On December 9, 2022, the Private Insurance Superintendence (SUSEP) published public consultation notice No. 21/2022 containing amendments to CNSP Resolution No. 432, of November 12, 2021. The proposal is to allow certain financial transactions with related parties that may or may not be part of the market supervised by SUSEP which are currently banned.
Overall, there are few areas that the new draft changes. However, these changes are significant. Starting with items III and IV of art. 2 of the Resolution, the first change is in the nomenclature from ‘related companies’ to ‘related party’ which standardizes the nomenclature of the concept. In addition, the publication reiterates who is affected.
- The controllers or controlling associates, individuals or legal entities, under the terms of art. 116 of Law No. 6,404, of December 15, 1976
- Administrators and members of collegiate bodies provided for by statute or regiment
- The spouse, partner and relatives, consanguineous or similar up to the second degree of the natural persons mentioned in items ‘a’ and ‘b’
- Individuals or legal entities with qualified equity interest in the supervised body’s capital or equity
- Legal entities: 1. in whose capital the supervised body or the persons mentioned in items ‘a’, ‘b’, ‘c’, and ‘d’ have a qualified shareholding 2. in which the supervised body has effective operational control or preponderance in the deliberations, regardless of the ownership interest 3. whose administrators, in whole or in part, are the same as those of the supervised body, with the exception of positions held in collegiate bodies of publicly-held companies, provided for by-laws or regulations, and provided that their occupants do not exercise functions with management powers 4. related by operating in the market under the same brand or trade name 5. affiliates or similar to affiliates.
It should be noted that the previous Resolution considered related parties as the legal entities related by direct or indirect participation of 10% (ten percent) or more of the administrators and respective relatives up to the second degree. This also applied to the controlling associates or shareholders, jointly or separately, in the capital or shareholders’ equity. With the new provision, the participation, direct or indirect, of 15% (fifteen percent) or more of the respective shares or representative quotas qualifies.
The criteria for making an investment
Inclusion of Art. 91-A that defines restricted fund and exclusive fund. In summary, they are investment funds or investment funds in shares of investment funds, which do not fit the definition of FIE (Specially Constituted Investment Fund) and are constituted in the form of an open condominium. The difference is that in restricted funds, investments are received exclusively from a supervised body and its related parties. In the exclusive fund it is from a single shareholder.
Investment Prohibitions
The new proposal brings yet another ban on supervised bodies, but with one exception: item VIII of Art. 92 allows supervised bodies to invest in securities of the supervised body itself or its related parties, providing funds are not classified as restricted or exclusive. This exception also applies to the reinsurer regarding the resources required in the country to guarantee the requirements.
There was also an update in paragraph 1 of the same article. Item I maintained the non-application of the prohibition to securities issued by the National Treasury to credits securitized by the National Treasury, securities issued by states and municipalities subject to contracts signed with the support of Law nº 9496/97 and MP nº 2185-35/01. What is new is that this does not apply to the acquisition of debt instruments issued by supervised bodies through a public offer for the distribution of securities (under the terms regulated by the CVM) provided that the provisions of Arts. 95-A, 95-B and 95-C, item II.
Operational prohibitions
- Paragraph 2 of article 95 of the Resolution provides for cases in which are not applied. The innovations include
- Possibility of supervised bodies, capitalization companies and reinsurers contracting loans or financing through financial institutions authorized by the Central Bank of Brazil (BCB), respecting the limit of 10% of the supervised body’s shareholders’ equity, deducted from interests in other supervised bodies
- Permission for supervised bodies to raise funds through the issuance of a debt instrument through a public offering for the distribution of securities as well as exclusively integrating the target public but respecting the 10% limit
- Any operation that characterizes an indirect, simulated business or through the intermediation of a third party with the purpose of carrying out an operation that is not compatible with the conditions practiced in the market will be considered as a related party
- Contracts relating to transactions with related parties set out in Items III, IV, V and VI of §2 of Art. 95, must contain a clause that allows their suspension or unilateral termination by the supervised body (without any charges), upon determination by SUSEP.
Articles 95-A, 95-B and 95-C were included and deal with general provisions for supervised bodies. We emphasize the following points
- Transactions with related parties must be: (i) carried out under conditions compatible with those practiced in the market, including but not limited to amounts, terms and interest rates, when applicable (ii) approved and monitored by the Board of Directors and by the Executive Board, except in the cases provided for in items II, IV and V of paragraph 2 of art. 95, which may be approved by lower courts as long as the policy referred to in art. 95-B establishes the criteria and parameters
- The supervised bodies must establish a policy for carrying out transactions with related parties, defining guidelines, procedures and measures to be followed to identify possible transactions with related parties and ensure that they are carried out under the conditions provided for in Arts. 95-A and 95-C
- Operations must be limited to 10% (ten percent) of the supervised body’s shareholders’ equity, deducted from interests in other supervised bodies.
It should be noted that Resolution No. 432/2021 – specifically in Art. 44 – points out that the amounts of subordinated debt must be considered in the calculation of risk capital. However, although in the new circular there is an authorization for the issuance of common debts, the draft did not reflect on the calculation of risk capital, which presupposes that the issuance debt (unsubordinated) will not serve as a capital relief instrument in the same way subordinated debt does.
Finally, the draft proposes the revocation of item IX of Art. 92, item VII of Art. 94 and lines ‘a’ and ‘b’ of item III of Art. 95.
Interested parties should forward their comments and suggestions on the draft by 01/07/2023 to corac@susep.gov.br There is a specific standardized table that must be used and this is available on the SUSEP page. Click here to access the site.
Lefosse’s Insurance, Reinsurance and Private Pension practice will continue to follow the news and changes that impact the sector. For further clarification on this subject, or other areas that may be of interest to you, please contact one of our professionals.
