News and Business
CVM launches public hearing for a new investment fund regulatory framework in Brazil
Understand the main innovations, controversies, and discussions proposed by Public Hearing No. 8/2020
The Brazilian Securities and Exchange Commission (“CVM”) initiated the discussions about the new regulatory framework for investment funds in Brazil with the publication of the Public Hearing No. 8/2020, on December 1st, 2020.
The main objective of the public hearing is to propose the modernization and development of the Brazilian investment fund industry, admitting and regulating common practices in markets where the collective investment vehicle industry is more mature, such as the North American market. The proposals presented by the public hearing also strive for regulating the applicable provisions to investment funds in the Brazilian Economic Freedom Law, provided for in Law No. 13,874, of September 20, 2019, which were incorporated into the Brazilian Civil Code.
Panorama
The Brazilian Economic Freedom Law brought major innovations to the investment fund industry by clearly establishing the legal nature of funds in Brazil (a topic that, up to now, still raised questions) and providing for the possibility of limiting the quotaholders’ liability, segregating the responsibilities of service providers of investment funds, the possibility of creating classes of quotas with segregated portfolio and the application of insolvency regime to investment funds, among other topics.
In this regard, the public hearing presents the new draft rule (“draft”) that will regulate the formation, operation, and disclosure of investment fund’s information in Brazil, as well as the provision of services for these funds, in line with the principles and provisions of the Brazilian Economic Freedom Law and also with recurring practices in sectors where this industry is more developed. The CVM intends that the new regulation resulting from the draft consolidates the applicable rules to all funds registered in Brazil.
Within this new regulation, the public hearing presented the structure of a new rule in three parts:
- a general section applicable to all types of funds;
- an annex applicable to financial investment funds – FIF (currently called Fundos 555);
- an annex that will reformulate the applicable rules to receivable investment funds and investment funds that invest in quotas of other receivable investment funds (FIDC and FIC-FIDC, respectively).
The CVM has also indicated that the annexes to the new rule that will regulate the applicable rules to other types of funds, such as Real Estate Investment Funds – FII and Private Equity Investment Funds – FIP, will be presented in due course, as well as a proposal to simplify the regulatory framework of information disclosure applicable to investment funds in Brazil.
A topic common to most of the changes proposed by the public hearing is the indication, by the CVM, that the industry will have greater freedom to establish the deal and particular aspects of each structure, thus demonstrating that the regulator recognizes the development of this industry in Brazil that has been happening in the last few years. In this regard, we highlight the investor liability regime, the liability regime between service providers, and rules for apportioning expenses between classes of quotas that, subject to the conditions of the new proposed rule, can be negotiated in the bylaws of each investment fund, without following a pre-defined pattern.
The new regulation promises to be one of the biggest milestones in the investment fund industry in recent years and may represent the definitive consolidation of Brazil as a relevant player in relation to the most developed markets. Despite the notorious advances that the draft proposes, there are still points that can be improved in order to better align with international practices. The contribution of each participant is essential to this process. The CVM itself recognizes that there are still issues to be discussed and improved with the market, thus requesting the collaboration of the participants through the public hearing.
In this sense, the CVM was particularly interested in listening to the market on the provision of services and contracts, liquidity management of open-end classes, mandatory matters for bylaws, distribution of quotas by the administrator and manager, among others. In the field of FIDC, the CVM seeks to hear about the institute of “static securitization” proposed by the draft and its consequences, the possibility of rearranging some of the attributions applicable to the custodian, the administrator, and the information regime for FICs intended for the general public.
Deadline for comments
The deadline for submitting suggestions and comments ends on April 2, 2021, and must be sent, in writing form, to the Market Development Superintendence, at [email protected].
