Circular Letter CVM/SIN/SNC No. 1/2019

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

Circular Letter No. 1/2019/CVM/SIN/SNC
Rio de Janeiro, January 18, 2019

To administrators and independent auditors of investment funds Subject: Disclosure of market risk sensitivity analysis in investment fund financial statements

Dear Sirs,

Within the scope of the Strategic Cost Reduction Project, currently underway at this CVM, we have received inquiries from the market regarding the interpretation of item 1.3.2.XX of CVM Instruction No. 577, of 2016, which deals with the Accounting Plan for Investment Funds - COFI.

In this regard, the aforementioned item prescribes:

XX – Sensitivity analysis – disclose sensitivity analysis for each type of market risk to which the fund is exposed at the end of the accounting period, in accordance with the guidelines of the standards applicable to publicly-held companies regarding the disclosure of financial instruments. (Emphasis added)

Thus, we clarify that the standards to be applied to the issue are those provided for publicly-held companies, which, at present, are primarily represented by CPC 40 (R1) (CVM Resolution No. 684, of 2012). This Resolution provides, regarding market risk sensitivity analysis, the following:

40. Unless the entity complies with item 41, it must disclose:
    (a) a sensitivity analysis for each type of market risk to which the entity is exposed at the end of the accounting period, showing how the result and equity would be affected by changes in the relevant risk variable that are reasonably possible at that date; (b) the methods and assumptions used in preparing the sensitivity analysis; and (c) changes from the previous period in the methods and assumptions used, and the reason for such changes. (Emphasis added)

Therefore, the general rule is that described in item 40, unless the entity complies with item 41, which in turn determines:

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

41. If the entity prepares a sensitivity analysis, such as value-at-risk (VaR), which reflects interdependencies between risk variables (for example, interest rates and exchange rates) and uses it to manage financial risks, it may use this sensitivity analysis in place of the analysis specified in item 40. The entity must also disclose:
    (a) an explanation of the method used in preparing such sensitivity analysis and the main parameters and assumptions underlying the data provided; and (b) an explanation of the objective of the method used and the limitations that may result in the information's inability to fully reflect the fair value of the assets and liabilities involved. (Emphasis added)

With this in mind, in our understanding, since administrators of investment funds regulated by CVM Instruction No. 555 calculate and disclose VaR monthly in the Monthly Profile document, there is no need to apply the determinations of item 40 of CPC 40 (R1) for such funds.

Sincerely,

Digitally signed by
DANIEL WALTER MAEDA BERNARDO
Superintendent of Institutional Investor Relations

Digitally signed by
PAULO ROBERTO GONÇALVES FERREIRA
Superintendent of Accounting Standards – acting