On April 27th, 2022, the Brazilian Securities Commission (CVM) issued Resolution 88/2022, which contains regulations on public offerings of securities issued by small businesses with waiver of registration, by means of electronic crowdfunding platforms, revoking CVM Instruction 588/2017 (“CVM Resolution 88/2022”).
The new regulations are the result of Public Hearing 02/2020, promoted by the Superintendency of Market Development (SDM) of the CVM, as described in our Newsletter no. 67 (April 2020). This public hearing received comments from 37 interested parties.
CVM Resolution 88/2022 establishes the new regulatory framework for crowdfunding in Brazil, disciplining the relationship of participative investment platforms, small business enterprises issuing securities and investors.
The following are the most relevant innovations introduced by CVM Resolution 88/2022 in comparison to the previous regime:
(i) expansion of limits: Crowdfunding must be carried out by means of a participative investment platform registered with the CVM and must observe three main limits, related to the following aspects: (a) maximum amount raised per financial year; (b) maximum gross revenue of the issuer; and (c) maximum individual investment by investors defined as non-qualified (according to the terms of CVM Resolution 30/2021).
As of the entry into force of CVM Resolution 88/2022: (a) the maximum amount raised via crowdfunding will be BRL 15,000,000.00 (currently, the maximum figure is BRL 5,000,000.00); (b) the maximum yearly gross revenue of the issuer will be increased to BRL 40,000,000.00 (from the present value of BRL 10,000,000.00); and (c) the annual limit of investment by an individual will be BRL 20,000.00 (with consequent elevation to BRL 200,000.00 of the annual income as of which an investor can exceed the general limit).
(ii) possibility of subsequent trading: The new Resolution will allow participative electronic investment platforms to act as intermediaries in the buying and selling of securities already issued in at least one public offering via the platform in question. With this innovation, the CVM has permitted the creation of a type of “secondary market” for the securities issued by means of crowdfunding.
To intermediate this modality of trading, the platform must assure that the seller of the securities and the potential buyers are active investors (defined as investors enrolled with the platform, with their enrollment updated, that have invested in at least one public offering conducted by the platform in the preceding two years).
The rule also establishes that the platforms cannot constitute and administer regulated markets for securities, cannot make available a centralized and multilateral trading system for matching and interaction of potential buyers and sellers and formation of prices, or execute transactions in which the counterparty is a market former that assumes the obligation of placing firm buy and sell offers.
It will also be forbidden to use language regarding the existence or operation of a regulated market for securities, such as an “exchange”, “securities exchange”, “over-the-counter market” or “secondary market”, among others, which can potentially mislead investors.
(iii) expansion of the possibilities for disclosure of offerings: The CVM will allow the ample promotion of public offerings via crowdfunding, including the use of publicity material, in any communication vehicles and social media, provided there is respect for the limits on disclosure established in the Resolution itself.
Previously, the disclosure of information about offerings through this modality was restricted to the websites of the issuer and the lead investor.
(iv) record keeping of the ownership of securities: CVM Resolution 88/2022 also has introduced innovations related to greater protection of investors via crowdfunding. Among these are the obligations that: (a) the securities offered must be booked, which can be accomplished by a depositary institution registered with the CVM; or (b) ownership of the securities and the respective equity stake must be recorded, which can be accomplished by the electronic crowdfunding platforms.
For a platform to render the services indicated in item (b) above, the rules established in CVM Resolution 88/2022 must be observed, such as the existence of computerized processes and systems that are adequate to inform the issuing company of the securities trading accounts and transfer of securities, and internal rules for compliance with the CVM Resolution 88/2022.
Additionally, the platform can only render the services for record keeping of the ownership of securities and equity interest for issuers that have carried out public offerings in its environment.
(v) improvement of the requirements related to the participative investment platforms: With the objective of mitigating worries about the possible lack of structure for the platforms to exercise their regulated activity as gatekeepers, CVM Resolution 88/2022 has increased the minimum capital stock of such platforms to register with the CVM, from BRL 100,000.00 to BRL 200,000.00.
It will also be necessary for the platforms to hire a professional to oversee the internal controls (compliance) as of the financial year when the sum of the funding raised via the platform reaches BRL 30,000,000.00.
(vi) independent auditing of issuers: The Resolution also has introduced new obligations applicable to issuers, such as the need to audit the financial statements in two cases: (a) when the issuer reaches gross annual revenue of BRL 10,000,000.00 or (b) when the public offering intends to raise more than BRL 10,000,000.00.
(vii) utilization of the capital raised: The issuers of securities by crowdfunding cannot use the money raised to acquire an equity stake in other companies or grant credit to other companies.
(viii) additional lot: There has been modification of the maximum percentage for distribution of additional lots in the public offering without need for registration, which has been increased from 20% to 25% of the maximum target value.
(ix) secondary offerings: According to CVM Resolution 88/2022, a secondary offering through crowdfunding is allowed, provided that the total value of the secondary offering does not exceed 20% of the maximum target value.
(x) alteration of the essential information about the offering: The platform can alter the essential information about the offering after the start of distribution in the event of a substantial and unforeseeable subsequent change in the factual circumstances existing at the start of the offering, until its closing. In such case, the investors that have already adhered to the offering can revoke their reservations within five days of receipt of the communication in this sense.
CVM Resolution 88/2022 will take effect on July 1st, 2022.
More information, including the full text of CVM Resolution 88/2022, can be obtained at the CVM’s website (www.gov.br/cvm).
