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Brazil: Modernising mutual funds

Alexei Bonamin
The Brazilian mutual fund industry, the sixth largest in the world, has been primarily regulated by Instruction 409 from the Brazilian Securities Commission (Comissão de Valores Mobiliários – CVM) for the past 10 years.

On July 1 2015, this will be revoked and replaced by Instruction 555, issued by the CVM on December 17 2014, which will then govern the incorporation, management, functioning and disclosure of information of mutual funds.

Mutual funds in operation on July 1 2015 will have to conform to the new rules until January 4 2016. For this purpose, they will have to hold a shareholders meeting to amend their bylaws.

The new regulation is aimed at modernising the regulatory environment for mutual funds, emphasising the use of electronic communications, rationalising the amount and content of information to be disclosed, and providing greater flexibility regarding investment thresholds for certain securities, particularly those issued abroad.

However, it is still not clear how the mutual funds industry will react to some innovations, such as: (i) the prohibition on the payment of rebate fees in connection with certain distributions of fund's shares; (ii) additional obligations for administrators, custodians and fund managers if the fund invests in securities issued outside Brazil; and (iii) the obligation to calculate individual performance for the purposes of calculating a fund's fees.

One significant innovation was the introduction of a new type of mutual fund known as the simple fund (fundo simples), an investment vehicle with a simplified structure, low cost and a conservative investment policy. The CVM believes that the simple fund may attract many retail investors that have never accessed capital market products before. To qualify as a simple fund, among other obligations, a fund will have to invest at least 95% of its net worth in government securities or other securities with a similar risk.

Alexei Bonamin

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