Circular Letter CVM/SMI 09/2019

18/12/2019 SEI/CVM - 0902407 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=954990&infra_sistem… 1/3 SECURITIES AND EXCHANGE COMMISSION OF BRAZIL Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4th Floor, Brasília/DF – CEP: 70712-900 – Brazil - Tel.: (61) 3327-2030/2031 www.cvm.gov.br Circular Letter No. 9/2019-CVM/SMI Rio de Janeiro, December 18, 2019.

To
Directors responsible for CVM Instruction No. 539/13 at intermediaries

Subject: Best practices for Suitability for the adoption of an asset allocation portfolio.

Dear Directors,

1. This circular letter aims to bring recommendations to intermediaries regarding measures that can be adopted to implement the so-called 'asset allocation portfolio', which allows the investor to have assets of various categories within the risk defined for their respective portfolio.

I - INTRODUCTION

2. CVM Instruction No. 539/13 – the CVM's Suitability regulation – requires intermediaries to evaluate and classify (i) their clients into previously established risk profile categories (Article 2) and (ii) the asset categories in which they operate, identifying characteristics that may affect their suitability to their clients' profiles (Article 4).

3. The same regulation further requires that, when the client orders the execution of operations in situations where the client's profile is not suitable for the asset, the intermediary must alert the client regarding the unsuitability (Article 6, item I), as well as obtain an express declaration from the client stating that they are aware of the profile unsuitability (Article 6, item II).

4. The same is required of the intermediary in cases where information allowing the identification of the client's profile has not been obtained, or if the information regarding the client's profile is not up to date.

5. In situations where the client operates with an asset allocation portfolio, it is necessary for the intermediary to continuously verify the proper classification of this portfolio with the client's profile.

6. To this end, the intermediary must identify the impact, on the asset allocation portfolio, of each new asset that comes to be acquired by the client, as well as of the divestments commanded by the client regarding the reconstruction of this portfolio.

18/12/2019 SEI/CVM - 0902407 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=954990&infra_sistem… 2/3

7. The recommendations made in this circular letter are based on recent CVM statements on the matter and seek to present intermediaries with good practices to give concrete form to the adoption of the asset allocation portfolio.

II - HOW INTERMEDIARIES CAN ADOPT THE ASSET ALLOCATION PORTFOLIO

8. For each client profile, the intermediary may define (i) the maximum permitted concentration for each asset available in their asset categories; or also (ii) the global risk of the asset allocation portfolio using adequate and verifiable models.

9. Still for each client profile, the intermediary will define the composition of admissible assets in the client's portfolio, limited by the permitted concentration of each asset.

10. Any new intention, on the part of the client, to acquire an asset will require the intermediary to identify whether the asset composition in the portfolio will exceed the permitted limit for that client profile.

11. If there is a mismatch, the intermediary must adopt the procedure of Article 6 of the regulation, namely, alert the client regarding the unsuitability (Article 6, item I), as well as obtain an express declaration from the client stating that they are aware of the profile unsuitability (Article 6, item II), if the client maintains their willingness to proceed with the operation.

12. The same may occur when the client orders a divestment from their portfolio. In this case, if the asset, due to its respective concentration in the client's portfolio, no longer comes to compose the client's portfolio, a mismatch may also occur, requiring the intermediary to follow the same procedure described above.

13. We also consider it a good practice to alert the client when the global risk of their portfolio is close to the mismatch limit, which can even occur passively without a new operation by the client.

14. Not only that, but the possibility of the portfolio becoming mismatched passively, due to the effects of the market on the quotation of the assets that make up the client's portfolio, will also require the intermediary to act with the same diligence described above.

III - CONCLUSION

15. Acting in this manner, it is expected that the intermediary will act in a sound and diligent manner to mitigate the mismatch of their clients' portfolios, whether in new acquisitions or divestments ordered by the client, or even in a potential passive mismatch.

16. It should be emphasized that the adoption of the asset allocation portfolio must be included in the intermediary's Suitability Policy, either with the appropriate asset compositions per client profile, with their respective limits, or by the global risk of the asset allocation portfolio.

Sincerely,

Document electronically signed by Francisco José Bastos Santos, Superintendent, on 12/17/2019, at 19:34, based on Art. 6, § 1, of Decree No. 8.539, of October 8, 2015.
The authenticity of the document can be verified on the site https://sei.cvm.gov.br/conferir_autenticidade,

18/12/2019 SEI/CVM - 0902407 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=954990&infra_sistem… 3/3 by entering the verification code 0902407 and the CRC code 7A7B2657. This document's authenticity can be verified by accessing https://sei.cvm.gov.br/conferir_autenticidade, and typing the "Verification Code" 0902407 and the "CRC Code" 7A7B2657. Reference: Process No. 19957.001224/2019-86 SEI Document No. 0902407