Brazil's national monetary council approved a resolution that divides the country's financial system into five groups for prudential regulation application purposes.
"With the publication of this resolution, prudential regulation can be applied in a proportional way to each institution in a transparent, clear and objective way," Banco Central do Brasil said in statement.
The ruling divides the financial institutions within the system into five segments according to their size, international activity and risk profile.
The S1 segment will cover banks whose total exposure is equal to or greater than 10% of the country's GDP, in addition to financial institutions that are internationally active. This segment will fully follow the Basel Committee's banking supervision standards, according to the central bank.
The S2 segment will be composed by institutions with exposure between 1% and 10% of the GDP and may also contain companies whose exposure equates to more than 10% of the GDP if it they are not subject to the S1 framework.
Financial institutions with exposure between 0.1% and 1% of the GDP, meanwhile, will be grouped into the S3 segment, while firms with total exposure lower than 0.1% of the GDP will fall into the S4 segment. In the latter group, credit unions and non-bank institutions with a simplified risk profile will be classified as the S5 segment.
"The measure makes regulation more compatible with the size and risk profile of each financial institution, without jeopardizing security, as well as protecting the financial institutions' soundness, with greater efficiency and lower compliance costs," the central bank noted.