Brazil CVM regulatory and oversight developments

Brazil’s capital markets regulator, the Comissão de Valores Mobiliários (CVM), has undergone significant regulatory and judicial scrutiny regarding its oversight capabilities and internal controls.

Initial regulatory updates focused on strengthening anti-money laundering (AML) and countering the financing of terrorism (CFT) regimes through Resolution 245. This mandate required enhanced due diligence for non-resident investors from specific jurisdictions and the compulsory termination of relationships when risks are deemed unmitigable. Additionally, the market saw an increase in the use of arbitration clauses within investment funds under CVM Resolution 175.

Following these developments, Supreme Court Minister Flávio Dino ordered a technical evaluation and reassessment of the CVM’s regulatory rules. The order, requiring compliance within 90 days, was prompted by concerns regarding the agency’s functional independence and vulnerabilities in its oversight processes. Drawing on information from Transparency International, the ruling highlights potential weaknesses in internal control mechanisms, specifically citing instances where complaints were allegedly dismissed without minimal investigation. This includes a 2022 report detailing irregularities later identified at Banco Master.

Specific concerns were raised regarding the 2022 CVM resolution that allowed for multi-layered investment fund structures without a cap, which Minister Dino stated could hinder the identification of ultimate beneficial owners. Furthermore, the legal proceedings address potential non-compliance with whistleblower protection guidelines and question whether oversight fees collected by the CVM are being reinvested into agency modernization or redirected to the Union’s general treasury.

In response to these challenges and a significant increase in discretionary budget, CVM officials have signaled intentions to modernize supervision through the integration of artificial intelligence to better distinguish legitimate market participants from those engaging in irregular activities.