New Regulatory Framework of the Brazilian Securities and Exchange Commission (CVM) for Investment Advisors.

On February 14, 2023, the Brazilian Securities Commission (“CVM”) issued CVM Resolution 178 and CVM Resolution 179, which established the new regulatory framework for investment advisors in Brazil.

CVM Resolution 178, which regulates the activities of investment advisors and by revoked CVM Resolution 16/2021, and CVM Resolution 179, which amends CVM Resolution 35/2021 and provides for transparency rules about the compensation agreements of intermediaries and advisors, promoted deep changes in the regulation applicable to investment advisors in Brazil.

Initially, it should be noted that the expression “investment advisor” replaced the expression “autonomous investment agent” or “AAI” in both resolutions, considering the adoption of this terminology in Law 6,385/1976, after its amendment by Law 14.317/2022.

In light of this change in terminology, CVM Resolution 178 created a transition rule, allowing the investment advisor legal entity already incorporated  upon the entry into force of the rule, to change the term “autonomous investment agent” to “investment advisor” in the legal entity’s name only on the occasion of the next amendment to the articles of association or equivalent document.

Besides this change in terminology, below are some of the main innovations promoted by the new resolutions:

(i) CVM Resolution 178

  • End of exclusivity: investment advisors will be allowed to act as agents for more than one intermediary;
  • Flexibility of the corporate entity format: the investment adviser firms will not be obliged to adopt the “”general partnership”” format for the performance of their activities, thus permitting the use of other corporate formats, such as the limited liability company;
  • End of the exclusive corporate purpose: the investment adviser firm may perform complementary activities related to the financial, capital, insurance, pension plan and capitalization markets, provided that the applicable legislation and regulations are complied with and that they do not have a conflict of interest with the investment advisory activities;
  • Responsible Officer: the investment adviser firm must appoint a responsible officer who will act as a focal point towards regulators, self-regulators and intermediaries. The responsible officer must be a professional registered as an investment advisor before CVM and may be a director or a natural person who is a partner or manager of the investment advisor;
  • Liability of intermediaries: the resolution details more accurately the liability of intermediaries for the acts performed by investment advisors as their agents. In addition, the resolution reinforced the obligation of intermediaries to supervise the activities of investment advisors; and
  • Acknowledgement Term: the clients presented by investment advisors must, when registering with the intermediaries, sign an acknowledgement term containing the investment advisors’ performance regime, its limits, prohibitions, and potential conflicts of interests, among other information.

(ii) CVM Resolution 179

  • Disclosure of information: the intermediary must make available on its web site the qualitative description of all forms and arrangements of remuneration and conflicts of interest that are relevant to its performance, so that investors can access them before making an investment decision;
  • Quarterly statement on remuneration: the intermediary must send quarterly to their customers a statement with information on the remuneration received as a result of investments in securities made by them; and
  • Incidence of the standard and foreign intermediaries: the resolution clarifies that the standard does not apply to information intended for professional investors but applies to Brazilian intermediaries with respect to customer acquisition services contracted by foreign intermediaries.

On June 1, 2023, CVM Resolution 178 will become fully effective, while CVM Resolution 179 will become only partially effective. CVM Resolution 179 will become fully effective only on January 2, 2024.

Our team is at your disposal for further clarifications, as well as to assist you with the procedures for compliance with your regulatory obligations before the CVM.

Gustavo Flausino Coelho – gustavo@bastilhocoelho.com.br

Matheus Chagas Lamarca – matheus@bastilhocoelho.com.br

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