Brazil updates capital market regulations on AML and arbitration

Recent regulatory updates in the Brazilian capital market focus on arbitration clauses in investment funds and enhanced anti-money laundering (AML) protocols.

Regarding investment funds, the adoption of arbitration clauses is increasing due to the sophistication of structures under CVM Resolution 175. While arbitration is a standard for corporate disputes, its application in funds raises legal questions regarding which parties are bound by these clauses, particularly for secondary market acquirers and dissenting shareholders when clauses are introduced via assembly decisions.

Separately, the Comissão de Valores Mobiliários (CVM) issued Resolution 245, which strengthens the AML/CFT (Anti-Money Laundering and Countering the Financing of Terrorism) regime. Effective July 15, the rule mandates enhanced due diligence for non-resident investors linked to jurisdictions identified by the Financial Action Task Force (FATF). The regulation also introduces a requirement for the compulsory termination of relationships when risks are deemed unmitigable and unacceptable, a move that aligns Brazil with international recommendations but introduces new compliance challenges for market participants.