Brazil new investment funds’ regulatory framework

On December 2022, the Brazilian Securities and Exchange Commission (“CVM”) issued Resolution No. 175 (“Resolution”), which modernizes the regulatory framework related to investment funds, systematizing and regulating innovations brought about by Law No. 13,874, dated September 20, 2019, known as “Economic Freedom Law” (“EFL”).

The Resolution’s enactment consists in the final landmark of the largest public hearing ever conducted by the CVM and seeks to not only connect the local market to the most advanced practices developed internationally, but also to consolidate market practices and decisions of the board of CVM in this regard.

ECONOMIC FREEDOM LAW’S REGULATION

The EFL introduced important modifications to the Brazilian Civil Code, especially through the
addition of specific provisions related to investment funds. In order to reflect these amendments and prevent duplication of EFL’s provisions into different regulations, the Resolution made the following adjustments: (i) Creation of a general section, which contains provisions applicable to every category of investment funds; (ii) Introduction of a specific section destined to regulate particularities of fixed income, currency exchange, multimarket and stock investment funds, regulated by CVM’s Instruction No. 555, dated December 23, 2014, as amended (“Instruction 555”), which used to be referred to as “555 Funds”, are now categorized as financial investment funds (“FIF”); and (iii) Introduction of a specific section destined to regulate the particularities of credit rigths investment funds (“FIDC”).

TERM

The Resolution will come into force on April 3, 2023, but with some exceptions. The new provisions related to maximum distribution fee will come into force only on October 1, 2023, as will the provisions related to limits of exposure to capital risks in FIF. Multiclass structures in which funds will have classes and subclasses of shares, will come into force only on April 1, 2024 – by then it is expected that a change in tax legislation and regulation will account for the existence of multiclass structures, providing legal assurance with regards to the tax treatment related thereto.

Furthermore, the adaptation of existing funds must occur until December 31, 2024, with the exception of FIDC and FIDCNP, which must adapt prior to December 31st, 2023. We outline below some of the main modifications made by the Resolution.

WEBINAR | New investment funds’ regulatory framework

Click here and access the full webinar recording, with André Mileski and Julio Queiroz, our partners, Alexandre Costa Rangel, CVM’s Director, and Carolina Cury, Head of Legal Asset at BTG Pactual.