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 consulting can be provided by one of our lawyers.

HIGHLIGHTS

CVM publishes rules on public offerings

On July 13, 2022, the Brazilian Securities and Exchange Commission (“CVM”) published CVM Resolutions 160, 161, 162 and 163, as follows:

• • CVM Resolution 160: Replaces CVM Instructions 400 and 476 and becomes the general rule applicable to public offerings for primary or secondary distribution of securities in Brazil.

• • CVM Resolution 161: Establishes the new registration system for coordinators of public offerings for distribution of securities.

• • CVM Resolution 162: Introduces specific changes in other current rules, with the purpose of adapting their terminology and structure to the new Resolutions.

• • CVM Resolution 163: Refers to the process of revision and consolidation established by Decree No. 10,139/19. The rule replaces CVM Instruction 566, which provides for the public offering of promissory notes, and introduces changes in merit due to the concurrent reform of the general framework for public offerings of securities.

The new public offering rule includes more concise offering memorandums models, segmented by the type of security offered, in order to provide investors with more objective and relevant information.

The rule also provides for the publication of the offering sheet, an introductory and standardized document, which contains the main information of interest to the investor. As for other documents, such as the market notice, commencement and closing notices, efforts have been made to summarize their content.

Resolution 160 eliminated the separation between registered public offerings (currently governed by Instruction 400) and those exempt from registration, when carried out with restricted distribution efforts (according to Instruction 476). As a result of this new Resolution, all Public Offerings whose recipients are investors residing, domiciled or incorporated in Brazil, must be subject to registration by the CVM, and must comply with specific procedures in order to obtain such registration, differing the procedure used to obtain registration.

The rule also clarified which offers are not subject to the new system for Public Offerings and can continue to be carried out privately (i.e., subsequent offerings of shares in closed-end funds intended for the shareholders themselves) or in accordance with specific procedures stipulated by other regulations (i.e., crowdfunding platforms).

Depending on the offering’s characteristics, the registration can be carried out: (A) through Automatic Distribution Registry, or (b) through Regular Distribution Registry.

The Automatic Distribution Registry preserve the main advantages of a restricted offering, currently governed by CVM Instruction 476, in addition to other advantages, such as:

• • exclusion of limits on the number of potential investors that can be accessed;
  • exclusion of trading restrictions between investors in general after the offering, subject to deadlines established by the new rule; and
  • elimination of the 4-month lock-up period to make a new offer with the same value of securities by the issuer.

The employment of Automatic Distribution Registry will be associated to several factors, such as types of securities offered, the public to which the offering is intended, the documentation made available and the deadlines within which the securities may be resold to investors who form a wider public than that for which the offering was originally intended. The combinations make up a range of possibilities available to issuers seeking finance through capital markets.

Main changes carried out after Public Hearing 02/21:

The main changes were:

• • the possibility for qualified investors to participate in bookbuilding processes of securities and debt securities;
  • separation of the offering memorandums models of Investment Funds in Credit Rights (“FIDC”) quotas and other securities representing securitization operations;
  • the possibility of waiving the offering memorandums and offering sheet in offerings of shares in closed-end investment funds for qualified investors;
  • increase of the applicable limit for the additional offering lot to 25%. There are no more limits on offerings to professional investors;
  • improvement of the concept of “pre-operational phase issuer”, in line with decisions of the CVM Collegiate Board, as well as the treatment of offerings for special purpose acquisition companies (“SPACs”);
  • suppression of the concept of “institutional investor”, which is now replaced by the concept of “professional investor”, already defined in regulations;
  • redefinition of the characteristics of a public offering;
  • flexibilization of communications permitted during the quiet period, especially from providers of essential services to investment funds;
  • diversification of cases in which asset-backed securities may benefit from the automatic registration process;
  • redefinition of deadlines for the analysis of regular distribution registry of an offering, in compliance with Decree No. 10,178/19;
  • simplification of rules for disclosure of relationships and conflicts of interest in offering memorandums; and
  • reconfiguration of the roles of CVM and self-regulatory authorities concerning the registration dynamics of public offering coordinators.

Attention: The Resolutions come into force on January 02, 2023.

For more information, see CVM Resolutions 160, 161,162 and 163 and the Public Hearing Report.

CVM and BSM agree to reconcile portfolio information

The CVM and BSM Market Supervision (B3 group’s self-regulation division – “BSM”) entered into a technical cooperation agreement, through which BSM will integrate information on the composition of investment fund portfolios submitted monthly to the CVM by their respective managers, with information held by B3 in its registration and deposit environments.

Proposed activities:

 comparison, by BSM, between the amounts declared by investment funds and existing amounts in the registration and deposit environments of B3;

• • draft of a report identifying any inconsistencies found in the amounts; and
  • submission of such report to the CVM, containing the results of the integrations carried out , along with the reference month data, for the inspection of the Autonomous Body.

