FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in Brazil

The supervisory and regulatory framework in Brazil consists of four main bodies:

• Central Bank of Brazil (BCB)
• Securities and Exchange Commission (CVM)
• Private Insurance Superintendancy (SUSEP)
• Complementary Pension Secretariat (SPC)

FRSGlobal in Brazil

Brazil, one of the building BRIC nations and Latin America’s biggest economy is characterized by its large and well-developed agricultural, mining, manufacturing and service sectors. With an estimated growth of 7.5%, Brazil is expanding its presence in world markets. According to an IMF report, the South American economy is enjoying a high level of growth due to its significant exports, government measures and wide natural resources. With initiatives such as Growth Acceleration programs by the Federal Government of Brazil, there is a plethora of investment opportunities in Brazil.

The regulation and supervision of financial institutions activities in Brazil is done by the National Monetary Council through the National Financial System (SFN) structured accordingly into regulatory bodies, supervisors and operators.

With the recent world financial crisis the challenge for Brazil is to focus on prudential regulations. With the aim of achieving global standards and improvisation in capital quality, Brazilian regulators are currently in discussions with the Basel Committee to define and implement sound risk reporting regulations.

Regulatory Environment — Brazil

Statutory

COSIF- Accounting reports of National Financial system
COSIF cover a series of accounting reports providing information on balance sheet, P & L, income statement based on the local BR GAAP (non listed companies). From December 2010 all listed Brazilian companies are required to submit consolidated financial statements based on IFRS.

IFT Financial Information Reports
IFT reports are quarterly reports based on financial information required to be submitted electronically via the COSIF statistical system. It includes 41 reports (7000 IFT – 7040 IFT) covering details on financial statements, cash dividends, capital, taxes, operational limits , taxes, balance on foreign currencies, clearing accounts etc.

Prudential

Basel II reporting
This type of reporting is related to risk reporting and in Brazil capital adequacy norms are based on Basel II framework. These reports include information on calculation of capital requirements and risk management approaches. In addition it also includes reports on credit risk and credit transactions to be reported via the SCR system.

UNICAD Reporting
This type of reporting provides information on entities supervised by the Bank of Brazil and individuals linked to them to be reported via UNICAD, the system for e-reporting.

Statistical

International Banking statistics reporting
These reports are required by the Bank of Brazil on a quarterly basis and cover cross-border lending and borrowing of internationally active banks through detailed information on international assets and liabilities, local assets and liabilities by currency, categories, country, residency and sector of the counterparty, etc.

Banking statistics
Banking Statistics ESTBAN is a subsystem of the COSIF statistical system, and is represented by the reports such as 4510 (ESTBAN GLOBAL) and 4500 (ESTBAN MONTHLY). The balances of the entries of ESTBAN have to correspond with the balances of document 4010 – General Analytical Balance Sheet in COSIF.

Transactional

Large or Suspicious transaction reporting
In many countries reporting requirements exist on a transactional level. This typically involves reporting of all the transactions which are suspicious or involves very large monetary transactions to the central bank of Brazil for control measures.

Asset & Liability Management (ALM)

Asset Liability Management (ALM) can be termed as a risk management technique designed to earn an adequate return while maintaining a comfortable surplus of assets beyond liabilities. ALM considers interest rates, earning power and willingness to take debt and hence is also known as surplus management.

Brazil posted a growth rate of 5.7 % in 2007 and 5.1 % in 2008 but dropped to 0.2 % in 2009. To solve the crisis, several steps were taken by the government like injecting more than U.S. $ 100 billion of additional liquidity in the economy, providing tax cuts to manufacturers and consumers and reducing Central Bank interest rates.

The regulatory changes are aimed to moderate lending growth and to maintain the soundness of the banking system.

On Dec 3, 2010 the Brazilian Central Bank (BCB) announced regulatory changes aimed at moderating the credit growth seen in 2010 and reducing the outstanding deposit facilities made available by the Fundo Garantidor de Credito (FGC – FDIC equivalent).

Small and medium sized banks use Time Deposit with Special Guarantee (DPGE) as a funding instrument for growth and liquidity. Therefore DPGE was considered as a funding source for liquidity with a minimum tenor of one year which allowed for better Asset and Liabilities Management (ALM).

FRSGlobal enables financial institutions of all sizes put in place sound practices and processes to manage their ALM and liquidity risk that are in line with the interagency guidelines.

FRSGlobal 6-step process for ALM