Investment Funds and Structures Operations Newsletter no.3

HIGHLIGHTS

 

CVM Resolution No. 60 and 81 become effective on May 2, 2022

 On May 2, 2022, Brazilian Securities and Exchange Commission (“CVM“) Resolution No. 60, updated on November 23, 2021, came into effect, repealing CVM Regulation No. 414, CVM Resolution No. 443 and CVM Regulation No. 600. The resolutions that were repealed regulated securitization companies, Certificates of Real Estate Receivables (CRI), and Certificates of Agribusiness Receivables (CRA). Securitization companies that are already incorporated will have  180 (one hundred and eighty) days to adapt to the new Rule following its entry into force.

For further information, access here.

On the same date, CVM Resolution No. 81 also entered into force, which consolidated the rules for shareholders’ meetings, debenture holders, and holders of credit notes, and repealed important regulations, such as CVM Rule No. 372, 481, and 625. 

For further information, access here.

 

National Monetary Council (“CMN”) Rule No. 4,994 entered into force on May 2, 2022 

On May 2, 2022, Resolution No. 4,994 entered into force, as amended on March 24, 2022, repealing CVM Rule No. 4,661 and consolidating the rules for Closed Supplementary Private Pension entities (“EFPCs”)

The following amendments are highlighted: (a) exemption from the obligation to include  information about the sponsor’s “clients and suppliers” in the investment policy; (b) inclusion of the possibility of direct purchase of Brazilian external federal public debt securities; (c) categorization of Brazilian Depositary Receipts (BDRs) and Exchange Traded Funds (ETFs) in the variable income sector; (d) altering the classification of shares of a foreign index fund admitted for trading on the Brazilian stock exchange to the variable income segment; (e) amendments to art. 28 to further clarify the application of the concentration limit; and (f) amendment to the provision that deals with performance fee, establishing compliance with the rules amended by the CVM.

 For further information, access .

 

CVM and ANBIMA announce results of agreement focused on the oversight of the investment fund industry

The agreement between the CVM and the Brazilian Financial and Capital Markets Association (ANBIMA) has achieved significant results concerning the use of self-regulation in the funds industry. Below, we list the figures for 2021.

Results: As a result of the agreement, 14 Settlement Agreements (“MOA”) were entered into in 2021, of which: (a) First semester: nine Settlement Agreements, regarding distribution activities and pricing of financial assets; and (b) Second semester: five Settlement Agreements, of which three concern distribution activities and two concern the pricing of financial assets.

Such partnership establishes an exchange of information flow between ANBIMA and the CVM, enabling the autonomous federal entity in Brazil to utilize the fund industry oversight work carried out by the Association.

Consequently, the agreement avoids unnecessary overlapping of the entities’ work, and is expected to benefit the synergy and coordination of such work.

For further information, access full agreement and ANBIMA’s website.

 

Clarifications regarding the performance of the independent accounting auditor in the securities market 

On April 05, 2022, the Superintendency of Accounting and Auditing Guidelines (“SNC“), through the CVM’s Management of Auditing Standards (GNA), published CVM Circular CVM/SNC/GNA 1/2022.

The purpose is to clarify certain topics with the accounting auditor regarding the registration with the regulatory agency, operation in the securities market, and the application of professional rules for independent accounting auditing in the carrying out of the work.

The document contains new guidelines, not addressed in previous circulars, as well as updates on recurring issues, which include:

    1. New topics:
      1. Audit Technical Communication – CTA 30;
      2. Summary statements published in a printed newspaper;
      3. Immaterial distortions with significant potential to become relevant in the future;
      4. Inconsistency and Incompatibility Scenarios (Art. 22 to 24 – CVM Rule No. 23);
      5. Audit report transparency;
      6. Key topics highlighted in recent years by the International Forum of Independent Audit Regulators (IFIAR).
    2. Updated topics:
      1. Registration as Independent Auditor 1º to 6º-A of CVM Rule No. 23);
      2. Evidence of audit activity (Article 7 of CVM Rule No. 23);
      3. Periodic Information (art. 16 of CVM Rule 23/2021);
      4. Registration Update and Electronic Statement of Compliance (art. 2, I and II, of CVM Resolution 51);
      5. Auditor Turnover (art. 31 of CVM Rule 2021);
      6. Audit Report and Key Audit Matters.

For further information, access Circular CVM/SNC/GNA 1/2022.

 

Guidelines on CVM Rule No. 64 

On May 02, 2022, CVM/SIN Circular 3/2022, updated by the CVM’s Superintendence for oversight of Institutional Investors (“SIN”) on February 07, 2022, entered into force, with the purpose of clarifying amendments brought with CVM Rule No. 64.

It is important to highlight that the main measure implemented through the new Rule is the exemption of specific registration to the CVM for non-resident investors from Brazil  who are interested in investing in the financial and capital markets in Brazil.