 For more information, see the Agreement.

CVM Portal “Dados Abertos” provides information on Structured Funds

The CVM Portal “Dados Abertos” (free translation: Open Data Portal) has made a new set of data available to users, which correspond to the balance sheets of Structured Funds.

In addition, the historical series of the Extraordinary Documents, Financial Statements (DFs) and Quarterly Statements of Investment Funds (as of 2005) were also expanded.

The Portal is maintained by the CVM’s Analytical Data Engineering Management and offers an extensive catalog of data on participants regulated by the CVM. The purpose is to concentrate all public information made widely available by the regulator in one single channel.

For more information, visit the CVM Portal Dados Abertos.

Self-regulation will contain rules for funds that invest in digital assets

The Brazilian Financial and Capital Markets Association (“ANBIMA”) is currently discussing the development of rules for funds that invest in digital assets.

The requirements seek to provide greater transparency to investors regarding the risk factors of these funds. One of the measures is the mandatory inclusion of a disclaimer in the materials directed for investors, providing clarifications on the application, or possibility of application, to these assets.

The measures will be a part of the Third-Party Resource Management Code and will include the funds regulated by CVM Instruction 555. The rules will be published by subject and divided into tranches. The first rule will address risk factors and will enter into public hearing in the second semester of 2022 for suggestions from the market.

In order to create these rules, a working group was formed with professionals from asset managers, banks, administrators, allocators, and establishments specialized in digital assets. These discussions will also encompass service provider responsibilities, pricing, liquidity, and more.

In addition to the self-regulation of funds, ANBIMA will revise its suitability rules and include within their scope products that invest or are related to digital assets, such as funds and Structured Operations Certificates (“COEs”), among others.

Central Bank opens public consultation to regulate foreign credit operations and foreign direct investments

On July 19, the Central Bank of Brazil (“BACEN”) opened a public consultation for proposed regulations on foreign credit operations and direct foreign investments. The public notice represents the second part of the regulation of Law No. 14,286/21 and will be closed on September 02, 2022.

Among the proposals is the reduction in the scope of transactions subject to reporting to the regulator, through the use of the proportionality criteria.

BACEN also suggests the removal of the restriction imposed on remittances abroad for payments of principal and interest in foreign credit operations in which there is no inflow of funds into the country.

For more information, access Public Consultation 91/22.

CVM DECISIONS

CVM suspends condo-hotel offering related to a certain real estate project

 The CVM’s Superintendence of Securities Registration (“SRE”) revoked the suspension of the public offering of Collective Investment Contracts (“CIC”) related to a certain real estate project.

The suspension took place on June 23, 2022, due to the use of advertising material, characterizing a public offering, without due registration or waiver before the CVM, as determined by Article 13 of CVM Resolution 86. The registration request for the offering is still under the CVM’s analysis.

In light of the measures carried out by the offeror and communicated to the CVM, the SRE understood that the irregularities committed were remedied, in compliance with the provisions of arts. 26 and 27 of CVM Resolution 86. As a result, the technical department of CVM revoked the suspension of the offering.

However, the SRE highlighted that the selling efforts related to the Offering can only be resumed after CVM’s registration is obtained.

CVM judges proceeding involving alleged irregularities related to the fiduciary management of a certain Real Estate Investment Fund

On July 05, 2022, the CVM judged the Administrative Procedure for Imposition of Penalty (“PAS”) SEI 19957.002315/2021-53.

The proceeding was brought by the Superintendence for Oversight of Institutional Investors (“SIN”) to ascertain the responsibility of a certain Securities Distributor (“DTVM”) and its officers in charge (two individuals), for alleged irregularities related to the fiduciary management of a Real Estate Investment Fund (violation of articles 32, III, “d”, and 33 of CVM Instruction 472, and to articles 11 and 23, paragraph 4, of CVM Instruction 516).

After analysis of the case and the vote of the judge rapporteur, Marcelo Barbosa, the CVM’s Collegiate Board unanimously decided (Officer Alexandre Rangel recused himself from participating in the judgment of the case):

To hold the DTVM liable for:

• • A fine of BRL 400,000.00, for failing to evaluate the property sold by the Fund for the lower amount between its cost value or net realizable value (violation of article 11 of CVM Instruction 516);
  • A fine of BRL 200,000.00, for failing to monitor the situation of the real estate property owned by a certain corporation invested by the Fund and failing to inform the quotaholders about the judicial freezing upon said property (violation of article 33 of CVM Instruction 472);
  • A fine of BRL 200,000.00, for lack of due diligence within the context of certain exchange operation (violation of article 33 of CVM Instruction 472);
  • A fine of BRL 150,000.00, for failing its obligation to keep, in up-to-date and perfect order, the documentation regarding the operations carried out by the Fund (violation of article 32, III, “d”, of CVM Instruction 472);
  • A fine of BRL 150,000.00, for failing to comply with the deadline for disclosure of financial statements (violation of article 23, paragraph 4, of CVM Instruction 516);

