The market is in discussions to adjust the rules for non-resident investments in Brazil’s financial and capital markets. But why might this interest Brazilians? Experts consulted by Broadcast Investimentos suggest that facilitating the entry of external resources should develop the local industry.
Simplifying Forex Regulations
“Forex in Brazil has always been complicated. However, the new Foreign Exchange Law, which came into effect at the end of 2022, introduces an important principle that ‘foreign capital should be given the same treatment as national capital.’ New rules have emerged since then, but this public consultation on foreign investments in Brazil has been saved for last. Consequently, the goal is to simplify it,” says José Luiz Homem de Mello, a partner at Pinheiro Neto Advogados specializing in corporate finance. He emphasizes that this is an important step, as it involves money coming into bonds, stocks, and other securities.
Current Investments and Future Adjustments
According to Roberto Paolino, director of the Brazilian Association of Financial and Capital Markets Entities (Anbima), there are currently about R$ 1.8 trillion in foreign assets invested in Brazil through regulation 4373, which addresses the topic. The highest value comes from large funds using the 4373 structure and will benefit from the bureaucratic simplification of operational processes. Moreover, the changes also consider individual investors, both Brazilians with fiscal residency outside Brazil and foreigners.
Clearer Rules and Simplified Processes
“Currently, there’s a lack of clarity about what non-resident investors can hold in Brazil. For instance, a Brazilian who takes their definitive exit, for tax purposes, could in theory only have CDBs (Bank Certificate of Deposit) or savings accounts,” says Paolino. Therefore, theoretically, if Brazilians had positions in stocks or fund shares, they would have to sell them when moving abroad. The proposed adjustments will limit individual investor transactions to R$ 1 million per month, with simpler requirements to open an account through brokers or banks. These institutions will have the flexibility to define their own risk criteria.
According to the Anbima director, this is a “very positive” change for the long term. “Just because the regulation is being altered doesn’t mean there will be a huge influx of individual investors, whether Brazilians abroad or foreigners, to invest in Brazil. Instead, it’s a slow process and one that requires education,” says Paolino. However, he notes that foreigners currently account for about one-third of the assets traded and deposited on the Brazilian Stock Exchange. “It’s hard to say if this number will increase, but over the last ten years, it is notable how individual investments in the Stock Exchange have increased. Therefore, it would be reasonable to keep an eye on this.”
Attracting Investments in a Globalized World
Homem de Mello from Pinheiro Neto points out that there is competition in the globalized world, and if foreigners encounter difficulties investing in a country, they will look for another jurisdiction. “[The changes] will bring investments to Brazil at a time when we need to attract them,” he says. Similarly, Leonardo Camozzato, a partner and CEO of HMC Capital in Brazil, highlights that if the country wants to integrate into the global economy, this is an important step.
Enhancing Cross-Border Investments
HMC Capital’s work is to show global managers that it makes sense to offer products in Brazil, that is, on the other side of the business. Nevertheless, Camozzato notes that in cross-border businesses, “the ideal is for the two-way street to be open.” “Sometimes the foreign manager wants to put seed money into their own fund to show commitment to the country. However, when they see the number of steps to make a simple investment, they question Brazil’s preparedness.”
“By facilitating access, the flow will increase, and the local investment industry will have more contact with global investors. As a result, it will be necessary to speak their language, seeking returns and guarantees to which they are accustomed. This should develop the regulatory framework behind it. It’s a new opening and will ‘raise the bar,'” evaluates Camozzato.
Aligning with International Standards
Frederico Leonel, head of Sales and Services for Securities Services at Citi, expects the Brazilian market to get closer to international standards. Consequently, this will make “the entire dynamic more efficient.” “We are on a positive path, and we expect to see results over time,” says Leonel. According to Anbima data, Citi has the largest custody of non-resident volume, with 64% of the total.
The CVM and BC consultation was conducted at the beginning of September. The expectation is that the new rules will be released by the end of the year, coming into effect in 2025.
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