Circular Letter CVM/SMI 02/2020

12/03/2020 SEI/CVM - 0956412 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=1011281&infra_siste… 1/4 SECURITIES AND EXCHANGE 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 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4th Floor, Brasília/DF – ZIP: 70712-900 – Brazil -Tel.: (61) 3327-2030/2031 www.cvm.gov.br Circular Letter No. 2/2020-CVM/SMI Rio de Janeiro, March 12, 2020.

To
Directors responsible for CVM Instruction No. 505/11 at intermediaries

Subject: COVID-19
Contingency Plan

Dear Directors,

1. This Circular Letter aims to bring recommendations to intermediaries regarding the adoption of a contingency plan due to a possible operational stress situation caused by the spread of COVID-19, as well as regarding possible measures that may be necessary in the adoption of a contingency plan of this nature.

I - INTRODUCTION

2. It is certain that a large part of investors, partly at the initiative of the intermediaries themselves, seek to carry out their operations through equipment connected to the internet.

3. However, during market stress situations due to COVID-19, the volume of operations tends to grow, potentially exceeding the capacity supported by the intermediary's current information technology structure.

4. In addition to operations carried out through technological channels, there are clients who prefer to carry out their operations by phone, or even because a certain operation is not offered by the intermediary’s 'home broker'.

5. Additionally, it is possible that, if this type of stress situation materializes, a large part of the intermediary's workforce will have to work remotely for health safety reasons.

6. Thus, whether due to the increase in the volume of operations through technological channels, telephone service, or personnel restrictions, the intermediary must make available to its clients alternative service channels that guarantee the best interest of the client for the execution of orders commanded by them.

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7. Therefore, the SMI understands that the intermediary must be prepared for an extreme situation as described, elaborating for this purpose a contingency plan that contemplates alternatives to continue providing its services adequately in this type of scenario. Such a contingency plan must be discussed and approved by the senior management of the intermediary, communicated to employees, and provide for the method, content, and timing of any communication to clients and the general public.

I.1 - CVM Instruction No. 612/2019

8. With the entry into force of the regulatory changes introduced by CVM Instruction No. 612/2019, as amended by CVM Instruction No. 618/2020, intermediaries must implement business continuity plans that establish procedures and estimated deadlines for the restart and recovery of activities in case of interruption of critical business processes, as well as internal and external communication actions necessary and the cases in which communication must extend to clients (art. 35-A, item II).

9. Among the processes considered critical, business continuity plans must cover the processes of receiving and executing orders, with the aim of preserving service to clients (art. 35-A, §1º, item I).

10. It also requires that the information technology structure be compatible with the volume, nature, and complexity of its operations, in order to preserve service to clients even during periods of peak demand (art. 32, §1º).

I.2 - CVM Instruction No. 505/2011

11. In any case, regardless of the changes provided for in CVM Instruction No. 612/2019, CVM Instruction No. 505/2011 already contemplates a series of procedures and controls and disciplines duties that must guide the procedures to be adopted by intermediaries in the aforementioned context.

12. CVM Instruction No. 505/2011 defines 'order' as the act by which the client determines that an intermediary negotiate or register an operation with a security, in their name and under the conditions specified (art. 1º, item V).

13. The same Instruction, in its art. 12, determines that the intermediary may only execute orders transmitted by (I) writing; (II) telephone or other voice transmission systems; or (III) electronic systems of automated connections.

14. Once an order from the client is received, under the above conditions, the intermediary must register it, identifying the time of its receipt, the client who issued it, and the conditions for its execution (sole paragraph of art. 12).

15. After registration, the order must be archived by the intermediary, indicating the conditions under which it was executed, and the intermediary must also guarantee that its archiving system is protected against tampering, allowing for audits and inspections (art. 13, 'caput' and sole paragraph).

16. Specifically regarding orders transmitted by telephone or other voice transmission systems, the intermediary must maintain a recording system of all dialogues held with its clients, whether through autonomous investment agents or through desk operators (art. 14, 'caput').

17. And, finally, the intermediary must conduct its activities with good faith, diligence, and loyalty, always in the best interest of its clients (art. 30, 'caput' and sole paragraph).

II - HOW INTERMEDIARIES MUST SERVE THE BEST INTEREST OF THEIR CLIENTS IN CASE OF IMPLEMENTATION OF A CONTINGENCY PLAN

18. The main duty of the intermediary in case of market stress resulting from the spread of COVID-19 is to promptly communicate its client base about this situation, including regarding possible impacts on service levels offered (SLAs), making available to clients the contacts that should be used and the forms of interaction for placing order operations.

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19. These contacts can be both phone numbers, including those with facilities for electronic messaging applications, as well as email addresses or other means of electronic communication, which allow for the recording and archiving of received orders.

II.1 – Telephone Service

20. If the intermediary needs to implement the contingency plan prepared, due to the advance of COVID-19, a first option could be to maintain telephone service by desk operators, even if acting in a location different from the organization's headquarters.

21. However, this telephone service must be coupled with a mechanism for proving and formalizing orders, which can be, for example, carried out through a recording system made available by the intermediary to each of its operators.

22. Another option would be to redirect phone calls made to the intermediary's trading desk to the operator's telephone device, who would be acting in a location different from the organization's headquarters.

23. In this situation, the operator would instruct the client to transmit the order operation by email or by other electronic messaging systems.

II.2 – Service by email or by other electronic messaging systems

24. For this option, if the intermediary implements a contingency plan, due to the advance of COVID-19, the intermediary must, prior to the adoption of the contingency plan, communicate its entire client base about this stress situation, clarifying that operations by the trading desk, from a certain date, will be carried out by email or electronic messaging systems, with telephone calls to its desk temporarily disabled, while the implemented contingency plan lasts.

III - CONCLUSION

25. Thus acting, whether adopting the option of telephone service or adopting service by email or other electronic messaging systems, what is expected of the intermediary is that it develops a contingency plan that contemplates at least the issues mentioned here, among others that it considers relevant for the maintenance of its operation in this scenario of worsening consequences resulting from the COVID-19 pandemic, communicating and training its workforce, as well as interacting with and guiding clients, in order to maintain an adequate level of service for the stress situation, as well as mitigating any risks for itself and its clients.

Sincerely,

Document electronically signed by Francisco José Bastos Santos, Superintendent, on 12/03/2020, at 20:27, based on art. 6º, § 1º, of Decree No. 8.539, of October 8, 2015.

12/03/2020 SEI/CVM - 0956412 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=1011281&infra_siste… 4/4

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Reference: Process No. 19957.005135/2019-17 SEI Document No. 0956412