Investment Funds and Structured Finance Newsletter – June 2023

[vc_row][vc_column][vc_column_text]The Investment Funds and Structured Finance Newsletter provides information on the main administrative acts, rules, and legal texts regarding the regulation of the investment funds, asset management, and structured operations.

This newsletter is for informative purposes only, and should not be used for decision making. Specific legal advice can be provided by one of our lawyers.

The English issue of the Investment Funds and Structured Operations Newsletter is a summarized version of the Portuguese issue, in which we highlight the most important news to our international clients. If you want to access a specific article that was not translated into the English version, please contact us.[/vc_column_text][vc_separator][vc_empty_space][vc_column_text]In this edition:

CVM AND ANBIMA HIGHLIGHTS

1. CVM publishes new normative annexes to CVM Resolution 175
2. CVM publishes new circular letter to clarify provisions of CVM Resolution 175
3. ANBIMA expands ESG self-regulation to other classes of investment funds
4. ANBIMA initiates Public Hearing to discuss amendments to the Third-Party Fund Management Code
5. CVM consolidates guidelines from CVM Resolution 161 and introduces features
6. CVM publishes guidelines to coordinators of public offerings for refunding or offsetting inspection fees
7. #VaiFundo Podcast: innovations of fund regulation for FIDCs
8. New regulations for investment intermediation services abroad and updates to ANBIMA’s Distribution Code enter into force
9. Partnership between CVM and IBDA provides booklet about FIAGRO

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HIGHLIGHTS

CVM publishes new normative annexes to CVM Resolution 175

On May 31, 2023, the Brazilian Securities and Exchange Commission (“CVM”) published new normative annexes to CVM Resolution 175, of December 23, 2022 (“CVM Resolution 175”), added by CVM Resolution 184, of December 23, 2022.

Accordingly, CVM Resolution 175 now consists of a single general rule, applicable to all investment funds, and 11 normative annexes, containing the specific characteristics of different categories of investment funds. In addition to the regulations of Financial Investment Funds (FIF) in Normative Annex I, and Credit Rights Investment Funds (“FIDC”) in Normative Annex II, the following Annexes have been added:

• • Normative Annex III: Real Estate Investment Funds (“FII”).
  • Normative Annex IV: Private Equity Investment Funds (“FIP”).
  • Normative Annex V: Exchange-Traded Funds (“ETF”).
  • Normative Annex VII: Mutual Privatization Funds (“FMP-FGTS”).
  • Normative Annex VIII: National Film Industry Financing Funds (“FUNCINE”).
  • Normative Annex IX: Mutual Funds of Subsidized Shares (“FMAI”).
  • Normative Annex X: Cultural and Artistic Investment Funds (“FICART”).
  • Normative Annex XI: Social Security Funds.
  • Normative Annex XII: Credit Rights Investment Funds for Projects of Social Interest (“FIDC-PIPS”)

The list of normative annexes deliberately omits Normative Annex VI, which addresses the regulation of Investment Funds in Agro-industrial Productive Chains (“FIAGRO”), to be published by CVM following a public consultation scheduled for 2023.

Our team is currently analyzing CVM Resolution 184 and will soon release a more in-depth analysis of the amendments.

 Read the CVM article in full.

CVM publishes new circular letter to clarify provisions of CVM Resolution 175

On May 02, 2023, the Superintendence for Oversight of Institutional Investors (“SIN”) of CVM published CVM/SIN Circular letter 2/2023 (“Circular Letter”), which clarifies and discloses new interpretations of the technical area on CVM Resolution 175, more specifically on the provisions of Normative Annex I – Financial Investment Funds.

The Circular Letter provides answers to doubts received by the technical area, divided into 17 topics:

• • Exposure to capital risk.
  • Portion of performance fee to be paid to the distributor.
  • Exception for restricted classes.
  • Investment abroad.
  • Fund’s portfolio.
  • Interaction between essential service providers and the CVM.
  • Disqualification and communication deadlines.
  • Necessary inspections by the manager.
  • Limits per issuer.
  • Investment class in quotas.
  • Responsibilities of custodians.
  • ISIN (International Securities Identification Number) and other codes.
  • Maximum terms for reaching the limits applicable to the classes.
  • Single-class distribution.
  • Management fee exposure.
  • Crypto assets.
  • Carbon credits.

