Brazilian asset management in focus, part 1

Aggressive competition among global asset managers

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Asset managers entering the Brazilian market for the first time will find a tangled maze of federal, state and local regulation.

Despite the challenges of Brazil's regulatory environment, foreign asset managers are competing aggressively for a piece of an expanding market.

International asset managers entering Brazil market

Asset managers entering the Brazilian market for the first time will find a tangled maze of federal, state and local regulation. Traditionally, these regulations have kept Brazil's banking and asset management industry firmly in Brazilian hands.

For example, the National Monetary Council oversees four regulatory entities, from which spring myriad rules, regulations, laws and guidelines that can prove overlapping, antiquated and costly. Many foreign firms doing business in Brazil find that partnering with established Brazilian companies is the best way to enter the market and establish regulatory compliance.

For international asset managers working in Brazil, two specific restrictions prove daunting:

  1. Any foreign investment in domestic financial institutions requires a presidential decree and authorizations from the relevant regulatory entities. In determining whether such an authorization will be given, the Central Bank considers the size of the ownership stake the foreign firm plans to hold, the anticipated benefit to Brazil's banking sector, and the role that the Brazilian firm will play in the foreign firm's strategic plans.

  2. Representatives of international banks must be registered. In June 2009, the Central Bank ordered the closure of unregistered representatives of international banks operating in Brazil. Traditionally, banks had been able to operate domestic subsidiaries without registering their offices. When the Central Bank ruled that such offices were, in fact, illegal, many foreign wealth managers closed their branches.

No expected loosening of regulations

Although there is a passing acknowledgement among some in President Rousseff's administration that excessive financial regulation hurts consumers and could ultimate backfire as Brazil seeks greater access to foreign markets for its own products and services, few expect a more laissez-faire approach to regulation anytime soon.

Many credit Brazil's stringent banking laws with saving the national economy from the worst effects of the global financial crisis. Further, the current regulations do what they are intended: protect Brazilian banks and government control over those banks.

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