Creation of Security Interests over Financial Assets
Provisional Measure 775/2017
In Brazil, a centralized system for deposit and registration of security interests over financial assets — "Monetary Assets" — has been under discussion for quite some time. The matter has recently evolved with the enactment of Provisional Measure 775/2017.
Financial and capital markets urged to count on a centralized system able to (i) provide full visibility and publicity of security interests created over Monetary Assets owned by borrowers and issuers and (ii) reduce costs generally associated with registration.
Evolution of Legal and Regulatory Framework on The Matter
Brazilian Law No. 10,931/04 had been amended back in 2011 to create the basis for a centralized security registration system. A couple of years later, enactment of Law No. 12,810/13 expanded the legal definition of Monetary Assets to include within this concept any type of credit, financial asset or right, regardless of the nature of the underlying legal transactions. The CVM (Brazilian SEC-equivalent) and the Central Bank of Brazil dealt with the matter, respectively, in ICVM 541/13 and Circular 3,743/15, which provided legal support for B3 (financial markets infrastructure company resulting from the merge between former CETIP and BM&FBOVESPA) to create the required systems and user manuals.
However, neither credit rights nor commercial invoices (duplicatas) issued in connection with the supply of products and services were included within the concept of Monetary Assets under this legal and regulatory framework. Also, the existing legal and regulatory framework did not expressly dismiss the obligation to register security with traditional Registry Offices (Cartórios).
Provisional Measure 775 in a Nutshell
Provisional Measure No. 775 was issued on April 6, 2017 to amend Brazilian Laws Nos. 12,810 and 10,931.
Government authorities (Ministry of Finance and Central Bank) stated that the legislation previously in force required improvement to create safer and more dynamic proceedings within the National Financial System able to address the demands of relevant credit market players relating to creation of security.
From now on, private registration entities (such as B3) are responsible for registration of security interests over Monetary Assets on an exclusive basis, i.e. the existing uncertainty as to the obligation to register security interests with the traditional Registry Offices (Cartórios) in parallel has now been eliminated and cleared.
It is important to mention, Provisional Measure 775 empowers the National Monetary Council, the CVM and the Central Bank of Brazil to regulate this matter in further detail, providing, for example, a clear-cut list of Monetary Assets. This is still expected and in course. The Central Bank of Brazil submitted a draft resolution to public hearing, making clear that credit rights deriving from commercial transaction can also be deposited and registered with private registration entities (such as B3) for all purposes of the new Provisional Measure, without the need for registration with traditional Registry Offices (Cartórios).
Market players expect that the Central Bank resolution to come goes further and does include future credit rights relating, e.g., to project finance deals, in the concept of Monetary Assets. This would be an important step towards the improvement of infrastructure financing.
We expect and believe that the new Provisional Measure will speed up and make less costly and less bureaucratic the proceedings for the creation of security interests in the country, enhancing credit extension and expansion. All things considered, this is a key factor to spur economic growth in the mid-term.
To access the complete text of MP 775, please click on the link below:
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