.com/2017/05/branch-or-subsidiary-in-brazil.html)


  •  If the objective was to avoid red tape, foreign banks could set up Representative Offices in Brazil. These offices were for commercial liaison only, and were prohibited from engaging in financial transactions.


So, most banks or financial companies would avoid opening a single branch in Brazil and would either institute a representative office, in case they did not want to do business directly, or rather ask for approval for a new fully operational Brazilian financial institution.




Starting now, Bacen will be the responsible for authorizing:

  1. Opening of new Brazilian branches of foreign institutions;
  2. Increase in the participation of foreign investors in the equity of Brazilian financial institutions.


Increase in capital participation

In actual business terms, this means that foreign companies that already own a stake in Brazilian financial institutions can increase their participation without depending on the President’s mood. The acquisition of new shares will have to be informed exclusively to the Brazilian Central Bank.

The decree commands that, to the maximum extent possible, the regulations applicable to foreign shareholders who want to increase their position should be the same ones applicable to Brazilians. This is in line with the Brazilian constitution and with other Brazilian regulations on FDI.


Opening of new branches

The decree has used a very particular word: Agência. This is usually translated as “bank branch”.

It is still not clear to me whether they used this work in lieu of “company”, meaning that any foreign investor can open a new bank without having to obtain the presidential approval that Hyunday or Komatsu were forced to get (as seen above), or if they actually mean “branch”, in the sense that foreign financial institutions are now allowed to open offices/agencies in Brazil.

This answer will be given in the next days, after the Central Bank publishes additional rules on the subject.

If the new rules come to understand “agência” as a general term for any company, this would mean a revolution in the Brazilian financial market.

If the term “Agência” ends up having a more limited interpretation, meaning only a regular branch, the result will be less revolutionary, but still pretty positive.

In this case, the market will probably organize itself so that many foreign institutions will set apart a small part of their capital and dedicate it to a Brazilian branch, which will be entitled to provide loans, procure clients, etc.

In either scenario, the financial market will probably become much more competitive.

Please notice that other procedures required to incorporate a branch company or a new company in Brazil, such as approval from the Ministry of Economy/Commerce (for branches) and the registration before the State Commercial Registry are still applicable and will have to be followed by the foreign financial institutions or by the foreign investors.



The text of the decree makes it hard to understand if the first acquisition, by a foreigner, of equity in a Brazilian financial company would still require presidential approval.

As mentioned before, the text is also not clear about the creation of a new full financial company (compared to a “Branch”).





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