Access the CVM/SIN Circular letter 2/2023.

Read the CVM article in full.

ANBIMA expands ESG self-regulation to other classes of investment funds

On June 16, 2023, the Brazilian Financial and Capital Markets Association (“ANBIMA”) published new rules and procedures for investments in sustainable assets, which entered into force on July 13, 2023.

The amendments aim to extend the criteria for identifying funds focused on sustainable investments, or that incorporate ESG (environmental, social and governance) factors into other types of funds (in addition to equity and fixed income funds, which were previously covered by self-regulation), such as FIDCs, Quota Investment Funds (“FICs”), multimarket funds and ETFs.

Thus, the amendments will apply to all other types of investment funds, except for FIPs and FIIs. The amendments target fund managers and funds that wish to incorporate ESG criteria into their investment strategies.

The managers of these investment funds must have a specific and detailed internal policy for funds incorporating ESG factors, which must be approved by senior management and published on their website. In addition, they must rely on qualified professionals and establish reporting methods.

Such investment funds will have to identify, in their regulations, which sustainable identification category they belong to:

• • IS (Sustainable Investment) funds; or
  • funds that incorporate ESG matters.

ANBIMA has provided new forms that must be used by institutions to describe the fund’s methodology and to report the actions taken to achieve their ESG goals.

IS Funds being those that seek to invest in social, environmental and/or governance matters, and must be fully aligned with such goals. In contrast, funds that incorporate ESG factors do not have an explicit sustainability goal, but do incorporate ESG matters into their management.

Further key details include:

• • the requirement for a systematic engagement with the issuers of portfolio assets and index providers;
  • the requirement for credit rights eligibility criteria in FIDCs; and
  • the need for ETF managers to ensure that the index used as reference is aligned with sustainable investment or ESG integration goals.           

Note: at this time, the amendments will not apply to FIPs and FIIs.

 For more information: (i) Check the regulations for identifying sustainable funds; (ii) access the ESG methodology form; and (iii) access the ESG report.

ANBIMA initiates Public Hearing to discuss amendments to the Third-Party Fund Management Code

On May 08, 2023, ANBIMA announced a new public hearing to discuss the disclosure of risk factors relating to funds and portfolios managed in the crypto asset market (“Public Hearing”).

After the Public Hearing, the new regulations will be part of the Third-Party Funds Management Code (“Code”), proposing that such risks be informed to investors in the fund regulation itself or in the portfolio contract, in a simplified or detailed manner, depending on the exposure of crypto assets in each fund’s portfolio. Thus, if the first or second greatest risk is related to crypto assets, all other risks in that sector must be mentioned in detail – not just the first and second risks. For investments with less exposure to crypto assets, the description can be simplified by including a disclaimer to that effect.

The main risks regarding crypto assets involve: (i) volatility; (ii) custody, relating to the protection of assets; (iii) counterparties, relating to the protection of trading; (iv) cyber risk, relating to the risks of failures in the execution of programs, among others.

At the Public Hearing, changes in the identification of sustainable funds were also discussed, to adapt the Code under discussion to CVM Resolution 175. Seeking to include an exception to the regulation, mirror funds established in Brazil, which replicate the strategy of an offshore vehicle, can maintain the nomenclature used for the fund of origin, and must also specify under which fund category they fall, according to the Brazilian regulation.

 Read the ANBIMA article in full.

CVM consolidates guidelines from CVM Resolution 161 and introduces features

On May 10, 2023, the Superintendence of Securities Registration (“SRE”) of CVM published CVM/SRE Circular Letter 6/2023, which seeks to provide guidance to intermediary institutions on the application for registration as coordinator of public offerings of securities, under the terms of CVM Resolution 161, of July 13, 2022 (“CVM Resolution 161”).

The new guidelines encompass:

1. 1. restrictions on the accumulation of duties of the officers in charge;
   2. the duties of a natural person in more than one coordinating institution of public offerings; and
   3. the automatic registration of offerings by a coordinator that is not a financial institution.

As for item “a”, the CVM emphasized that there is no need to separate the areas of public offering coordination and securities distribution. The officer in charge of the intermediation of public offerings, according to CVM Resolution 161, can both act as officer of internal procedures and controls as well as the officer in charge of compliance with the regulations established by CVM Resolution No. 35, of May 26, 2021.