To hold one of the DTVM’s officers liable for:

• • A fine of BRL 200,000.00, for failing to evaluate the property sold by the Fund for the lower amount between its cost value or net realizable value (violation of article 11 of CVM Instruction 516);
  • A fine of BRL 100,000.00, for failing to monitor the situation of the real estate property owned by a certain corporation invested by the Fund and failing to inform the quotaholders about the judicial freezing upon said property (violation of article 33 of CVM Instruction 472);
  • A fine of BRL 75,000.00, for failing the obligation to keep, in up-to-date and perfect order, the documentation regarding the operations carried out by the Fund (violation of article 32, III, “d”, of CVM Instruction 472);
  • A fine of BRL 75,000.00, for failing to comply with the deadline for disclosure of financial statements (violation of article 23, paragraph 4, of CVM Instruction 516);

To hold the other DTVM’s officer liable for: 

• • A fine of BRL 200,000.00, for failing to evaluate the property sold by the Fund for the lower amount between its cost value or net realizable value (violation of article 11 of CVM Instruction 516);
  • A fine of BRL 100,000.00, for failing to monitor the situation of the real estate property owned by a certain corporation invested by the Fund and failing to inform the quotaholders about the judicial freezing upon said property (violation of article 33 of CVM Instruction 472);
  • A fine of BRL 100,000.00, for lack of due diligence within the context of the exchange operation (violation of article 33 of CVM Instruction 472);
  • A fine of BRL 75,000.00, for failing the obligation to keep, in up-to-date and perfect order, the documentation regarding the operations carried out by the Fund (violation of article 32, III, “d”, of CVM Instruction 472);
  • A fine of BRL 75,000.00, for failing to comply with the deadline for disclosure of financial statements (violation of article 23, paragraph 4, of CVM Instruction 516);

The acquittal of the DTVM and its two directors from violation of article 33 of CVM Instruction 472:

• • By virtue of charging a management fee in excess, through the accounting of equity interests held by the Fund using an erroneous method;
  • For the recognition that one of the officers lacked standing to be sued in regard to the violation of Article 33 of CVM Instruction 472, within the context of the exchange operation, because it occurred after the accused’s resignation from the position of officer in charge.

For more information, see the report and vote of the judge rapporteur of the case, President Marcelo Barbosa.

CVM judges a request for a Reconsideration of a Collegiate Board Decision involving Punitive Fines

This is a request for reconsideration filed by a certain manager of two Multimarket Investment Funds against a decision rendered by the Collegiate Board on February 01, 2022 (“Decision”).

This decision upheld the punitive fines imposed by SIN, amounting to thirty thousand reais (BRL 30,000.00) each, due to failure to deliver within the regulatory deadline, established in article 59, paragraph II, of CVM Instruction 555/2014, of the Statement of Portfolio Composition and Diversification of one of the funds for August 2020, and the balance sheet of the other fund for October 2020.

The Collegiate Board, based on the statement of the technical department, supported by Internal Letter No. 74/2022/CVM/SIN/GIFI, unanimously decided to deny such request for reconsideration, and consequently upheld the previous decision.

For more information, access the Statement of the Technical Department.

CVM judges Appeal against SMI Decision

This is an appeal filed by a certain individual (Claimant or Appellant) against the decision of the Brazilian Superintendence of Relations with the Market and Intermediaries (“SMI”), not to adopt additional measures within the scope of the claim presented by the Appellant against a certain securities broker (Defendant), concerning the Defendant’s alleged (i) failure to provide information, including the risks involved and the possibility of margin calls in structured operations, subsequently traded on the public sale of June 05, 2015 by the Claimant and (ii) acceptance of orders without power of attorney.

After the Defendant’s ombudsman made a statement, the CVM’s Investor Guidance Management 2 (“GOI-2”) noted, in summary, that:

• 1. the operation would have been offered on June 03, 2015, informing the potential for gain, but not the potential for loss;
  2. the Defendant’s risk department had allegedly identified that the operation was not suitable for Claimant’s investment profile;
  3. the risk consent form for investment in structured operations was apparently signed on January 05, 2016;
  4. the Defendant’s advisor had allegedly committed an irregularity in accepting orders from the Claimant on behalf of the mother and sister without a power of attorney; and
  5. there were indications, in view of the foregoing, that the advisor and the Defendant supposedly privileged their own interests to the detriment of the Claimant, not properly warning the Claimant about the risk of investing in structured operations and disregarding the suitability profile.

