On March 26, 2015 the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliário – CVM) issued CVM Instruction No. 558 (CVM Instr. 558/2015), which regulates the professional exercise of securities portfolio management and updates and substitutes CVM Instruction No. 306, of May 5, 1999.
The securities portfolio management is the exercise of professional activities directly or indirectly related to the operation, maintenance and management of a securities portfolio, including the application of funds in the securities market on the investor's account. It is a private activity of a person (individual or legal entity) authorized by CVM.
The registry of securities portfolios manager can be required in both or in one of the following categories: (a) trustee (administrador fiduciário) who/which is responsible for controllership, custody of assets and liabilities and in general for the supervision of the health management of the securities portfolio; and/or (b) asset manager (gestor de recursos), who/which is responsible for the investment decision making. The creation of these two categories will provide greater clarity about the duties of each participant and greater proportionality between the costs of compliance with the standard and the effective benefits to the investors.
The following entities can be registered as trustee:
- financial institutions and other institutions authorized to operate by the Central Bank of Brazil (Banco Central do Brasil - Bacen), in accordance with the specific regulations;
- legal entities that keep continuously the equivalent values corresponding to at least 0.20 of the administered financial resources (total and divided between funds and portfolios for qualified and nonqualified investors) or more than R$ 550 thousand, whichever is greater, in each of the following accounts of the balance sheet drawn up in accordance with Law No. 6,404, of December 15, 1976 (the Brazilian Corporation Law) and CVM standards: (a) net worth; and (b) funds availability, together with investments in federal public securities; and
- legal entities that carry out the activities of trustee exclusively in managed portfolios and certain investment funds, comprising: (a) participation investment funds (fundos de investimento em participação – FIP); (b) mutual funds investing in emerging companies (fundos mútuos de investimento em empresas emergentes – FMIEE); (c) investment funds in participation investment fund units (fundos de investimento em cotas de fundo de investimento em participação – FICFIP); (d) infrastructure participation investment funds (fundos de investimento em participação de infraestrutura – FIP-IE); and (e) participation investment funds in economic intensive production in research, development and innovation (fundos de investimento em participações na produção econômica intensiva em pesquisa, desenvolvimento e inovação – FIP-PDI).
The asset manager registry authorizes: (i) the management of a securities portfolio, including the application of financial resources in the securities market on the investor's account; and (ii) the provision of securities consultancy.
The trustee registry authorizes the performance of all securities portfolio manager activities other than those that require the asset manager registry1. The asset manager registry can perform the trustee´s activities in connection with portfolios managed by it.
With these new rules, the investors will have access to new periodic information, which should also be made available on the websites of CVM and the manager. The annual form to be delivered has been modified substantially.
In addition to the already mentioned creation of two categories of registry, the following changes should be highlighted: (i) the replacement of proof of professional experience in the portfolios' management activity, maintained only in exceptional character in the new standard, for the approval on certification exam; (ii) the attribution of responsibility to a statutory director (director of compliance)2 for the implementation and compliance with CVM Instr. 558/2015, including rules, policies, procedures and internal controls; (iii) the improvement of rules of conduct and on internal controls, with emphasis on the application of the principles of transparency, diligence and loyalty; and (iv) the separation of the activities of custody and controllership of assets and liabilities from those of management.
If the securities portfolio manager is a legal entity, the manager can act in the distribution of investment funds units administered or managed by it, provided that:
- it complies with the following specific standards of CVM on: (a) registration of clients, and conduct of payment and receipt of applicable values to the intermediation of transactions with securities in regulated markets securities; (b) duty of checking the suitability of products, services and customer profile operations; (c) identification, record, registration, transactions, communication, limits and administrative responsibility for the crimes of laundering or concealment of goods, rights and values; and (d) standards exchange of information between distributor and administrator of investment funds; and
- it appoints a director of compliance, who may also be responsible for risk management.
The director of management portfolio may also be responsible for distribution of units.
CVM Instr. 558/2015 will come into full force and effect on January 4, 2016. However, the securities portfolio managers which succeed to obtain their registry prior to this date will have to adapt to the new rules by June 30, 2016.
1 Even if the securities portfolio manager is not a financial institution, such manager can distribute units of investment funds managed or administered by it.
2 The manager is responsible for actively managing the risks of the portfolios administered by it and must assign this role to a statutory director.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.