Away from the spotlight that has recently been focused on the President of the Republic in the much-desired Brazilian entry into the Organization for Economic Cooperation and Development (OECD), the Securities and Exchange Commission (CVM) has been taking small steps to prepare the Brazilian market along the lines of the so-called “ Rich Countries Club.”
On February 6, Instruction 619 was published by the federal authority1, which finally allows the exercise of securities consultancy activities by service providers domiciled abroad. The measure is part of Brazil's adaptation to the OECD Capital Liberalization Codes - to which the country has already declared its adherence with reservations - and which severely demand the free movement not only of capital and investments, but also the provision of services beyond the borders of member countries.
From a legal perspective, Instruction 619 amends Instruction 592, of November 17, 2017, making specific adjustments to allow the exercise of securities consultancy activities by consultants based and/or domiciled abroad – which was previously not permitted . It is worth noting that no special treatment was given to new entrants in this market, who must follow the same rules already imposed on Brazilian consultants.
Regarding the requirements for the foreign consultant to be recognized by the CVM, it is highlighted that he must be authorized by a competent authority to be able to act and that he must permanently maintain a legal representative in Brazil. Regarding the first requirement, only those that have a mutual cooperation agreement with the CVM or that are signatories to the memorandum of understanding of the International Organization of Securities Commissions will be considered competent authorities.2.
Another interesting point is that Instruction 619 included for all securities consultants – Brazilian or foreign – the obligation to follow the rules relating to investor registration and the prevention of money laundering and terrorist financing (PLDFT), a topic brought up recently by Instruction 617.
To understand the context in which Instruction 619 is inserted, it is necessary to analyze it in conjunction with the CVM's regulatory agenda in 2020. The agenda proposes innovation and modernization of the Brazilian market, prioritizing topics such as the regulation of the Economic Freedom Law (Law 13.874/2019)3 and new rules applicable to BDRs. It also ratifies the CVM's alignment with other entities and bodies of the Executive Branch in the focus on liberating and reducing bureaucracy in the market.
From the perspective of market growth, the impact of Instruction 619 is relevant when considering the enormous recent growth in the number of investors on the stock exchange. According to data released by B34, in three years (from January 2017 to January 2020), there was an increase of more than 195% in the number of investors on the stock exchange. Consequently, this growth reflects a greater demand for investment consultants, opening up a market space for the entry of consultants from other countries who meet the necessary requirements.
Coincidentally, a few days after the publication of Instruction 619, the United States of America (USA) Department of Commerce announced that it had removed Brazil from the list of developing countries. The withdrawal is considered mandatory for the country's accession to the OECD, as it interrupts the differentiated treatments and rates granted to Brazilians in foreign trade relations.
It is clear that the new Instruction 619 is yet another element that ratifies the change in the state's political strategy towards the international market, which has undergone major legal and bureaucratic changes since the beginning of the mandate of the current President of the Republic. We believe in the alignment of the new standard with other recent measures to reduce bureaucracy in the capital market, which also reveals the decline in the protectionist molds that were present in the last decade.
CVM Instruction 619 will come into force from June 1, 2020, in order to give time to adapt CVM systems to the registration procedures for foreign consultants.
Source: Legislation & Markets (Open Capital)
1 CVM Instruction 619 – http://www.cvm.gov.br/legislacao/instrucoes/inst619.html
2 http://www.cvm.gov.br/export/sites/cvm/menu/internacional/acordos/anexos/MMoUIngles.pdf
3 http://www.planalto.gov.br/ccivil_03/_ato2019-2022/2019/lei/L13874.htm
4 Data obtained from analysis of the history of individuals made available by B3 S.A. until January 2020, using a criterion that considers the CPF registered with each custody agent, that is, the same investor can be counted if he has an account with more than one brokerage. http://www.b3.com.br/pt_br/market-data-e-indices/servicos-de-dados/market-data/consultas/mercado-a-vista/historico-pessoas-fisicas/