Investment Funds and Structured Operations Newsletter – April & May 2024

The Investment Funds and Structured Operations Newsletter provides information on the main administrative acts, rules, and legal texts on the regulation of investment funds, asset management, and structured operations.

This material is for informative purposes only, and should not be used for decision-making.

Specific legal advice can be provided by our legal team.

The English version of the Investment Funds and Structured Operations Newsletter presents a summary of the Portuguese version, in which we highlight the news most relevant to our international clients. If you want to access a specific article that was not translated into the English version, please contact us. 

HIGHLIGHTS

Technical department clarifies about concentration limits for investment in assets abroad

On May 29, 2024, the Superintendence for Oversight of Institutional Investors (“SIN”) of the Brazilian Securities and Exchange Commission (“CVM”) published CVM/SIN Circular Letter 1/2024, seeking to clarify the concentration limits for investment in assets abroad involving the Financial Investment Funds (“FIFs”) regulated by Normative Annex I of CVM Resolution 175.

According to the SIN, provided that certain requirements are duly met, the classes of FIF quotas can invest directly in assets abroad, even if they exceed the 20% limit provided for in Art. 43, III, of CVM Resolution 175. In addition, quota classes eligible for the general public can be fully exposed to assets abroad.

Circular Letter 1/2024 also clarified that the class of FIF quotas that have the minimum concentration limits, as described in paragraphs I to VI of paragraph 2 of CVM Resolution 175, can invest directly in assets abroad – exceeding the limit of 20% –, and receive investment from the general public.

Finally, Circular Letter 1/2024 reiterates that assets invested abroad must be shares or bear the same level of risk and liquidity as the assets that are eligible for such class.

For more information, access CVM/SIN Circular Letter 1/2024 and the CVM report.

New rules for funds investing in crypto assets addressed in public hearing

On May 20, 2024, the Brazilian Financial and Capital Markets Association (“ANBIMA”) launched a public hearing regarding the new rules for investment funds and managed portfolios investing in crypto assets.

The public hearing aims at:

1. defining minimum governance requirements for essential service providers of these portfolios, such as managers and administrators; and
2. standardizing the portfolios’ information regarding governance and diligence, considering that CVM 175 enabled direct investment in crypto assets.

The new regulations will be addressed by the Administration and Management Code for Third-Party Funds and will be made available to the public by June 20, 2024, through audiencia.publica@anbima.com.br, effective as of October 01, 2024.

A cybersecurity due diligence questionnaire for contracting third parties to render data processing and cloud storage services is also open to public consultation. The questionnaire has approximately 80 questions designed to help institutions understand the risks associated with providing services and to establish a minimum standard among contractors. The deadline for submitting contributions ended on May 31, 2024.

For more information, access the ANBIMA report.

CVM technical departments publish clarifications about meetings and income distribution

On April 09, 2024, the Superintendence of Securitization and Agribusiness (“SSE”) and the Superintendence of Accounting and Auditing Rules (“SNC”, jointly with SSE, the “Technical Departments”) – which integrate the CVM – published CVM/SSE/SNC Joint Circular Letter 1/2024, to guide the administrators and managers of Real Estate Investment Funds (“FII”) regarding the holding of a meeting and income distribution, as provided for in Normative Annex III (Real Estate Investment Funds) of CVM Resolution 175.

In CVM/SSE/SNC Joint Circular Letter 1/2024, the Technical Departments provided guidelines – based on the provisions established in Article 14 of Normative Annex III of CVM Resolution 175 – to offering access to the information and documents necessary for exercising the right to vote in meetings, in order to initiate the deadline to hold such meetings.

In addition, other topics were also addressed, such as the use of votes from previous meetings, convocation resubmissions, deadlines for shareholders’ comments, failure to hold meetings due to lack of quorum, among other issues.

Finally, the guidelines on the minimum content of the explanatory notes to the financial statements involving the distribution of income were also addressed, such as:

1. Explanatory notes to the calculation memory of the “profits earned, calculated according to the cash regime”: Must comply with CVM/SIN/SNC Circular Letter 01/2014 and CVM/SIN/SNC Circular Letter 01/2015, as well as the model submitted in the Quarterly Report, as standardized by CVM Resolution 175;
2. Income declared: The information must correspond to that submitted in the Statements of Change in Net Financial Assets as well as to the sum of the corresponding sections of quarterly reports of the 2nd and 4th quarters;
3. Actual paid income: The amount of income paid in the current year must be specified, even if it is the subject of a statement submitted in earlier financial years, so that the total amount corresponds to the information supplied in the Cash Flow Statements;
4. Distributable income: The information must be consistent with that in the Liabilities section of the Balance Sheet; and
5. Percentage: The percentage representing the total income declared on the profit earned in the financial year must be informed, calculated according to the cash regime.

