On June 3, 2011, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued CVM Instruction No. 497 (CVM Instr. 497/2011), which contains the new rules recently adopted to govern the autonomous investment agents' (agentes autônomos de investimento) activities in Brazil, and will replace CVM Instruction No. 434, of June 22, 2006 (CVM Instr. 434/2006). These rules will come into force on January 1st, 2012.
The main objective of the new regulation is to make more transparent the role of the autonomous investment agent due to the expansion of the Brazilian capital markets and to correct some distortions identified in recent years in the practices adopted by some professionals. In this regard, CVM has performed a broad analysis of the distribution structure of financial products, building on its experience from the application of CVM Instr. 434/2006, and conducted comparative studies on the regulation of such practices in the international market.
From the definition of the permitted activities to the autonomous investment agents, CVM Instr. 497/2011 brings innovations. It crystallizes the solutions considered most appropriate for dealing with problems, by listing the prohibitions applied to the activity and presenting a framework of obligations and responsibilities to the market participants. All these changes aim at reducing possible fields of uncertainty for clients, mainly from the strengthening of the liability of intermediaries for the action of the autonomous investment agents and enhancement of the control mechanisms.
Instr. 497/2011 established new obligations and responsibilities to the autonomous investment agents, but it has not innovated with respect to the nature of the activity. Thus, the autonomous investment agent remains as a distributor of products to service intermediaries. Other concepts, according to which autonomous investment agents assume distinct roles and that would be inconsistent with that model and would only generate conflicts of interests and risks to the market, have been disregarded by CVM.
The autonomous investment agents are characterized as "extension of the securities brokers" as they represent centers of distribution of securities, often located in distant regions of the country, and attracted the concern of CVM, which concluded that many of the agents could be extrapolating their original functions and acting as analysts of investments1 and even as portfolio managers without the proper authorization to do that. Currently, there are more than 9.6 thousand registered autonomous investment agents.
In summary, the new regulation contemplate, among other measures, the following:
- a clearer definition of the contents of the autonomous investment agents´ activities, previously generically referred to as "distribution and mediation of securities" (de distribuição e mediação de valores mobiliários) under the responsibility of the intermediary. Such a definition allows to make safer the acts involved in the distribution of securities;
- the mandatory adoption by institutions of the Brazilian securities distribution system2 of certain practices to monitor the performance of the autonomous investment agents and its own clients, as well as to implement control mechanisms which are more appropriate to the new market reality;
- the obligation of exclusive contractual relationship with an intermediary (with one exception that is outlined below), in view of the activities carried out by the autonomous investment agents and the risks entailed. Thus, the activities under the responsibility of a certain intermediary are more easily subject to control mechanisms and the intermediary will have to comply with its duty of supervision; and
- a new framework for accreditation and registration of autonomous investment agents to be implemented by a private entity subject to the authorization and supervision of CVM (the licensing authority), with the adoption of mechanisms for certification and continuing education. This new structure is intended to give greater agility to the processes of accreditation and cancellation of autonomous investment agents, still improving the system of access to this activity.
CVM included an exhaustive list of the activities permitted to the autonomous investment agents, surpassing the previous laconic definition of the former regulation which mentioned only "the activity of distribution and mediation of securities". The activities of these agents are now limited to three levels: (i) prospecting and client acquisition, (ii) receiving, recording and transmission of orders, and (iii) providing information on products and services of an intermediary (securities broker) to which the agent is bound.
Only individuals (natural persons) may act as autonomous investment agents. However the new regulation admits the formation of a legal entity or sole proprietorship (firma individual) for the provision of services, provided that solely accredited agents are holders of the company´s capital stock. This is a prerogative to be exercised exclusively for tax purposes and confirms the burden of personhood activity attributed by CVM to the autonomous investment agents and strengthens the accountability mechanisms of the agents' liability.
The autonomous investment agent is prohibited from exercising any of the following activities: (a) to enter into a contract as service provider with more than one institution of the Brazilian securities distribution system; (b) to receive of or on behalf of costumers, or to deliver to costumers for any reason whatsoever (including fees for the provision of any services) cash, bonds or securities or any other assets; (c) to be an attorney-in-fact or a representative of costumers before institutions of the Brazilian securities distribution system for any purpose; (d) to enter into contracts with clients or perform (even free of charge) portfolio securities management services, securities consulting services or securities analysis services; (e) to act as employer´s representative (preposto) of an institution of the Brazilian securities distribution system with which he/she has not signed a contract as service provider; (f) to delegate to third parties wholly or partially the performance of services retained by the institution of the Brazilian securities distribution system which has engaged his/her services; (g) to use electronic signatures or passwords for the exclusive use of the client to transmit orders through electronic systems; and (h) to make and send statements to clients with information regarding transactions or open positions.
