Law 14,286/2021, the new landmark legislation on the Brazilian foreign exchange market

Law number 14,286, of December 29th, 2021 (“Law 14,286“), was published essentially in the same form of its original bill of law number 5,387, submitted by the President of the Central Bank of Brazil and the Minister of Economy in 2019. 

The Law 14,286 was published on December 30th, 2021 but will enter into effect after one year of its publication, which will be on December 30th, 2022. 

In accordance with the explanations of the new legislation, the Law 14,286 creates a new landmark with the purpose of modernizing, simplifying, and bringing more efficiency to the Brazilian foreign exchange market. Law 14,286 revokes several other laws, decree laws, and rules, especially certain provisions of the Law 4,131, of September 3rd, 1962, which govern the application of foreign capital and remittances outside Brazil. 

The new law preserves certain basic concepts and principles, such as: (1) the exchange transactions may be freely commissioned by the parties, without any amount limit, but always complying with the legality and the applicable regulation; (2) the exchange transactions may only be led by institutions duly authorized by the Central Bank of Brazil to operate in this market; (3) the Central Bank of Brazil is the competent governmental authority to regulate and supervise the foreign exchange market and its related transactions, as well as to authorize the organization, operation, and transfer of ownership control of institutions authorized to operate in the exchange market; (4) foreign capital is treated legally identically as national capital in the same conditions; and (5) the stipulation of payment in foreign currency made in disagreement with the situations expressly provided in the legislation is null and void. 

On the other hand, the new law introduced important innovations aiming at the increase of international convertibility of the local currency, allowing the opening and maintenance of accounts in Brazilian reais held by foreign central banks and institutions domiciled or headquartered outside Brazil which render services of settlement, payment, and custody in the international market. Law 14,286 also allows banks authorized to operate in the foreign exchange market to initiate payment orders in Brazilian reais received from or remitted abroad, by using accounts in Brazilian reais deposited in banks held by institutions domiciled or headquartered abroad. 

Moreover, the new law continues do indicate the Central Bank as the agency responsible for regulating the accounts in foreign currency maintained in in Brazil which are currently allowed only to agents authorized to operate in the exchange market, foreigners in transit in Brazil, and Brazilians residing outside Brazil.  The extension of the use of such accounts in foreign currency in Brazil is subject to regulation by the Central Bank of Brazil which should be aligned with the procedures and rules to prevent and combat money laundering and funding terrorism, and the need of risk valuation associated with the client and the transaction, in accordance with the discretion of the institution authorized to operate in the exchange market. 

With respect to the inflow and outflow of funds in national or foreign currency, Law 14,286 preserves the attribution to the institutions authorized to operate in the exchange market to correctly identify client and the addressee or sender of the funds, which includes the complete name and the related Brazilian taxpayer number. Law 14,286, however, imputes to the client, and not to the institution, the responsibility to correct classify the purpose of the foreign exchange transaction, in accordance with the Central Bank of Brazil’s regulation. 

Furthermore, the netting of credits or amounts by parties in Brazil and outside Brazil is only allowed in the situations expressly established in the rules issued by the Central Bank, which may request information of the netting, always in compliance with the terms, forms and other conditions provided in the regulations. 

Finally, Law 14,286 expressly provides the situations in which the provision of payment in foreign currency of obligations enforceable in Brazil are allowed, such as in contracts established by Brazilian exporters and counterparties which are concession, authorized, or lessee companies in the infrastructure sector. 

The changes and restatements of concepts and principles addressed by Law 14,286 imply the adaptation and changes of several other regulations issued by the Central Bank, which shall occur during the year of 2022.