The claim was then forwarded to the SMI, a Technical Department of the Government that oversees the conduct of intermediaries.

In the appeal, the Appellant referred to the statement of GOI-2, stressing that (i) he had not been informed of the potential for loss; (ii) the operation was not suitable for its investment profile; (iii) the structured operations Agreement was executed seven months after the negotiation; and (iv) the advisor did not adequately warn him about the risk of investing in structured operations.

Finally, the Claimant requested the telephone recordings made on June 03, 2015, by the Defendant’s advisor, in which he allegedly recommended structured operations.

The technical department, due to the lack of new facts, reinforced its conclusions that (i) the Claimant had been informed about the risks and possible margin call; (ii) at the time of the recommendation and of the operation itself carried out on June 5, 2015, CVM Instruction No. 539/2013 was not yet in force; and (iii) the operations on behalf of the Claimant’s mother and sister, whose addresses were on the registration form of each of them, were authorized by means of electronic correspondences, dated June 03, 2015, and therefore prior to the operation.

As to the request for submission of telephone recordings made on June 03, 2015, by the Defendant’s advisor, the technical department argued that a copy of the electronic correspondence, forwarded by the advisor to the Appellant on June 03, 2015, demonstrated the possibilities of gains and losses, inherent to the structured operation to be contracted.

Finally, the SMI stated that the decision to stop drawing up an indictment in this case had adequate grounds and would not disagree with the Collegiate Board’s prevailing position, so that, pursuant to the provisions of paragraph 4 of article 4 of CVM Resolution No. 45/2021, no appeal would be possible under such provision.

The SMI decided to dismiss the appeal.

The Collegiate Board unanimously followed the statement of the technical department and decided to dismiss the appeal.

For more information, access the Statement of the Technical Department.

CVM judges Appeal against SIN’s decision in Punitive Fine Proceeding

This is an appeal filed by two Securities Distributors (“DTVMs”), in the capacity of managers of several investment funds, against SIN’s decisions to apply punitive fines for failure to submit, within the regulatory deadline, documents provided for in article 59 of CVM Instruction 555/2014.

SIN pointed out that the 24 fines related to one of the DTVMs were canceled and, for such fines, the appeal lost its subject matter, in accordance with the decision of the technical department to discuss, by means of an administrative procedure for imposition of penalty, the fines applied to one of said managers for the delay in submission of documents related to the fiscal years of 2019 and onwards.

Unanimously, the Collegiate Board, based on the opinion of the technical department contained in Internal Letter No. 80/2022/CVM/SIN/GIFI, (i) recognized the lack of subject matter of the appeal regarding the fines imposed on one of the DTVMs; and (ii) decided to deny the appeal regarding the fines imposed on the other DTVM.

For more information, access the Statement of the Technical Department.

CVM judges Appeal against SIN’s decision in the process of canceling accreditation as a Portfolio Manager

This is an appeal filed by a certain asset manager (Appellant) against SIN’s decision to cancel its accreditation as a securities portfolio manager, pursuant to article 11, item IV, of CVM Resolution No. 21/2021.

On February 17, 2022, the letter of resignation of the professional responsible for the Appellant’s portfolio management was filed, which is why SIN sent an Official Letter to the Appellant informing about the commencement of a cancellation procedure due to the loss of requirement to maintain such registration, pursuant to article 4, item III, of CVM Resolution No. 21/2021.

Initially, the Appellant filed a request for suspension of registration by the institution, which was rejected by the technical department, considering that CVM Resolution No. 21/2021 only provides for the possibility of suspension of registration for individuals.

Subsequently, in a final response to the Official Letter, the Appellant informed that it had hired a “new professional to assume this function“, and requested “an additional period of ten (15) [sic] business days, so that the Applicant can update this D.CVM regarding (i) the result of the ANBIMA Certification of Management Fundamentals (CFG) to be carried out by [the new professional] and, consequently, the progress of their accreditation process as an individual and resource manager; and (ii) the hiring of new professionals who already have the ANBIMA Manager Certification (CGA).“

Therefore, SIN communicated the decision to cancel the individual’s authorization to act as manager of the Appellant’s securities portfolios, noting that:

• • the Appellant hadn’t met the requirement of article 4, item III, of CVM Resolution No. 21/2021 for four months, considering that the resignation of the former statutory officer took place in February and the possible appointment of a replacement would only take place in June; and
  • the proposed solution of waiting for the approval of the appointed officer in the CFG exam to obtain the certification by ANBIMA and, subsequently, requesting registration as a portfolio manager (individual) depends on a series of uncertain events.