For more information, access  CVM/SSE/SNC Circular Letter 01/24 and the CVM report.

CVM’s technical department publishes understanding on CVM Resolution 178 – the regulatory framework for investment advisors

On April 25, 2024, the CVM’s Superintendence of Market and Intermediary Relations (“SMI”) published CVM/SMI Circular Letter 2/2024, addressing a new functionality in the accreditation system of investment advisors integrating the National Association of Securities Brokers (“ANCORD”) – an accreditation entity of independent investment agents.  The system enables individual advisors to declare their inactivity in a specific company. Upon receiving the information on investors’ inactivity, ANCORD will confirm the change of status – from advisor to non-active member – within three days.

In addition, the letter clarifies the understanding of the expression “with at least equal prominence”, present in article 24, paragraph 1 of CVM Resolution No. 178, of February 14, 2023, requiring that advisors’ publicity materials clearly identify the contracting intermediary agent.

Upon these clarifications, the CVM aims to ensure clarity and responsibility in the relationship between advisors and intermediaries, as well as improve the regulation of the investment advisory activity, thus benefiting investors.

For more information, access the CVM report.

CVM’s technical department publishes annual circular letter on the role of independent accounting auditors

On May 20, 2024, the SNC published CVM/SNC/GNA Circular Letter 1/2024, which is the SNC’s annual letter, forwarded to independent auditors currently registered with the CVM.

In this edition of Circular Letter 1/2024, in addition to addressing recurring matters, the SNC addressed topics not yet established in the documents of earlier years, among them:

1. The qualification assessment as an investment entity (“FIP”);
2. The categorization assessment of financial assets;
3. Audit sample selection criteria; and
4. CVM Resolution 193, of October 20, 2023.

With regard to items (i) and (ii) above, the SNC’s intention was to warn auditors of the obligation to confirm that the audited company reporting as an investment entity effectively qualifies as such, and to confirm that the audited company’s categorization of financial assets complies with the applicable accounting regulations. Audits identified that the procedures in question have not been carried out.

Regarding item (iii) above, the SNC clarified that the entire procedures of selection and composition of samples must be duly documented, including a detailed description of the criteria as well as the foundations underlying their structuring. It also clarified that general quotes do not meet the requirements of professional regulations.

Finally, with regard to item (iv) above, CVM Resolution 193 was quoted in order to shed light on the drafting and publication of the report on financial information relating to sustainability, based on the international standards issued by the International Sustainability Standards Board (ISSB).

For more information, access CVM/SNC/GNA Circular Letter 1/2024 and the CVM report.

Technical department publishes guidelines on public offerings for distributing senior receivables certificates

On April 12, 2024, the CVM’s Superintendence of Securities Registration (“SRE”) published CVM/SRE Circular Letter 2/2024, to provide guidance on the practices to be adopted by coordinators when applying for the automatic registration of public offerings of receivables certificates involving the issuance of more than one senior class series.

Initially, CVM/SRE Circular Letter 2/2024 addressed the differences between the senior class series and the reopening of series. As provided for in Article 41, paragraph 2, of CVM Resolution 60, of December 23, 2021, the SRE’s understanding is that different senior class series belonging to the same issuance must differ in terms of remuneration and/or have different deadlines and amortization. If they do not meet the minimum difference required by the regulations, the understanding is that they must belong to the same series rather than distinct series.

In addition, CVM/SRE Circular Letter 2/2024 addressed the schedule of the offer and the treatment that must be given to the registration application. If the offeror intends to place offerings belonging to different series at different times – in the event that the offerings are implemented within more than 180 days –, separate applications must be submitted, each containing the series that can be placed within the maximum period of 180 days. Conversely, if the offeror intends to distribute different senior class series belonging to the same issuance through a single offering – with simultaneous placement efforts for all securities –, the understanding is that the application used must be the same.

For more information, access CVM/SER Circular Letter 02/23 and the CVM report.