In light of such amendments, the Superintendent of SIN/CVM, Daniel Maeda, highlights the importance of reading the document: “The main focus of the Circular is to provide guidance on the requirements set by the autonomous federal entity in order to be exempted from registration, as well as address operational matters in regard to the sending of information and collection of the Inspection Fee,” commented Maeda.

For further information, access Circular SNC/SIN 3/2022.

 

Report to CVM on securities bookkeeping contracts 

On April 25, 2022, the CVM’s Superintendency of Market and Intermediaries Relations (SMI/CVM), through the Management of Market Structure and Electronic Systems (GME), published CVM/SMI/GME Circular 1/2022.

The purpose of the Circular is to highlight the securities bookkeeper’s obligation to submit a report to CVM concerning the execution and termination of securities bookkeeping contracts, as provided for in article 12 of Rule No. 33.

Deadline: the information must be sent via the CVMWeb system by the fifth business day of each month. The report must be sent in XML format and must contain the list of contracts held by the bookkeeper. Starting in May, the file must be sent exclusively through the CVMWeb system.

 For further information, access Circular CVM/SMI/GME 1/2022.

 

CVM amends crowdfunding investment rules

On April 27, 2022, the CVM amended CVM Regulation No. 88, which replaces CVM Rule No. 588 and brings with it significant innovations to the rules applicable to public offerings by small-sized businesses, carried out with exemption from registration through an electronic platform for participative investment.

Maximum revenue: in addition to the increase in the funding limit, the reform increases to BRL 40 million the gross revenue limit that defines the concept of a small-sized business.

Expanded means of publicizing and subsequent transactions: an additional innovation is greater flexibility concerning means of announcing public offerings. The Resolution allows the carrying out of marketing campaigns to advertise the public offering in any means of communication and social media, in compliance with the  Rule.

 The platforms are also authorized to act as intermediaries of subsequent transactions,  interests of purchasing and sale of securities offered through the platform.

In addition, the Rule expands the roster of investors who can acquire securities, following the opening of public offerings for active investors. Prior to that, the platform must obtain the issuer’s consent to extend access of information to active investors.

Warning: Authorization to act as an intermediary for subsequent transactions does not qualify the platform to: (i) establish and manage organized securities markets; (ii) carry out activities normally carried out by the entities that manage such markets; and (iii) use technical terms such as stock exchange, etc.

Investor Protection Measures: The main measure to be implemented by the new Rule is a requirement that the securities be subject to bookkeeping (carried out by a CVM-registered bookkeeper), or to control of ownership and corporate interest (carried out by the platforms).

The platform can provide such services provided that it complies with established in CVM Rule No. 88, and specifically for small-sized companies that have held public offerings exclusively in its environment.

Other measures include the increase of the minimum capital stock of platforms to BRL 200,000.00 and the requirement for the platform to hire a compliance professional initiating from the year it reaches an amount of BRL 30 million in intermediated public offerings.

In regard to small-sized businesses, the Rule establishes the obligation to contract an auditing service for the financial statements amounting to a minimum of  BRL 10 million in gross revenue in the previous financial year, or when the public offering aims to raise more than BRL 10 million.

Major amendments held after Public Hearing 02/20:

    • increase in the fundraising limit, from BRL 10 million to BRL 15 million, and in the annual investment limit per investor from BRL 10,000 to 20,000 (except for leading investors, qualified investors, and investors whose income exceeds BRL 200,000 in financial instruments);
    • authorization for partial distribution of securities, provided that at least 2/3 (two thirds) of the initial offer have been reached;
    • authorization for secondary distribution (the rule previously addressed primary intake only),provided that it meets certain requirements;
    • increase in the annual gross revenue limits used to define a small business company, from BRL 10 million (both individual and consolidated limits) to BRL 40 million (individual limit) and BRL 80 million (consolidated limit);
    • requirement to ensure transparency regarding the remuneration of professionals hired to carry out the advertising of public offerings, within the scope of  agents regulated by the CVM;
    • change in requirements for bookkeeping agents, establishing the hiring of such professionals as mandatory in specific cases. The small-sized business can choose to hire the platform responsible for distributing the public offering in order to provide services of ownership management and corporate interest, as established in CVM Rule No. 88.
    • establishment of a transition rule for compliance with the minimum stock capital requirement for platforms that are already registered, in addition to the inclusion of two possible scenarios that allow for cancellation of registration, regarding the absence of public offerings by the platform;
    • increase in the minimum amount of funding allocated for the hiring of a compliance professional, from BRL 15 million to BRL 30 million;
    • requirement for small-sized businesses to submit financial statements audited by an auditor registered to the CVM, in the event that: (i) the offerings maximum capital-raising amount target exceeds BRL 10 million; or (ii) the small-sized companies consolidated annual gross revenue exceeds BRL 10 million;
    • amendment to the proposal that made the allocation of resources more flexible in order to prohibit the acquisition of minority interests in other companies;
    • increase of the additional lot limit from 20% to 25% of the maximum target value;
    • maintaining the restriction against for the transfer of resources among the platform accounts;
    • establishment of mandatory percentage ranges for the lead investor’s stake in the small-sized business depending on the amount of the offering;
    • permission to the lead investor to receive other types of remuneration, provided they are not paid by the investor.

