Circular Letter CVM/SMI/SIN 03/2018

29/11/2018 SEI/CVM - 0641894 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=681864&infra_sistem… 1/5 SECURITIES AND EXCHANGE COMMISSION OF BRAZIL (CVM) 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. 3/2018-CVM/SMI/SIN Rio de Janeiro, November 28, 2018.

To
Directors responsible for compliance with the rules established by CVM Instruction No. 505/11 and To Directors responsible for compliance with the rules established by CVM Instruction No. 301/99

Subject: Simplified registration of non-resident investors.
Situation of non-execution of the contract with the foreign intermediary.

Dear Sirs/Madams,

This Circular Letter aims to guide the Brazilian intermediary on how to proceed when adopting the simplified registration for non-resident investors, a prerogative contained in Art. 9 and following of CVM Instruction No. 505/11 (ICVM 505), in the situation where the information necessary for the full knowledge of the non-resident investor has not been supplied by the foreign intermediary.
As emphasized in Art. 9 of ICVM 505, among other points, the contract entered into between the Brazilian intermediary and the foreign intermediary must include the obligation of the foreign intermediary to present to the Brazilian intermediary the duly updated registration information, capable of meeting the requirements present in CVM regulations regarding client registration within the securities market, specifically CVM Instruction No. 301/99 (ICVM 301).

29/11/2018 SEI/CVM - 0641894 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=681864&infra_sistem… 2/5

Notwithstanding, and without prejudice to future normative improvements to be implemented in this tool upon the conclusion of the revision process of ICVM 301 (see Public Hearing Notice No. 09/16), the "Know Your Customer" (KYC) policy, considered one of the pillars of the prevention of money laundering and terrorist financing – PLDFT, must be understood in practice as the adoption of a minimum of 4 (four) distinct steps, namely:

3.1 The identification of the client, at which moment there is at least certification that they indeed possess an R.G. number or respective CNPJ registration (in the case of non-resident investors, regardless of the use of simplified registration, this information must also include the CVM code number);

3.2 The collection of all registration information, a topic currently regulated by Annex I of ICVM 301;

3.3 In line with item I of Art. 3º-A of ICVM 301, the continuous conduct of due diligence aiming to (i) verify the truthfulness of the collected information, (ii) collect supplementary information (when applicable), as well as (iii) keep them updated, in the event of detection of a new fact that justifies the anticipation of the 24 (twenty-four months) period provided for in § 2º of Art. 3 of ICVM 301.

3.4 In the wake of said due diligence, evidence efforts to identify the beneficial owner, when applicable. For the purposes of this Circular Letter, beneficial owner is considered to be a natural person or group of natural persons who effectively, directly or indirectly, possess control or significantly influence a natural person client, legal entity, or other legal structure in whose name a transaction is being conducted or from which it benefits. Furthermore, significant influence is presumed when the natural person holds more than 25% (twenty-five percent) in the cases covered by items II and III of Annex I of ICVM 301.

3.4.1 As a first step for the adequate conduct of these due diligence procedures, it will be the responsibility of the Brazilian intermediary to initially identify under which item of § 1º, of Art. 1º, of Annex 1, of ICVM 560/15 the referred foreign client is classified.

3.4.2 Subsequently, the due diligence must identify situations where it is possible to individualize a natural person or a group of natural persons as effective beneficial owners, as well as evidence the efforts to identify them.

If on one hand, the adoption of simplified registration for non-resident investors effectively allows the Brazilian intermediary to possess reduced registration information, on the other hand it does not exempt it from conducting the routines provided for in items 3.1, 3.3, and 3.4 highlighted above. Specifically regarding item 3.3, it is highlighted the importance of gathering information for a better understanding of the income or revenue, as well as the assets of that non-resident investor, in situations where this is applicable.

29/11/2018 SEI/CVM - 0641894 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=681864&infra_sistem… 3/5

Such due diligence must be permanently conducted during the commercial relationship of the Brazilian intermediary with the non-resident investor, and do not depend on prior demand from CVM or a self-regulatory body to be implemented.
Although the foreign intermediary may be considered the main source of the information to be collected, there is no restriction that supplementary inputs be obtained from third parties, if the data required by CVM rules are not really made available to the Brazilian intermediary. Therefore, other information may, eventually, be collected from independent sources, as well as effectively used, provided they prove useful and reliable as substitutes or good approximations for the "Know Your Customer" process.
In this context, if the necessary information is not provided by the foreign intermediary, or even cannot be obtained from reliable third parties, and this gap prevents the full knowledge of the client classified as a non-resident investor, the Brazilian intermediary must adopt the necessary measures to, after analysis of the concrete situation, and considering all situations provided for in the items of Art. 6 of ICVM 301, evaluate the relevance and opportunity of communication to COAF, in accordance with Art. 7 of the same Instruction, without prejudice to the adoption of other measures, such as the evaluation by senior management regarding the maintenance of the commercial relationship with that non-resident investor, if applicable.
In the event that the analysis of the fact culminates in a communication of a suspicious operation to the Segment of CVM in COAF, we reiterate the terms of Circular Letters 5/2015-CVM/SMI and 5/2015-CVM/SIN, namely:
In this line, each report should be worked on individually and justified in the most detailed way possible, and it should contain, whenever applicable, the following information:
Date of start of client relationship with the institution; Date of last registration update; Value declared by the client of income and assets on the date of their last registration update; Operational modalities performed by the client that led to the identification of the atypical event, if applicable; Value of the operational limit during the period in which the operations subject to the communication were carried out;

29/11/2018 SEI/CVM - 0641894 - Circular Letter https://sei.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=681864&infra_sistem… 4/5

Within the scope of the "Know Your Customer" policy, any supplementary information obtained during the application of item I of Art. 3º-A of CVM Instruction 301/99; Data that allow identifying the origin and destination of the resources that were the subject of the communicated client's business, and of its counterparty, if applicable; Additional information that may better explain the suspicious situation identified (without prejudice to the description of the item of Art. 6 of CVM Instruction 301/99 that relates to the atypical event detected), that is, the reason why the event was considered atypical by the institution.

For all these reasons, it is fundamental to understand that the factual situation of the impossibility of identifying the beneficial owner of a client, foreign or not, must always be based on evidence that, within the limits of the intermediary's duties, the necessary due diligence was conducted for this purpose.
And that the lack of knowledge of the beneficial owner of the foreign client is not, by itself, a sufficient element for sending the suspicious communication to COAF. The analysis that will guide the decision to forward or not the report to COAF must also contemplate the terms of Circular Letters 5/2015-CVM/SMI and 5/2015-CVM/SIN, as well as the other situations provided for in the items of Art. 6 of ICVM 301.
We emphasize that further clarifications related to the terms of this Circular Letter may be obtained by contacting the Superintendence of Market Relations – SMI and the Superintendence of Institutional Investor Relations - SIN, including through the electronic addresses smi@cvm.gov.br or sin@cvm.gov.br.

Sincerely,

Document electronically signed by Francisco José Bastos Santos, Superintendent, on 11/28/2018, at 12:48, based on Art. 6º, § 1º, of Decree No. 8.539, of October 8, 2015.
Document electronically signed by Daniel Walter Maeda Bernardo, Superintendent, on 11/28/2018, at 16:50, based on Art. 6º, § 1º, 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, informing the verifier code 0641894 and the CRC code B3A0F49F.
This document's authenticity can be verified by accessing https://sei.cvm.gov.br/conferir_autenticidade, and typing the "Verifier Code" 0641894 and the "CRC Code" B3A0F49F.

Circular Letter CVM/SMI/SIN 03/2018

Lineage: In force