CVM Publishes Guidelines For Compliance Activities And The Compliance Report Provided For In CVM Instruction 588

• Published date: 12 March 2021
• Subject Matter: Corporate/Commercial Law, Compliance, Corporate and Company Law, Securities
• Law Firm: Tauil & Chequer
• Author: Mr Michel Sancovski, Liliana Coutinho, Carlos Motta, Lorena Bitello Barbosa and Thiago Coimbra

The Superintendent for Supervision of Institutional Investors of the Brazilian Securities and Exchange Commission ("SIN/CVM" and "CVM", respectively) released on February 23, 2021, CVM/SIN Circular Letter No. 02/2021 ("Letter"), which establishes guidelines on the minimum elements of the compliance activities and the Compliance Report provided for in articles 19-22 of CVM Instruction No. 558 of March 26, 2015, as amended. The amendments intend to improve the rules of conduct and internal controls of securities portfolio administrators, including by a mandatory designation of an officer responsible for the supervision of the enforcement of these internal rules and procedures ("Compliance Officer").

According to the Letter, a plan must be developed to ensure efficient verification, follow-up, and testing of the internal controls of each institution. The Letter suggests that the planning consider (i) the nature and complexity of the portfolio administrator's operations, the segment in which it operates and the strategies and fund types used in the management activity, with a special emphasis on segments that recently began operation; (ii) the profile and risk "appetite" of the institution and of its employees, directors and managers, as defined by the institution's senior management; and (iii) the company's degree of maturity in the various issues faced by internal controls, especially regarding the experiences and findings of previous years.

The Letter also establishes that the report prepared by the compliance area must contain, at minimum, considerations about the compliance of the institution with the regulatory rules in effect regarding the activities of asset management, fiduciary management, risk management, suitability, and distribution of shares, depending on the category of registration that the portfolio administrator holds at CVM (such as Asset Manager, Fiduciary Manager, or Full Manager).

To prepare the Compliance Report, the Compliance Officer must establish a continuous work routine that defines the guidelines for the document and the tests to be applied (including sample testing) considering the size and activity performed by the company. In the analysis of the company and the draft of the report, several instruments can be used, for example: (i) periodic internal reports from the management and risk areas; (ii) the adoption of checklists of periodic obligations; (iii) direct tracking of operations and reports from other areas of the company...