 

For further information, access Public Hearing Report 02/20 and CVM Rule No. 88.

 

 

COURT RULINGS AND CVM DECISIONS

 

STJ determines that investment fund can be subject to disregard of legal personality 

The Superior Court of Justice (“STJ”) analyzed, in the course of a Special Appeal (“REsp”), a decision rendered by the Court of Appeals of the State of São Paulo (“TJ/SP”) that disregarded the legal personality of a private equity investment fund (“FIP”). In the mentioned REsp, the FIP argued, among other topics, that investment funds are unincorporated associations, so it should not be subject to this legal appeal.

The STJ agreed with the opinion of the TJ/SP, and confirmed the decision that  the legal personality of an investment fund could be disregarded in the event of proven abuse of rights by misuse of power or co-mingling of assets. In this case, the STJ found that both hypotheses had grounds. Thus, the decision was upheld, as well as the blocking and transfer of financial assets owned by FIP.

For further information, access REsp final court decision N. 1.965.982.

 

CVM considers an appeal against the SGE’s decision in Inspection Fee Proceeding 

This is an appeal filed by a securities distributor (“DTVM“), as manager of a certain foreign exchange investment fund (Fund), against a decision of the General Superintendence that granted the tax credit assessment regarding the Notice of Assessment NOT/CVM/SAD/No. 756/547 (SGE Decision), which refers to Inspection Fees related to the 4th quarter of 2019 and the 1st quarter of 2020, for the registration of an Investment Fund.

Considering that the SGE Decision was issued before the effectiveness of CVM Resolution No.  54/2021, the appeal was submitted to the Collegiate.

The Collegiate, based on the Internal Official Letter No. 2/2022/CVM/SAD/GEARC, unanimously decided nto dismiss the appeal, with consequent maintenance of the tax credit assessment.

For further information, access Technical Area’s Statement.

 

CVM considers appeal in a loss compensation mechanismproceeding 

This is an appeal filed by an individual (Complainant or Claimant) against a decision of BSM Supervisão de Mercados (“BSM“), which denied Claimant’s request for compensation for losses under the Investor Compensation Mechanism (MRP) filed against a Securities broker (CCTVM or Respondent).

Complainant reported that, due to an operational error – fat finger error (an expression for human errors usually related to typing) – an order to sell 14,000 subscription warrants at R$0.02 was placed, so the asset went to auction and was sold at BRL 1.02.  Subsequently, Respondent made contact and advised that it would correct this position, and the 14,000 subscription warrants were purchased at BRL 8.90.  According to Complainant, the short sale transaction could not have been carried out and Respondent would have failed to block the sale, generating a loss of BRL 110,000. Thus, Complainant sought reimbursement of such amount before the MRP.

For further information access Technical Area’s Statement.

 

CVM imposes fine of BRL 1.85 million on defendants for failures in brokerage performance and trading orders 

On April 12, 2022, the CVM decided on the following sanctioning administrative proceedings:

    1. PAS CVM SEI 19957.011368/2017-89 (RJ2018/00251): Securities distributor (DTVM) and individuals.
    2. PAS CVM SEI 19957.009366/2017-20 (SP2018/00412): bankrupt estate of a  Securities broker (CTVM) and individuals.

PAS CVM SEI 19957.011368/2017-89 (RJ2018/00251) PAS CVM SEI 19957.009366/2017-20 (SP2018/00412) was filed by SIN to investigate the liability of certain DTVMs and individuals acting as directors of the DTVM for alleged breach of duties of good faith, transparency, diligence, and loyalty to clients in the management of an investment fund of multimarket investment funds (FIC-FIM), for breach of art. 16, I, of CVM Regulation No. 558.

Further information about the fines that have been imposed by the Collegiate of CVM can be found at Report and opinion of Reporting Officer Otto Lobo.

PAS CVM SEI 19957.009366/2017-20 (SP2018/00412) was filed by the Superintendency of Market and Intermediaries Relations (‘’SMI’’) to investigate the liability of CTVM bankrupt estate and five individuals, for:

    1. alleged flaws in the implementation, by CTVM, of: (i) adequate and effective rules for compliance with the provisions of CVM Regulation No. 505 (breach of art. 3, item I, of such rule); and (ii) procedures and internal controls to verify the implementation, application and effectiveness of these rules (breach of art. 3, items I and II, respectively, of CVM Regulation No. 505); and
    2. alleged flaws in the trading order registration and recording system (breach of arts. 12 and 14, head, of CVM Regulation No. 505).

Further information about the fines that have been imposed by the Collegiate of CVM can be found at Report and opinion of Reporting Officer Alexandre Rangel.

 

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