To carry out the activities of portfolio management, consulting or analysis of securities, the autonomous investment agent that is registered by CVM for the performance of those activities under the regulations in force shall apply to the licensing authority to suspend its accreditation as autonomous investment agent. However, this restriction does not apply to an autonomous investment agent that performs exclusively the distribution of units (cotas) of investment funds for qualified investors3. This is the only exception admitted in the new regulation.
The autonomous investment agent that maintains a contract with an intermediary through a legal entity or sole proprietorship, as permitted in the new regulation, cannot be engaged directly by another intermediary. The great innovation introduced by CVM is the exclusivity of the autonomous investment agent to a single intermediary. On the one hand, this exclusivity strengthens the logic of monitoring by securities brokers, since the autonomous investment agent is the securities broker's representative, who acts on its behalf and under its responsibility. On the other hand, it can mean misinterpretations on the part of the labor justice, supported by the prohibition on companies being accredited as autonomous investment agents and the need to link the name of the securities broker to its representative.
The new regulation stresses the responsibility of the securities brokers with clients and third parties for the acts committed by the autonomous investment agents linked to them. In this regard, it reaffirms the understanding that the prospective clients originated by the autonomous investment agents are the responsibility of the securities brokers as if they were prospected by their own employees. The concern of CVM in blaming the intermediaries is in line with the movement to require pro-active stance by such entities (brokerage house companies) in the market, forcing them to adopt effective internal controls, in order to verify the correct operation of their business partners (the accredited agents).
Thus, measures such as approval and control of materials used by the autonomous investment agents, routine check of recordings and broadcasts of orders, monitoring the relationship between the autonomous investment agents and their networks of contacts and monitoring of clients operations, among others, will be part of the agenda of the securities brokers as a way of managing the risks inherent in outsourcing.
With such regulation, CVM seeks to improve the rules for autonomous investment agents from the recognition of their importance in the popularization of the capital market, and makes use of a liability structure compatible with the extension of the client base of securities brokers.
1 The activity of the securities analyst of investments (securities analyst) is regulated by CVM Instruction No. 483, of July 6, 2010. Securities analyst is the individual who professionally prepares analysis reports for publication, disclosure or distribution to others, even though restricted to clients. The term "analysis report" means any text, monitoring reports, studies or analysis on specific securities or issuers of certain securities or influence that might assist investors in making investment decision. Public exhibitions, presentations, meetings, conference calls and other non-written events, whose content is typical of the analysis report, are also included in the same definition. The activity of securities analyst may be exercised in the following ways: (i) autonomous; (ii) bound to an institution within the distribution system or to any individual or legal entity authorized by CVM to play the role of securities portfolio manager or consultant (distribution system institution); or (iii) bound to any legal entity formed with the exclusive purpose to carry out the activity of securities analyst (securities analyst company). The securities analyst must be an individual but a securities analyst company is also deemed to be a securities analyst.
2 According to the provisions of article 15 of Law nº 6.385, of December 7, 1976 (which governs the Brazilian securities market and creates CVM), the securities distribution system in Brazil comprises the following participants: I - financial institutions and other corporations engaged in the activity of distributing securities issues: (a) as agents of the issuing corporation; or (b) for their own account, underwriting or purchasing the issue in order to place it on the market; II - corporations engaged in the activity of purchasing securities available on the market, in order to resell them for their own account; III - corporations and independent agents engaged in intermediation activities in the trading of securities, on Stock Exchanges or the Over-The-Counter (OTC) market; IV - Stock Exchanges; V - organized OTC markets; VI – commodities brokers, special operators and the commodities and futures exchanges; and VII – securities clearing and settlement entities.
3 The following investors are deemed to be "qualified investors": (i) financial institutions; (ii) insurance companies and capitalization societies; (iii) private welfare opened or closed capital organizations; (iv) individuals or legal entities that hold financial investments in an amount superior to R$ 300 thousand, attest in writing their qualified investor condition and subscribe or acquire, in the offer, securities in the amount of at least R$ 1 million; (v) all investment funds, regardless as to whether they are directed exclusively to qualified investors or not. This means that investment funds destined to non-qualified investors are also considered qualified investors; (vi) portfolio administrators and securities consultants authorized by CVM, in relation to their own monies; and (vii) own social security regimes instated by the Federal Government, by the States, by the Federal District or by Municipalities.
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