Many governments are concerned with the operations and activities of the so-called "cross-border regulated entities" (in Portuguese, entidades fronteiriças reguladas – ETRs) as a result of the growing globalization of the world´s financial markets. Brazil and the United States are not exceptions.
For this reason, on August 8, 2012, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) announced the Memorandum of Understanding (MOU) recently entered into between the US Securities and Exchange Commission (SEC) and CVM regarding mutual assistance in the supervision of ETRs that operate on a cross-border basis in both jurisdictions. Mutual assistance includes consultation, cooperation and exchange of information between the two regulators.
By means of this MOU, SEC and CVM express their willingness to cooperate with each other in the interest of fulfilling their regulatory mandates particularly in the areas of: (i) investor protection; (ii) fostering the integrity of and maintaining confidence in capital markets; and (ii) reducing systemic risk.
The term "Regulated Entity", for the purpose of the MOU, means a natural person, unincorporated association, partnership, trust, investment company or corporation that is registered and supervised or overseen by SEC or CVM. ETRs include, among other entities, exchanges and other trading venues; brokers or dealers; investment advisers; investment fund managers or investment companies; clearing agencies our houses. Issuers of securities and independent auditors are not within the scope of the MOU.
Consultation will cover general supervisory issues, including regulatory, oversight or other related developments; issues relevant to the operations, activities and regulation of ETRs; and any other areas of mutual supervisory interest.
The most common regulatory issues which require cooperation are: (a) the initial application with the regulator for registration or exemption therefrom by an ETR that is registered with such regulator; (b) the ongoing supervision and oversight of an ETR; and (c) regulatory or supervisory actions or approvals taken in relation to an ETR by the regulator that may impact in its operations in the territory of the other country.
Each regulator will seek to inform the other in advance or as soon as possible thereafter of: (a) pending regulatory changes that may have a significant impact on the operations and activities of an ETR; (b) any material event of which the regulator is aware that could adversely and directly impact an ETR, such as changes in the ownership, operating environment, operations, financial resources, management or systems and control of an ETR; and (c) enforcement or regulatory actions or sanctions, including the revocation, suspension or modification of relevant authorization, designation, recognition, qualification or registration or exemption therefrom, concerning or related to an ETR.
Any exchange information shall be treated as confidential, in accordance with the rules on the subject which are applicable in each country, comprising any data that ETRs are required to deliver to the competent authorities of the country where they are domiciled. For example: (a) information relevant to their financial and operation condition, such as reports of capital reserves, liquidity or other prudential measures, and internal control procedures; (b) relevant regulatory information and filings, such as interim and annual financial statement and early warning notices; and (c) regulatory reports prepared by the regulator, such as examination reports, findings, or information drawn from such reports regarding ETRs.
Routine, sweep or for-cause regulatory visits (on-site visits) to or inspection of documents, books and records of, and other information about, and premises of an ETR for the purposes of ongoing supervision and oversight, with close collaboration with the local regulator, are also contemplated in the MOU.
This MOU complements, but does not alter the terms and conditions of the existing arrangements signed by both parties concerning cooperation in securities matters, namely: (i) the International Organization of Securities Commission (IOSCO) Multilateral MOU which covers information-sharing in the context of enforcement; and (ii) the bilateral MOU dated July 1, 1988.
The MOU was signed by CVM on July 11, 2012 and by SEC on July 24, 2012 and provides for consultation, cooperation and exchange of information related to the supervision and oversight of ETRs between SEC and CVM, in a manner consistent with and permitted by the laws and requirements that govern both regulators. Such cooperation will be primarily achieved through ongoing, informal consultations, supplemented where necessary by more in-depth cooperation, including through mutual assistance in obtaining information from ETRs.
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