Circular Letter CVM/SMI-SIN 01/2017 Regarding Sharebookkeeping under CVM Instruction 582/16

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. 1/2017/CVM/SMI-SIN Rio de Janeiro, January 31, 2017.
To investment fund administrators

Subject: Sharebookkeeping - CVM Instruction No. 582/16.

Dear Sir/Madam,

1. On 11/22/2016, CVM Instruction No. 582/16 was published, which amended Article 79, Paragraph 5 of CVM Instruction No. 555/14. The amendment eliminated the authorization granted to financial institutions administering investment funds to provide sharebookkeeping services for the administered funds, even without registration with the CVM as a bookkeeper. Thus, by virtue of the main text of Article 79 of Instruction 555, all investment funds must have the services of securities bookkeepers authorized according to the rules of CVM Instruction No. 543/13.

2. Instruction 582 determines in its Article 3, main text, that administrators who are not yet authorized to act as bookkeepers under CVM Instruction 543 must request authorization by 05/22/2017 (six months after its entry into force, which occurred on 11/22/2016). Furthermore, the regulation, in its Article 3, Paragraph 2, provides an adaptation period to Instruction 543 for such administrators. This period is twelve months from the date of publication of Instruction 582 and ends, therefore, on 11/22/2017.

3. Thus, administrators who do not request authorization to provide securities bookkeeping services by 05/22/2017 must contract a duly authorized bookkeeper for their funds starting from this date, in accordance with Article 78, Paragraph 5, Item V of Instruction 555. Administrators who request registration must comply with adaptation measures until 11/22/2017 so that it is not necessary to hire a qualified service provider.

4. It is worth noting that, although Instruction 582 mentions that the authorization request must be made with all documents ordinarily required from institutions intending to act as securities bookkeepers, some peculiarities related to the administrator's status must be taken into consideration.

5. First, it is important to mention that institutions that complied with the adaptation schedule to CVM Instruction No. 543 as provided in item 5.5 of CIRCULAR LETTER/CVM/SMI/No. 2/2015 must submit the authorization request by 05/22/2017, attaching only an update of the information previously provided, where applicable.

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

6. In other cases, a first point to consider is the requirement set forth in Item IX of Annex 6 of Instruction 543, regarding the presentation of a report on the description, project, and operational effectiveness of controls (Type 1 report). In principle, by requiring a Type 1 report, Instruction 543 intends for an evaluation of the bookkeeper's controls to be conducted prior to the start of its activities. Thus, there is a peculiar situation regarding investment fund administrators who already provide sharebookkeeping services. Although they already develop the bookkeeping activity in practice, these institutions do so based on a different regulatory framework than that provided in Instruction 543.

7. Not surprisingly, the CVM Collegiate Body, when publishing Instruction 582, maintained the requirement to present the aforementioned report in the authorization request. Thus, in the case of institutions that do not have internal controls compatible with the requirements of Instruction 543, the Type 1 report must address the description of controls to be implemented during the adaptation period to Instruction 582.

8. However, the perception of these Superintendencies is that some institutions may already have a set of controls in use that adhere to the requirements of Instruction 543. In these cases, it is considered admissible, and even desirable, that a Type 2 report be presented, in conformity with Article 29, Item II of Instruction 543, instead of the Type 1 report, by the end of the adaptation period (11/22/2017). In this hypothesis, it is understood that the report must cover a one-year period of operations, not needing to adhere to the calendar year (the report can be presented on 10/01/2017, for example, covering the period from 07/01/2016 to 06/30/2017). It is worth noting that in April 2018, when the ordinary delivery of the aforementioned report is due, the period covered by the report presented in the authorization request may be disregarded in the new report (in the mentioned example, the new report could cover only the period from 07/01/2017 to 12/31/2017).

9. Among the other documents mentioned in Annex 6 of Instruction 543, it is understood that the contract model mentioned in Item VII may be waived in the case of administrators who intend to provide bookkeeping services only for their own funds. In these cases, by reading Article 79 of CVM Instruction No. 555, the administrator, being also authorized to act as a bookkeeper, does not need to hire a provider, making the document therefore unnecessary.

10. Although Instruction 543 does not provide for the granting of authorization to a bookkeeper who does not intend to provide services to third parties, it is considered appropriate, at this point, to apply by analogy the decision taken by the CVM Collegiate Body on 06/21/2016 regarding securities custodians (Process SEI 19957.003593/2016-61).

11. Furthermore, by the same logic, in addition to the contract model being unnecessary upon the request for authorization, the provisions of Articles 11 and 12 of Instruction 543 do not apply to institutions that only act in the bookkeeping of shares of funds administered by them. Still in this sense, in the absence of a contract, Article 25 of Instruction 543 must be interpreted in light of the obligations regarding sharebookkeeping imposed on investment fund administrators by Instruction 555.

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

12. In addition to the clarifications regarding the report the institution intends to present, according to the reasoning described in item 8 above, the impossibility of presenting any of the documents and information required by Instruction 543 must be argued at the time of the authorization request and must be the subject of justification by the requesting institution, to be supplied by 11/22/2017, the final deadline for adaptation provided in CVM Instruction No. 582.

13. It is also worth noting that, due to what Article 7, main text and sole paragraph, of Instruction 543 provides, the administrator, when requesting authorization to act as a bookkeeper, must make clear whether they intend to act only in the bookkeeping of investment fund shares or whether they are requesting authorization to provide bookkeeping services for any securities. If the intention is broad authorization, the documentation presented must demonstrate compatible capacity. In this case, the logic regarding the Type 1 report developed in item 8 above ceases to apply, as, since it is a new activity for the institution, there is no question of substituting the Type 1 report with a Type 2 report.

14. Finally, it is recommended that all necessary documentation for the request be sent in digital format through the document protocol available on the CVM website (http://sistemas.cvm.gov.br/?SAC, option “Document Protocol”), to the attention of GME - Market and Electronic Systems Management. Any doubts related to the authorization request or the adaptation process can be clarified with GME via the address gme@cvm.gov.br.

Sincerely,
Digitally signed by
Francisco José Bastos Santos
Superintendent of Market and Intermediary Relations Digitally signed by Daniel Walter Maeda Bernardo Superintendent of Institutional Investor Relations