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CADE and BACEN sign memorandum of understanding


On February 28, 2018, the Central Bank of Brazil ("BACEN") and the Administrative Council for Economic Defense ("CADE") signed a memorandum of understanding ("MoU"), seeking to establish a cooperation between the two entities in the analysis of merger cases and antitrust investigations involving financial institutions, which are regulated by BACEN. The cooperation is expected to increase the consistency and predictability in the proceedings conducted by BACEN and CADE. 

Historical context 

The MoU settles an important debate relating to conflict as to the jurisdiction of CADE and BACEN to review merger cases in the financial sector, which started in 2001. Since Law No. 8,884/94 (the old Brazilian competition law) came into effect, CADE always took the position that if it came within the mandatory filing criteria established by the law, a transaction had to be submitted to CADE for review regardless of the economic sector involved. CADE's position, more specifically in relation to the financial sector, was questioned because, under Law No. 4,595/64, BACEN is the relevant authority for regulating competitive conditions between financial institutions. In 2001, the Federal Attorney General – AGU was requested to take a stand on this matter and, in Opinion GM-020, approved by the President of the Republic, it established that it was BACEN that had jurisdiction to analyze and approve transactions involving financial institutions. 

CADE always took the view that AGU's Opinion GM-020 was not binding on CADE because it is an independent authority and, therefore, not subordinated to other public entities. Accordingly, it continued to exercise its jurisdiction in respect of the financial sector. This issue was brought to the courts after CADE applied a fine for untimely filing of a transaction between Banco de Crédito Nacional S.A. and Banco Bradesco. The case reached the Superior Court of Justice (STJ), one of the highest courts in Brazil, which, in August 2010, decided by a majority of votes that the review of merger cases among institutions within the national financial system were subject to BACEN's exclusive jurisdiction, and that CADE only had jurisdiction in relation to transactions involving other economic sectors. CADE appealed this decision, which is currently awaiting judgement by the Brazilian Supreme Court (STF). 

Cooperation between CADE and BACEN 

In August 2017, CADE and BACEN formed a working group, with four representatives from each entity, to carry out studies regarding competition in the national financial system, including their methods and the limits on their activities and cooperation between them. 

The MoU is the result of these efforts. With respect to merger cases, the general rule consolidates the current situation: transactions involving financial institutions must be approved by both entities. However, the MoU establishes that BACEN can unilaterally approve merger cases that involve significant and imminent risks to the stability of the national financial system. In this case, BACEN will notify CADE, which will unconditionally clear the transaction based on BACEN's decision. This arrangement provides greater coordination and harmony between both entities in the achievement of their own objectives of ensuring stability and competition in the regulated markets. 

With respect to antitrust infringements, the MoU establishes that both entities should cooperate and exchange information, but maintaining such information confidential, and CADE must seek BACEN's opinion before imposing any penalties. Such provisions should increase the technical consistency of CADE's decisions in the financial sector. 

Furthermore, as a result of the MoU, CADE and BACEN jointly submitted Bill No. 350/2015 to the Senate for comment. This bill is under review by the Senate's Economic Affairs Commission and seeks to establish clear parameters regarding the jurisdiction of each entity. The proposed draft of the bill is in line with the cooperation guidelines established in the MoU. It is also expected that CADE will withdraw from the case awaiting judgement by the STF regarding the alleged conflict of jurisdiction between the two entities. 

The cooperation between CADE and BACEN indicates a positive attitude of the antitrust authority, in seeking to bring technical knowledge about the market into its analysis, which could benefit companies that may be under CADE's scrutiny in the future. Moreover, the cooperation with other public authorities with expertise on topics relevant to competition enforcement could contribute to a more efficient and effective antitrust policy.

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