However, there is an exception if the coordinator carries out treasury or proprietary trading desk activities; in this case, the officers in charge must not be the same as the officers under CVM Resolution 161. In this regard, CVM also pointed out that it is up to the regulated company to analyze the most appropriate organizational structure to avoid conflict of interest between the coordination and distribution duties.

As for item “b”, the CVM clarified that the officers in charge of the public offering intermediation activity and of the compliance with the regulations, policies, procedures and internal controls of CVM Resolution 161 are not prevented, for example, from carrying out these same functions in controlling or controlled companies.

Finally, as for item “c”, the CVM made it clear that non-financial institutions can carry out public offerings under the automatic registration proceeding, if they participate in ANBIMA’s Self-Regulation Code for Public Offerings.

Access the CVM/SRE Circular Letter 6/2023.

Read the CVM article in full.

CVM publishes guidelines to coordinators of public offerings for refunding or offsetting inspection fees

On May 11, 2023, the SRE and the Collection and Recovery Management (“GEARC”) of CVM published the CVM/SRE/GEARC Joint Circular Letter 5/2023 (“Circular Letter”), which introduces new guidelines on the procedures to be adopted for the filing of refund or offsetting of inspection fees involving public offerings for distribution of securities, under the provisions of CVM Resolution No. 56, of October 20, 2021.

In order to request the refund, information must be provided on the type of public offering that was carried out and the respective registration process or waiver of registration with the CVM. The options mentioned in the Circular Letter are:

• • In the case of CVM Instruction 400: inform whether the offering was registered or exempted from registration according to this instruction.
  • In the case of CVM Instruction 476: inform if the offering was carried out in accordance with this instruction.
  • In the case of CVM Resolution 160: inform whether the offering was carried out in accordance with the ordinary registration proceeding or the automatic proceeding established by that resolution.

If there was no public offering linked to the payment of the inspection fee, this must be informed, as well as any lack of protocol/application for registration or notice for initiation of the offering.

In the case of registered offerings, additional information must be provided about the registration process or waiver of registration, that is, the resolution that prompted the collection of the fee and, if applicable, the subsequent resolution that ruled for the waiver of the fee.

For offerings carried out in accordance with CVM Instruction 400, the process number and/or corresponding registration number must be provided.

For offerings carried out in accordance with CVM Instruction 476, the main characteristics of the offering must be provided, such as the leader, offeror, issuer, security, issue, series/class, initiation date, closing date, and the dates on which the respective notices were sent.

For offerings carried out in accordance with CVM Resolution 160, the corresponding application number and/or registration number must be informed.

Along with the refund request, a detailed justification for the request must be sent, including documents and information to support the situation reported.

Requests for refund of fees relating to offerings in progress, for which the Brazilian Federal Revenue Collection Slips (“GRU”) has already been used in the offering, will not be analyzed. In these cases, the request for refund of the fee must be sent to the CVM only after the offering is closed.

In addition to providing a link to the guidelines on the CVM website, the Circular Letter also highlights the procedures that must be followed by the coordinators of public offerings and the necessary actions, depending on the type of offering.

For offerings that are in progress, the GRU forms that have already been used in the offering will not be subject to requests for refund. In such cases, the request must be submitted to the CVM after the offering is closed.

Access the CVM/SRE/GEARC Circular Letter 5/2023.

Read the CVM article in full.

#VaiFundo Podcast: innovations of fund regulation for FIDCs

On May 09, 2023, the special podcast series named #VaiFundo welcomed as guests the CVM’s Superintendent of Securitization, Structured Investments and Agribusiness Supervision (“Superintendent”), Bruno Gomes, and a partner from XP Investimentos, Marcelo Ferraz (together, the “Guests”), to discuss the innovative features of CVM Resolution 175, of December 23, 2022 (“CVM Resolution 175”) for Credit Rights Investment Funds (“FIDCs”).

Among the topics discussed, the Guests emphasized that one of the key innovations introduced by CVM Resolution 175 in relation to FIDCs is the authorization for retail investors to access this type of fund, except for subordinated quotas, which are still restricted.