On appeal, the Appellant requested a time extension until June 30, 2022 to appoint a new Investment Officer, essentially stating that: (i) the Appellant remained “with no fund or portfolio under management“; (ii)”the process for appointing a new Investment Officer developed” with the approval of the new professional in the CFG Certification exam and their application for the CGA Certification exam soon; and (iii) progress was made in the selection process with other candidates who hold the CGA Certification.

In an analysis contained in Internal Official Letter No. 21/2022/CVM/SIN/GAIN, SIN noticed that, since the resignation of the former professional responsible for the portfolio management activity, to the communication of the decision to cancel the Appellant’s registration by SIN, 60 days passed, and the Appellant did not even provide a name to temporarily assume the job position. Such long period of time indicates, from the standpoint of the technical department, a structural inability of the Appellant to comply with provisions of article 4, item III, of CVM Resolution No. 21/2021, a requirement of great importance for the CVM’s oversight activity.

As to the reasons for the appeal, SIN highlighted that:

• • there is no regulatory provision for an asset manager to remain registered with the CVM without complying with the applicable requirements due to not being active, given that the logic of accreditation seeks to direct, through analysis of the participant’s structure, the regulator’s concern to know if it is able to provide the services intended; and
  • the Appellant was unable to comply with its action plan after approximately 45 days, which indicates that there was no due diligence regarding this matter or that the manager’s ability to attract or maintain the necessary human resources was compromised.

As such, considering that the Appellant did not present any additional documentation, nor a contract or bylaws that attributed to the responsibility for the portfolio management activity to an officer, in violation of the provisions of articles 4, paragraph 7, of CVM Resolution No. 21/2021, SIN decided to uphold the registration cancellation.

The Collegiate Board unanimously followed the statement of the Technical Department, and decided to dismiss the appeal, and the cancellation of the registration of securities portfolio manager was consequently upheld.

For more information, access the Statement of the Technical Department.

CVM judges Appeal against SIN’s decision involving the Dismissal of Accreditation Request as a Portfolio Manager

This is an appeal filed by a certain individual (Appellant) against the decision of SIN that dismissed the application for accreditation as a securities portfolio manager, based on article 3, paragraph 1, item II, of CVM Resolution No. 21/2021.

The Appellant’s request for accreditation was dismissed in accordance with the provisions of article 7, paragraph 9, of CVM Resolution No. 21/2022, since the Appellant did not respond to the initial official letter of requirements, through which SIN requested adjustments in the Reference Form and the submission of additional documents and clarifications.

In his appeal, the Appellant presented a partial response to SIN’s requirements, submitted incomplete documentation regarding the Reference Form, a request for submission of diplomas and final papers for higher education courses, and informed to be attending a college course in economics.

In an analysis consolidated in the Internal Official Letter No. 25/2022/CVM/SIN/GAIN, SIN describes that, even though Appellant submitted several education certificates, all were courses taken online, during a short period of time and with very restricted scopes. In addition, the technical department pointed out that the Appellant neither completed a higher education course nor presented any work that demonstrated any academic production, and as a result the documentation presented was not sufficient to characterize the notorious knowledge required by the rule.

In this regard, upon analysis of the Appellant’s professional experiences, the technical department pointed out that, based on precedents of the Collegiate Board, although the notorious knowledge and high degree of technical knowledge may be exceptionally recognized beyond the academic perspective, “in this case, there is no evidence, facts or arguments that would allow us to establish the Appellant’s notorious knowledge on an exceptional basis“.

In addition, SIN observed that the Appellant and the companies mentioned in his curriculum vitae were included in a Resolution published by the CVM for irregular performance in the provision of securities portfolio management services.

Finally, the technical department pointed out that, under the terms of the current regulation, dismissing an accreditation request on an exceptional basis to an individual does not mean preventing such participant from acting in the market, but only requiring that they be subject to the same scrutiny that is imposed on others: a certification exam, specific and appropriate to the activity one intends to exercise.

In view of the above, SIN suggested that the contested decision be upheld.

The Collegiate Board unanimously followed the statement of the technical department and decided to dismiss the appeal.

For more information, access the Statement of the Technical Department.

CVM judges Consultation on Waiver of Regulatory Requirements

This is a consultation drafted by numerous investment fund managers requesting that certain funds under their management, whether existing or yet to be incorporated, be able to:

(a) omit, for one hundred and eighty (180) days, pursuant to article 56, paragraph 3, item II, of CVM Instruction No. 555/2014, the identification and number of securities in the statements of portfolio composition and diversification (“CDA”) disclosed, with no need to obtain any specific authorization from the CVM for each identification omitted during this period; and

(b) disclose the CDA on a quarterly basis, waiving compliance with the term provided for in art. 59, item II, item “b” of CVM Instruction No. 555, subject to the maintenance of a monthly submission to the CVM, which will publish the statement on its worldwide computer network every 3 months.

