Investment Funds and Structured Finance Newsletter – June & July 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

ANBIMA and CVM include FIAGROS-FII offerings and infrastructure funds in a public offering agreement

As of July 08, 2024, the public offerings involving quotas of Investment Funds in Agroindustrial Productive Chains (“FIAGROs-FII”) and Incentivized Infrastructure Investment Funds (“FI-INFRA”) became eligible for analysis of the agreement between the Brazilian Financial and Capital Markets Association (“ANBIMA”) and the Brazilian Securities and Exchange Commission (“CVM”).

This happened as a result of the increase in offerings held by these funds in 2023 and 2024, and the subsequent market demand for assessing them under the agreement mentioned.

It is worth highlighting that the assessment of a public offering by ANBIMA exempts the CVM from assessment, which can reduce the overall analysis period, while maintaining access to the target audience originally addressed in the offerings under the ordinary distribution system.

In addition to FIAGROs-FII and FI-INFRA, now included, ANBIMA´s agreement already assesses stock offerings (initial public offerings – IPOs, and follow-ons), debentures, promissory notes, Real Estate Receivables Certificates (in relation to specific backing) and real estate funds.

According to ANBIMA´s market supervision superintendent, including FIAGROs-FII and FI-INFRA represents progress – which was intended by ANBIMA – towards contributing to the capital market’s dynamism and swiftness.

For more information, access ANBIMA’s article.

Crypto funds under new governance and diligence regulations

On July 10, 2024, ANBIMA published new governance and diligence regulations for managed funds and portfolios investing directly in crypto assets, with the aim of standardizing the minimum governance and diligence requirements for essential service providers (managers and administrators), seeking to align its regulations with CVM’s Resolution No. 175, of December 23, 2022 (“CVM Resolution 175”).

As of now, managers must establish a policy describing the controls adopted for managing crypto assets – if they acquire these assets directly – and addressing the area in charge for decision-making involving investment and the criteria used to select these assets, including procedures relating to monitoring both the trading environments used and under custody.

In addition, the methodology for pricing crypto assets must be included in the institutions’ pricing manuals.

The update becomes effective on October 01, 2024, and the stock must be adapted by June 30, 2025.

For more information, access ANBIMA’s article and  the Rules and Procedures for Administration and Management of Third-Party Resources.

CVM clarifies doubts about funded credit derivatives

On June 11, 2024, the CVM published Official Letter No. 78/2024/CVM/SIN/GIFI, drafted in response to ANBIMA’s consultation on the possibility of contracting credit derivatives by investment funds, in light of the publication of CMN Resolution No. 5,070, of April 20, 2023.

Credit derivatives are instruments enabling the exchange of asset-related credit risks between two parties. The party transferring the risk carries out this type of operation seeking protection, but in order to accomplish this, they need an institution (called the “receiver”) to bear the risk on their behalf in exchange for remuneration.

In Official Letter No. 78, the CVM clarified that investment funds can hire credit derivatives both as receivers and risk transferors, which is expressly provided for in CMN Resolution No. 5,070. In addition, Official Letter No. 78 establishes the minimum criteria for a financial instrument to be considered as a credit derivative, in compliance with CMN Resolution No. 5,070:

• its market value changes according to the credit risk variation associated with one or more reference entities;
• the reference entity’s (entities’) credit risk is transferred between the counterparties – by hiring protection – without the physical or accounting transfer of the corresponding reference obligations on the operation date;
• the initial net investment is lower than the amount hired; and
• settlement is carried out at a future date.

For more information, access ANBIMA’s article and Official Letter No. 78/2024/CVM/SIN/GIFI.

ANBIMA’s proposal to the BC seeks to include crypto assets in a fee-charging regulation for investment products

On June 13, 2024, ANBIMA submitted to the Central Bank of Brazil (“BC”) a request for amendment to CMN Resolution No. 3,919, of November 25, 2010, which addresses the fees charged for investment products by financial institutions, in order to include both crypto and tokenization services in this resolution.

ANBIMA’s intention is to avoid legal uncertainty and increase transparency for investors regarding the fees charged by services involving crypto assets and tokenization, given that the Brazilian legal system does not provide for this yet.

ANBIMA’s suggestion also involved a range of services for which fees could be charged. Among them are custody, brokerage, transfer and loan services.

For more information, access ANBIMA’s article.

DECISIONS

Closed-end fund wins against retroactive income tax and leads the way in Court

In early June, the Federal Regional Court of the 3rd Region (“TRF 3”) decided to remove the levy of the Withholding Income Tax (“IRRF”) on the income from a Credit Rights Investment Fund (“FIDC”) that accrued until December 31, 2023.

The decision addresses one of the most controversial topics introduced by Law No. 14,754/2024 – enacted recently –, which amended, in addition to the taxation of closed-end funds, the taxation of investments of individuals and trusts abroad.

Article 26 of Law No. 14,754/2023 established that the income from investment funds not classified as investment entities, such as the Equity Investment Fund, the Exchange Traded Fund (ETF) and the FIDC, will be subject to periodic IRRF taxation at a 15% rate. This is considered as an extension of the scope of the biannual automatic taxation regime – called “quota eater” taxation regime.

Before such change, the income of closed-end funds used to be taxed only at the amortization or settlement of quotas. As a result of the change introduced by the new law, the income from several funds began to be taxed periodically on the last working day of May and November. In turn, article 27 of such law determined that the income calculated up to and including December 31, 2023, would be subject to IRRF taxation at the rate of 15% – the so-called “stock taxation”.

In the case of the TRF 3 decision, the taxpayer filed a lawsuit claiming that this legislative amendment could not affect income accrued by the fund until December 31, 2023. The reason for such request was the “tax non-retroactivity regulation” – according to which, regulations increasing or establishing taxes cannot take effect retroactively, given that Law No. 14,754, of December 12, 2023, only became effective as of January 01, 2024.

The TRF 3 accepted these arguments and established that the IRRF could not be levied on income accrued by FIDC until December 31, 2023, as this would violate the tax non-retroactivity regulation provided for in article 150, III, “a” of the Brazilian Constitution. However, as this was a unilateral decision, it can be further examined in a collegiate trial.

For more information, access Valor Econômico’s article.