Another incentive to retail investors is the possibility of acquiring Quota Investment Funds of Credit Rights Investment Funds (“FIC-FIDC”), through which the following acquisitions will be allowed:

• • up to 20% of equity in FIDC quotas that target qualified investors; and
  • up to 5% of equity in FIDC quotas that target professional investors.

In addition, the matter that generated the most queries in the market was the registration of credit rights, which, according to the CVM, must be carried out in a registry entity authorized by the Central Bank of Brazil (BCB), to provide more transparency to investors.

On this topic, the Guests clarified that registering entities seek to focus on the registration and control of the backing of credit rights using a highly technological method, in an electronic environment, which, consequently, will bring greater transparency and security to investors, regulators and the market in general. Accordingly, the CVM was able to provide an easier participation of the custodian in this process.

Considering the adaptation of the industry to the registration mechanism, throughout the podcast under discussion, it was highlighted that the biggest challenge to be met is its scale, as it involves technological and financial aspects. Prior to these implementation challenges, the Guests understand that CVM would need to provide clarifications on all aspects of the registration as well as the criteria to be adopted in order to obtain a registration or not.

The podcast also addressed:

• • the conflict of interest in hiring a custodian, which has been under discussion since the publication of Resolution 175; and
  • the possibility of service providers voting in shareholders’ meetings.

Read in full and access the podcast in the ANBIMA article.

New regulations for investment intermediation services abroad and updates to ANBIMA’s Distribution Code enter into force

The new issue of ANBIMA’s Investment Products Distribution Code has entered into force, it self-regulates the intermediary institutions that offer investment services abroad (“Distribution Code”).

The new edition brought changes regarding privacy and protection of personal data, information security and cybersecurity, and business continuity plan. These changes were subject to a public hearing at the end of 2022, and the result of which was released in March 2023, as reported in our Investment Funds and Structured Operations Newsletter No. 3.

The Distribution Code establishes that the Brazilian institution must:

• • carry out efforts to attract clients based on the analysis of the investor’s profile;
  • evaluate the structure of the foreign intermediary, to check if it is compatible with the Brazilian client; and
  • provide the client with all necessary information about the foreign intermediary so that the investor can decide on the best way to invest.

ANBIMA has released a due diligence questionnaire (“Questionnaire”) to be filled out by the foreign institutions. Brazilian institutions oversee the submission of the Questionnaire to be filled out by the foreign institutions. The Questionnaire is not required if both the Brazilian and foreign companies are part of the same conglomerate or economic group.

The Questionnaire addresses topics relating to registration and financial data, information on compliance, information on programs to prevent and combat money laundering and financing of terrorism, in addition to inquiries on risk management and on the structure of client assistance and information security.

ANBIMA has also provided a document with questions and answers to address any doubts the participants may have.

The Distribution Code also introduced as a new feature the need for participating institutions to establish an action and response plan aimed at implementing the regulations, procedures and internal controls for privacy, personal data protection, information security, cybersecurity and contingency (“Plan”).

The Distribution Code has eased the manner through which institutions must proceed in contingency situations, waiving the requirement for these institutions to carry out validation or continuity tests of their business on an annual or timelier basis, if the Plan is triggered.

Finally, on September 05, 2023, the changes regarding the suitability process will enter into force, which were also released in March, 2023, as addressed in our Investment Funds and Structured Operations Newsletter No. 3.

Access the Investment Products Distribution Code.

Access the Investment Funds and Structured Operations Newsletter of April 2023.

Read the CVM article in full.

Partnership between CVM and IBDA provides booklet about FIAGRO

In a partnership with the Brazilian Institute of Agribusiness Law, CVM launched the FIAGRO Booklet (“Booklet”), which provides information about investment funds in agro-industrial productive chains – FIAGRO.

The Booklet introduces:

• • concepts and introductory characteristics of investment funds in general, with a focus on FIAGRO;
  • the authority of CVM regarding this type of fund;
  • the assets that can be acquired; and
  • the applicable tax regime and its specific categories.

In addition, the Booklet highlights the importance of broadcasting and increasing the financing options for the agribusiness chain in the capital markets.

Access the FIAGRO Booklet.

Access the  second issue of the CVM–Agribusiness Newsletter.

Read the CVM article in full.

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