The Consulting Parties justified their claim highlighting that the funds they manage would be particularly harmed by the current portfolio disclosure rules, since, with such disclosure, their strategies, which involve building significant long-term positions in assets with restricted liquidity, could be easily identified, anticipated and replicated by algorithms that can be used by other market agents, with great harm to their investors.

In addition, as they argued, although the disclosure of information about the portfolio composition allows inspection of the manager’s compliance with investment policies, the risks and costs imposed by the periodic portfolio disclosure would be disproportionate when compared to such benefit.

In analysis contained in Internal Official Letter No. 76/2022/CVM/SIN/GIFI, SIN expressed its agreement with the concerns raised by the Consulting Parties and recognized that such tools have effectively managed to obtain accurate and timely information on the funds’ investment portfolios, which could, in fact, undermine some of their investment strategies.

This is because, as the technical department pointed out, “through this replication, other investors leverage an anticipation process in the acquisition (or disposal, as the case may be) of assets to be acquired by the funds, reducing the potential gains of the operation, which are shared by replicators, after all, these actions tend to already cause rises (or falls, respectively) in the prices of target assets that can reduce the effectiveness of the strategies developed by these managers.” SIN itself had already identified this risk in Official Letter/CVM/SIN/No. 8/2021.

Contrastingly, SIN considered that, with the advance of technologies associated with these replications, expanding the portfolio omission to 180 days would not cancel the algorithms strategy, but would only reduce it, so much so that, even in jurisdictions with greater flexibility in portfolio disclosure, such replicators also continue to exist and operate.

Accordingly, SIN dismissed the consultation’s implicit argument that the informational system for funds provided for in the CVM regulation (or even in other jurisdictions) would be problematic, because, in fact, a frequent, detailed and predictable disclosure system gives the industry a level of transparency and information that brings several benefits to the market.

In this regard, the Technical Department considered that the mitigation of this information system should be seen as an exceptional measure, applicable only to justified situations. SIN highlighted that, in the event any waiver focused on the active strategies segment is granted, it would also be important to provide for inspection practices to prevent the materialization of such risk.

In addition, considering the indeterminate nature of the request, the technical department understood that it would not be appropriate to handle it by granting a waiver, so it requested the Consulting Parties to establish a clearer perimeter for the funds covered by the request. In response, the Consulting Parties essentially informed that the funds would fit into the ANBIMA sub-categories “active equity investment funds” and “active equity pension funds”, which together represent 5.32% of the industry. Correspondingly, the technical department was also concerned with a possible treatment discrepancy, if some funds had the exemption and others, which also carried out similar strategies, did not.

In this particular aspect, the clarification that all involved investment funds fit specific ANBIMA categories could, according to SIN, address both concerns, since (i) it would no longer be facing an abstract request, which is not consistent with the granting of waivers, applicable to “future funds to be incorporated” under unspecified conditions; and (ii) homogeneous treatment would be given to the entire range of funds in the industry that are faced with the same problem on which the request is based. Nevertheless, SIN considered that it was important to separate the funds regulated by CVM Instruction 555, to which the waivers requested in the consultation should be directed, favoring the level of transparency currently held by the industry as a whole, by focusing the waivers strictly on those funds in which they would prove to be appropriate and beneficial.

Finally, according to SIN, the consultation presents the typical scope of a regulatory discussion, since it would reach an entire known typology of funds, which could give rise to the application, with the support of the Superintendence of Market Development (“SDM”), of an experimental regulatory system for such funds, pursuant to the provisions of article 26 of CVM Resolution No. 67/2022.

In view of all the above, SIN submitted the consultation to the Collegiate Board, considering:

• • The extent of requests for waiver, which aims to be applied to a set of funds currently managed by the Consulting Parties, and that have yet to be incorporated by those same Managers, and others that may subsequently act in the segment;
  • the fact that granting such waivers generates supervisory risks that must be considered;
  • that the consultation does not demonstrate that such waivers, if granted, would effectively reduce the assertiveness of the algorithms; and
  • that there is already a regulatory improvement study ongoing at CVM, aiming to change the deadline for disclosure of CDA and the omission of portfolios.

The consultation was submitted along with a proposal to establish an experimental regulatory system encompassing the request made by the Consulting Parties. The results of such consultation and proposal will serve as contributions, including for the regulatory process mentioned above, which is in progress.

The Collegiate Board discussed the matter and:

• • decided to forward the case to SIN and SDM to carry out additional investigations with the Specialized Federal Attorney’s Office at the CVM (PFE/CVM);
  • President Marcelo Barbosa, following the conclusions of SIN, voted for the establishment of an experimental regulatory system encompassing the request made by the Consulting Parties, conditioned to the adoption of the additional measures requested, and subsequent agreement by the Collegiate Board; and
  • Officer Otto Lobo requested examination of the case.

