On December 23rd, 2022, the Brazilian Securities Commission (CVM) published Resolution No. 175/2022 (“CVM Resolution No. 175”), covering the constitution, functioning, disclosure of information and provision of services by and to investment funds. CVM Resolution No. 175 consolidates the new regulatory framework for investment funds in Brazil, revoking 38 other normative instruments, as specified in its article 141.
Through this new framework, the CVM is aiming to improve the efficiency of the investment fund market, as well as to reduce the cost borne by participants in the market, while maintaining the necessary protection of investors.
CVM Resolution No. 175 is composed of: (i) a General Part, applicable to all investment funds; (ii) attachments that contain specific rules applicable to (ii.1) financial investment funds (FIFs), the new denomination given to the funds previously regulated by CVM Instruction 555/2014; and (ii.2) specific rules applicable to receivables investment funds (FIDCs).
One of the pillars of CVM Resolution No. 175 is to reflect the innovations introduced in the Brazilian legal system by the Brazilian Federal Law No. 13,874/2019 (“Economic Freedom Law”), among them:
(i) the limitation of liability of each investor to the value of its subscribed shares;
(ii) the possibility of investment funds having classes of shares with segregated equity; and
(iii) the application of the mechanism of civil insolvency to investment funds.
Normative Attachment I of CVM Resolution No. 175 is applicable to FIFs (a classification that includes stock, currency, multi-market and fixed-income funds) and brings the following regulatory innovations:
(i) possibility of investing in “environmental assets” and cryptoassets;
(ii) greater flexibility in making investments, by expanding the concentration limits by type of financial asset;
(iii) possibility of FIFs targeted at investors in general to apply up to 100% of their net assets abroad (this was previously limited to 20%); and
(iv) establishment of capital risk exposure limits according to the FIF class: 20% of net assets of fixed-income funds; 40% of net assets of currency and stock investment funds; and 70% of net assets of multi-market funds (limits not applicable to professional investors).
In turn, Normative Attachment II of CVM Resolution No. 175 regulates FIDCs and reflects the following regulatory innovations, among others:
(i) attribution of responsibility to the portfolio manager for structuring the fund, as well as for verifying the quality of the underlying credit rights;
(ii) need for the credit rights to be recorded with a registration entity authorized to function by the Central Bank of Brazil; and
(iii) possibility that the shares of FIDCs can be distributed to investors in general, as long as certain requirements are satisfied.
With regard to the Environmental, Social and Governance Agenda (ASG), CVM Resolution No. 175 specifies that the bylaws of the fund and the descriptive attachment of the class of shares with denomination containing reference to environmental, social and governance factors, such as “ESG”, “ASG”, “environmental”, “green”, “social”, “sustainable” or any terms related to sustainable finance must establish:
(i) what environmental, social or governance benefits are envisioned and how the investment policy aims to attain them;
(ii) what methods, principles or guidelines are followed for qualification of the fund or class according to the denomination;
(iii) which entity is responsible for certifying or issuing a second opinion about the qualification, if any, as well as information about the Independence of these aspects in relation to the fund; and
(iv) specification of the form, content and frequency of disclosure of a report on the environmental, social or governance achieved by the investment policy in the period, as well as identifying the agent responsible for preparing the report.
Finally, we stress that the categories of investment funds not yet covered by CVM Resolution No. 175 will be regulated by specific attachments, to be included before the Resolution takes effect (on April 3rd, 2023).
More information, along with the full text of CVM Resolution No. 175, can be found at CVM’s website (www.gov.br/cvm).
