Bills of exchange in book-entry form: how the Brazilian Central Bank’s novel regulation will foster the Brazilian credit market

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Kenneth Ferreira
TozziniFreire Advogados, São Paulo
kferreira@tozzinifreire.com.br

Natasha Wiedmann
TozziniFreire Advogados, São Paulo
nwiedmann@tozzinifreire.com.br

Overview

The Brazilian Central Bank (BCB) has been playing a key role in the movement to foster a favourable regulatory environment to boost innovation within the financial market. In line with this movement, there is a trend of dematerialisation of financial assets and securities.

Within this scenario, the BCB published, on 4 May 2020, Resolution no 4,815 (‘Resolution no 4,815/2020’) and Circular no 4,016 (‘Circular no 4,016/2020’), which together regulate the use of bills of exchange in book-entry form (bills of exchange issued through an electronic system), providing for more safety and transparency for financial institutions using bills of exchange to offer credit. The new rules started producing effects in Brazil in June 2020.

The new regulation gives greater quality to bills of exchange, which is the main form of financing for the retail trade. Holders of bills of exchange in book-entry form will now be able to share information on these receivables with several lenders in a safer and easier way. The recent innovations on the matter are described in more detail below.

Resolution no 4,815/2020

Financial institutions must now use exclusively bills of exchange in book-entry form when negotiating market receivables entered with:

• large-sized companies, as from 360 days from the approval, by the BCB, of a convention to be entered between the entities authorised to carry out registration activities or centralised deposit of bills of exchange or which are in the process of authorisation to carry out these activities (the ‘Convention’);

• medium-sized companies, as from 540 days after the approval, by the BCB, of the respective Convention; and

• small businesses, as from 720 days from the approval, by the BCB, of the respective Convention.

For negotiation of future trade receivables, financial institutions must enter into an agreement which sets for the mandatory issuance of the duplicate in book-entry form when carrying out a purchase and sale transaction or the provision of a service.

In addition, Resolution no 4,815/2020 also imposes different rules related to the systems of registration or of centralised deposit of financial assets related to the bills of exchange in book-entry form subject to trading transactions of market receivables and rules for discontinuing liens over bills of exchange in book-entry form, given as guarantees in credit operations.

Circular no 4,016/2020

Circular no 4,016/2020, in turn, establishes, among others, rules and procedures related to the electronic system of bookkeeping of bills of exchange in book-entry form. It also determines that the financial settlement of the bills of exchange in book-entry form must be carried out directly by the settlement system associated with the payment instrument used by the drawee. This requirement applies not only to the actual holders, but also to beneficiaries of collateral constituted over these titles, in the event that the necessary information is provided for in the actual bill of exchange.

In all other cases, the financial settlement of the duplicate in book-entry form must be carried out in two phases: (1) collection phase – corresponds to the step where the drawee sends to the respective bookkeeper the amounts due and the information regarding the bills of exchange in book-entry form settled by him; and (2) targeting phase – corresponds to the delivery, by the bookkeeper, of the amounts collected in the collection phase to the respective holders or beneficiaries of the guarantees constituted over the bills of exchange in book-entry form.

The entities allowed to carry out the bookkeeping activity of bills of exchange in book-entry form are the ones authorised to perform bookkeeping or clearing activities or financial assets and that:

• in the case of a registering entity, proves to have an additional equity of Brazilian R$5m in relation to the minimum equity required to carry out the activity of registering financial assets;

• appoint a director responsible for the bookkeeping system;

• develop handbooks and rules that regulate forms and procedures related to the services provided and to the operating guidelines established by the Circular, including the aspects to be established in the Convention; and

• prove to have operational capacity to carry out the services and to meet operating conditions.

Finally, the novel regulation also provides for rules on the bookkeeping of bills of exchange in book-entry form agreement to be entered between the bookkeeper and the drawee, guidelines for the operation of the electronic system for the bookkeeping of bills of exchange in book-entry form and on the financial settlement of the duplicate in book-entry form, duties of the registration and centralised deposit systems and interoperability, among others.

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