Final Beneficial Owner

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Brazil is a Final Beneficial Owner market. This means that the non-resident inventor’s representatives in Brazil will have to identify the final client owning responsible for every transaction carried out at BM&FBOVESPA’s trading systems, and the assets will be held under an individual account in the BM&FBOVESPA Central Depositary.

As part of this requirement, client due diligence processes (CDD process) conducted by custodial services providers and brokerage houses will require final beneficiary identification, an extremely relevant aspect of the Brazilian financial and capital markets regulation.

In this sense, the main regulation regarding the final beneficial owner identification in Brazil comprises:

  • Law no. 8.021/1990: sets forth that no payment or redemption, regarding any security or investment shall be made out to unidentified beneficiaries, and that neither securities nor payments shall be issued or paid in bearer form, the identity of the beneficiary being a legal requirement.
  • Law no. 6.404/1976: expressly provides that corporate bonds and shares must be issued in nominative/registered form.
  • CVM Instruction no. 387/2003: also sets forth the obligation upon brokerage entities to dutifully keep records of their clients and to provide the exchanges and the clearing entities with accurate client data.
  • CVM Instructions no. 325/2000 and no. 419/2005: determine that the same rules be applied for foreign investors.

Final Beneficial Owner adhering to IOSCO Principles

In May of 2004, IOSCO prepared a list of principles (1) applicable to the identification of clients and effective beneficiaries in the securities industry, envisioning their adoption by the several securities commissions which are members of IOSCO. The standards defined by these principles seek:

  • Principle 1: Greater transparency within the capital markets;
  • Principle 2: Effective protection of final investors;
  • Principle 3: Effective prevention of the illegal use of the securities industry;
  • Principle 4: Prevention of money laundering;
  • Principle 5: Prevention of financing of international terrorism.

In Brazil these requirements of identification and control go beyond the usual requirements imposed on participants elsewhere, to the extent that all transactions carried out in the Brazilian financial and capital markets must be identified up to the level of the final beneficiary.

In order to create a contractual framework for investor’s identification in Brazil, the Brazilian Securities Exchange Commission has made special use of Principle 5 on Third Party Reliance.

According to this principle, among the specific actions recommended by IOSCO, the Brazilian system has adopted the following:

  • Prohibition of anonymous accounts or accounts held under fictitious names
  • Creation of policies that describe the CDD process ASSPs should follow and the due approval thereof by their senior management
  • Approval of the CDD process by competent authorities “know your client” internal procedures
  • Maintenance of record keeping

As a matter of simplifying the registration of non-resident investors, the Brazilian Securities Commission enacted on May3rd, 2005 Rule CVM 419 that sets a new framework for foreign investor’s identification in Brazil.

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