CVM judges Requests for Waiver of Regulatory Requirements

These are consultations drafted by investment fund managers, shareholders of a certain company (Funds and Company), requesting exemption from compliance with the provisions of article 89, II, of CVM Instruction No. 555/2014, which prohibits investment funds from contracting and granting loans, except as authorized by the CVM.

According to the consultations:

• 1. the case involves the merger of the Company’s shares by another company (Acquirer and Operation);
  2. as an economic premise of the share exchange ratio established for the Operation, it was provided that all of the Company’s shareholders would be granted the right to receive shares issued by the Acquirer and to take out a loan at a rate of 3.5% p.a. (Financing); and, in this sense,
  3. the purpose of the requests would be to enable the Funds to enjoy all equity rights attributed to them within the scope of the Operation.

In an analysis consolidated in the Internal Official Letter No. 29/2022/CVM/SIN, SIN initially highlighted its agreement with some of the arguments presented in the consultations, in particular, that:

• 1. there would be a clear advantage to the Funds in being part of the Operation; and the subsidized nature of the Financing would corroborate the interpretation that the Operation is inseparable from the merger of shares;
  2. the prohibition contained in article 89, II, of CVM Instruction 555 would end up imposing on the eligible shareholder base a situation of undesirable and atypical asymmetry which, in principle, should be avoided;
  3. the contracting of loans prohibited by the provision at issue aims at structurally controlling the level of exposure of investment funds to risks and the level of leverage they can achieve, especially with the purpose of limiting the nature of the leverage that could be obtained with such loans;
  4. the limit of the amount involved would be low, representing a maximum of 20% of the positions that the Funds hold in such shares;
  5. the approval would be given considering a specific and established operation, so that it would not have the potential to indiscriminately open a new type of operation to investment funds, of an undesirable generic or extensive nature, and which could offer supervisory or prudential risks to the fund market; and
  6. the Funds are authorized to use resources within the strict limits already existing in the rules and regulations involved, thus restricting the use of this capital.

The technical department decided not to grant the waiver, as it understood that (i) the waiver would surprise the Acquirer’s legitimate expectation regarding the effects of this prohibition on the Operation conditions; and (ii) there would be no differential treatment to the detriment of the funds if the prohibition is maintained, considering that they are granted a more favorable tax treatment within the scope of the Operation. Therefore, its structuring under conditions that exclude investment funds only seeks to provide a treatment to shareholders consistent with the tax differences imposed on each of them and the very reason for the Financing’s existence.

Initially, President Marcelo Barbosa, Officer Flávia Perlingeiro and Officer Otto Lobo said they agree with the arguments presented by the technical department to describe the reasons and regulatory purposes sought with the prohibition provided for in article 89, II, of CVM Instruction No. 555/2014, subject matter of the waiver requests, as well as the arguments presented by SIN upon recognizing the Financing as an inseparable part of the Operation and analyzing the risks and benefits relevant to the performance of the Funds and the regular functioning of the Brazilian capital markets (items 20 to 27 of the Internal Official Letter).

However, they disagreed with the assessment made by SIN (items 29 to 38 of the Internal Official Letter) as to the repercussions, in this specific case, of the fact that the Financing, as indicated by the companies, had been conceived with the purpose of providing the Company’s shareholders, upon completion of the operation, with access to the credit line for fund raising, in order to face the payment of income tax on the resulting capital gain. The companies did not consider the possibility of access by domestic Funds, considering that, although they could be part of the shareholder base at that time, they would not be exempt from taxes.

For the President and the two Officers, it was clear that, regardless of the reasons that justified its conception, the credit line was not effectively structured – neither formally nor in essence – as having a destination necessarily linked to the payment of the aforementioned tax.

According to the president and the two Officers, it was also clear that the documentation related to the Operation and, more specifically, to the Financing, makes no mention of the use of funds to pay the tax, nor of the existence of such tax obligation as an eligibility criterion. Such practices, if followed, could have led to corporate complaints and inquiries regarding fair shareholder treatment.

In this regard, they pointed out that the waiver under analysis is not justified merely because it is a profitable operation for the Funds, but because of the particularities of the case at issue, which clearly point to the absence of concerns that justify any regulatory prohibition, combined with the fact that the equity right was granted to all shareholders of the base when the Operation was concluded.

They pointed out that it is important to recognize that, during the long period elapsed until the conclusion of the Operation, there was a very significant change in the base market interest rate and, consequently, in the financial burden related to the contribution, which, since it is borne by the Company, is ultimately borne by all shareholders, whether or not they were borrowers of the Financing.

