The Brazilian Securities and Exchange Commission (in Portuguese, Comissão de Valores Mobiliários – CVM) ("CVM") is proposing for comments a draft regulation ("2014 Draft Regulation") to govern asset management-related services ("Services").
Currently, the Services are regulated by CVM Regulation 306, enacted in 1999, which needs to be improved to reflect the major developments the fund industry had in the last 15 years. Number of funds and assets managers grew impressively, and international players set new market standards, imposing new structures, pricing arrangements and variety of services.
In 2011, the CVM already proposed another draft regulation to regulate the Services, focusing mainly on the class of assets authorized to be managed by each asset manager, and general requirements by either an individual or a legal entity would have to comply with in order to perform the Services ("2011 Draft Regulation").
The 2014 Draft Regulation creates two additional categories of asset manager: fiduciary administrator and asset manager.
The fiduciary administrator is the agent responsible mainly for back office-related services, namely custody, asset-liability control and, in general, supervision of the management services' structure.
The 2014 Draft Regulation also proposes that fiduciary administrators have to be organized as multiple bank, commercial bank, the Federal Savings Bank (in Portuguese, Caixa Econômica Federal), investment bank, broker-dealer or distribution agent.
All such entities are financial institutions and, accordingly, also subject to regulation by the Central Bank, which imposes additional rules on applicants, including capital requirements, minimum net equity and other prudential-related rules. Thus, the purpose is to have the banking agency also supervising the fiduciary administrators from a financial soundness perspective.
Such requirement for financial institutions to act as fiduciary administrator is not applicable neither to asset managers responsible for only private equity- and venture capital-related funds, nor to managed portfolios. The purpose behind the exception is that less back-office services are required for those funds, so it would be reasonable not to impose additional costs on those funds.
The second category referred to above – asset manager – would be strictly involved with management of the portfolio itself, so another party (except as described in the preceding paragraph) would have to be hired for the back office services mentioned above to be performed by fiduciary administrator.
An entity intending to apply before the CVM for an asset management authorization may decide to either act as one of the categories above, or both. Additionally, it is important to highlight that, since the fiduciary administrator encompasses types of financial institution, then for a newcomer the process to be qualified as such would have to be approved also by the Central Bank, which is the primary agency responsible for granting any authorization for financial institutions to operate.
The 2014 Draft Regulation, which will probably be adopted as final rule together with the 2011 Draft Regulation, will enhance the regulatory regime, by imposing stricter rules and welcoming new market practices. We expect that to foster asset management services, which is a growing market given the importance of the fund industry in Brazilian economy.
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