In turn, once the waiver at issue is obtained and the other requirements for taking the credit are met, it cannot be affirmed that only domestic Funds could benefit from the equity right provided for in the operation, without having the obligation to pay such tax.

Finally, they drew attention to the fact that the regulatory waiver related to the provisions of article 89, II, of CVM Instruction No. 555/2014 does not exempt the Funds from complying with the provisions of the respective Fund regulations or resolutions of shareholders’ meetings that, if any, deal with prohibition on taking out loans or granting real guarantees.

Once the discussion on the merits of granting the waiver was overcome, with the dissenting opinion of Officer João Accioly, who presented a vote that fully agreed with SIN’s position, the Collegiate Board unanimously decided, in order to avoid discrepancy of treatment and in view of the justifying reasons, to grant the waiver pertaining to compliance with the provisions of article 89, II, of CVM Instruction 555/2014, not only to funds that submitted requests forwarded to the Collegiate Board, but also to all of the company’s investment funds shareholders on the date provided within the scope of the Operation, subject to said rule, without prejudice to compliance with any restrictions arising from their respective regulations or from a resolution of the shareholders’ meeting.

For more information, access the Statement of the Technical Department and the vote of Officer João Accioly.

CVM judges Appeal against SSE decision in the proceeding for Maintenance of Real Estate Investment Fund Meeting

This is an appeal filed by the manager of a certain Real Estate Investment Fund (“Fund”), undergoing liquidation, against a decision of the Superintendence of Securitization Oversight (“

SSE”), which denied the Appellant’s request to suspend or cancel the Fund’s general shareholders’ meeting (“AGC”), scheduled for July 04, 2022.

On June 20, 2022, the Manager sent a request to the SSE to determine the suspension of the AGC, convened by the administrator, at the request of the shareholders holding more than 5% of the shares and whose agenda included resolving on the (i) replacement of the administrator and manager; and (ii) incorporation of the Fund into another real estate investment fund, an investor of the Fund.

According to the Manager, considering that the Fund has several shareholders characterized as Alternative Social Security Systems (RPPS), the new service providers did not fit into the provisions of article 21, paragraph 2, of CMN Resolution No. 4,963/2021, which provides restrictions for institutions that wish to administer and manage this type of fund.

In this regard, the Manager referred to the Joint Circular No. 5/2021/CVM/SIN/SSE/SPREV (Joint Circular Letter), issued by the Brazilian Pension Funds Department (SPREV) and Technical Departments of the CVM, with the purpose of providing guidance to RPPS, administrators and managers in the application of this normative provision. The Joint Circular Letter addressed the technical departments’ understanding regarding the possibility of changing the administrator and manager for non-eligible service providers, in addition to examples of situations in which this replacement would be possible.

According to the Manager, there would be a need to suspend the AGC, for allegedly disagreeing with the guidelines provided for in the Joint Circular Letter, as there was already a liquidation plan of the Fund approved by the shareholders and in execution since 2020.

In response, the SSE, through Official Letter No. 24/2022/CVM/SSE (Official Letter No. 24), stated that there was no impediment for holding the AGC.

Subsequently, the Manager filed an appeal with effect of suspension requesting the immediate suspension of the AGC or, alternatively, if it were to be held, that any decision to replace the Manager only took effect after the statement of the CVM’s Collegiate Board. The SSE denied such appeal with effect of suspension and the President of CVM upheld such decision.

On appeal, the Appellant reinforced the arguments in the request, adding that the appealed decision (i) had ignored the orientation of CVM itself, contained in the Joint Circular Letter, attributing to the AGC unrestricted autonomy and sovereignty and (ii) “would shelter and support an accelerated and tumultuous action, which, in fact, would not bring any advantage to the liquidation already underway,” violating, moreover, “the legal act that was the previous meeting’s decision, by making the Manager, who is already diligently adopting the necessary measures for the liquidation, stay away from such negotiations, making its conclusion extremely difficult.”

In an analysis contained in Internal Official Letter No. 17/2022/CVM/SSE, the SSE stated, in addition to Official Letter No. 24, that considering that the meeting was regularly convened, meeting the requirements set forth in CVM Instruction No. 472/2008, there would be no normative provision for determining its suspension, either on the merits or as a precautionary measure. This is because, according with the SRE, in order to determine the suspension or cancellation of a fund meeting, the technical department would be restricted to “the formal aspects of compliance with the rule as to the procedures of convocation, installation and quorum for deliberation.”

The SSE decided to dismiss the appeal.

The Collegiate Board, unanimously, followed the conclusions of the technical department and decided to dismiss the appeal.

For more information, access the Statement of the Technical Department.