Joint Circular CVM/SIN/SRPC No. 06/2023

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares – Centro – Rio de Janeiro - RJ – CEP: 20050-901 – Brasil Tel.: (21) 3554-8686 - www.cvm.gov.br Joint Circular No. 6/2023/CVM/SIN/SRPC Rio de Janeiro, July 10, 2023

To
Social Security Self-Management Regimes ("RPPS") and investment fund service providers

Subject: Clarifications on the application of passive disqualification rules provided for in CMN Resolution No. 4,963, of 2021, regarding the credit risk classification of assets present in investment funds with RPPS resources and the deadline for divestments that may affect the allocation decisions of other investors.

1. CMN Resolution No. 4,963, of 2021, revoked CMN Resolution No. 3,922, of 2010, and had the objective of updating and adapting the rules related to the application of resources by Social Security Self-Management Regimes (RPPS). Article 29 of this normative act provides that the Secretariat of Social Security, now the Secretariat of Self-Management and Complementary Regimes of the Ministry of Social Security, and the Securities and Exchange Commission (CVM), shall issue procedural regulations for its compliance.

2. Furthermore, CMN Resolution No. 4,963, of 2021, established the requirement that assets of investment funds invested by RPPS must have low credit risk and included an exhaustive list of involuntary disqualification situations that allow the temporary maintenance of RPPS investments for up to 180 days, provided that it is proven that the disqualification occurred unintentionally and that divestment would entail greater risks for the fulfillment of the established principles, as follows:

Art. 27. The social security self-management regimes may keep in their portfolio for up to 180 (one hundred and eighty) days the investments that become disqualified with respect to this Resolution, provided that it is proven that the disqualification resulted from involuntary situations, for which they did not cause, and that their divestment would occasion, compared to their maintenance, greater risks for the fulfillment of the principles provided for in Article 1 of this Resolution.

§ 1º For the purposes of the provision in the caput, the following are considered involuntary situations:
I - entry into force of amendments to this Resolution; II - redemption of investment fund shares by another unitholder, in which the social security self-management regime does not make new contributions; III - appreciation or depreciation of financial assets of the social security self-management regime; IV - reorganization of the investment fund structure due to merger, spin-off, transformation, or other decisions of the general meeting of unitholders, after the investments made by the managing unit of the social security self-management regime; V - occurrence of risk events that prejudice the formation of reserves and the evolution of the patrimony of the social security self-management regime or when resulting from a review of the funding plan and the segregation of the insured mass of the regime; VI - investments made in the acquisition of shares of an investment fund intended exclusively for qualified or professional investors, in case the social security self-management regime ceases to meet the criteria established for this categorization in specific regulation; and VII - investments made in financial assets that cease to observe the requirements and conditions provided for in this Resolution.

...

Art. 7º ...
§ 5º Those responsible for the management of the social security self-management regime resources must certify that the rights, titles, and securities that compose the portfolios of the investment funds referred to in this article and their respective issuers are considered to have low credit risk.

3. These modifications aimed to bring clarity and legal certainty, by clarifying the circumstances in which disqualification may occur, and establishing guidelines for the action of RPPS managers, since CMN Resolution No. 3,922, of 2010, provided for passive disqualification only resulting from the appreciation or depreciation of assets.

4. Since it clarifies the situations that will be considered as passive disqualification and establishes a deadline of 180 days for the adoption of measures by RPPS managers, in principle, the deadline provided for in the caput of Article 27 of CMN Resolution No. 4,963, of 2021, which determines the requalification within 180 days of investments for involuntary disqualifications, should always be complied with.

5. However, recently, the company Lojas Americanas S/A disclosed material facts starting from January 11, 2023, whose consequence was significant losses in its market value. Subsequently, the company issued a relevant communication to the market informing that it filed for Judicial Recovery. Within the scope of investment funds and in line with applicable regulation, such assets suffered immediate mark-to-market of their value, which impacted considerably and negatively the share values attributed to them.

6. Thus, RPPS that have investment funds with credit assets issued by the company Lojas Americanas S/A have come to be in a situation of disqualification with respect to item VII of Article 27 c/c with § 5º of Article 7 of CMN Resolution No. 4,963, of 2021, due to the high credit risk that these assets have come to have.

7. However, two issues need to be analyzed: i) interpretation regarding the moment when the downgrade of the private financial asset present in investment funds with RPPS resources must be verified, for the application of passive disqualification rules; and ii) the losses implied by the imposition of divestment to RPPS within the regulatory deadline of 180 days.

8. Regarding the first issue, when analyzing the normative set, it is possible to observe that Article 27, combined with § 5º of Article 7 of CMN Resolution No. 4,963, of 2021, tacitly determine that the verification of credit risk must be done continuously, not limited only to the moment of investment. This occurs due to the obligation to requalify investments that become non-compliant with the mentioned rules at any time. Furthermore, item IV of § 1º of Article 1 itself establishes that those responsible for the management of RPPS must adopt rules, procedures, and controls aimed at observing the provision of this Resolution.

9. The CMN Resolution, by emphasizing the criteria for monitoring investments, makes it clear that the verification regarding compliance with the rules must be carried out constantly, not restricted to the moment of initial investment. The concept of passive disqualification, in turn, refers to an investment that was in compliance with the rule at the time of application, but that, due to involuntary circumstances, that is, outside the control of the RPPS, ceased to meet the requirements of the Resolution, requiring, therefore, diligent action on the part of the self-management regime, in accordance with Article 27 of CMN Resolution No. 4,963, of 2021, in order to reestablish compliance with the rules established therein.

10. Thus, in the case of RPPS investments in these assets through investment funds, the start date of the 180-day period must be from the moment when the fiduciary administrators of these funds recognized the change in the credit quality level of this issuer.

11. As for the second issue, the imposition of divestments by RPPS within the 180-day period, as established in Article 27 of CMN Resolution No. 4,963, of 2021, may lead the invested fund to suffer relevant fair liquidity impact at a moment of stress, in addition to having an impact on the allocation decisions of other investors in these funds that have RPPS as unitholders, exercising a pro-cyclical effect that may increase RPPS losses.

12. It is important to consider that, in the specific case related to RPPS that have investment funds with credit assets of the company Lojas Americanas S/A, the possibilities of losses are already duly priced by the fund service providers, which leaves little or no advantage in carrying out divestment within a fixed period, which, thus, could only result in adverse consequences for unitholders.

13. Moreover, it is worth remembering that the investment fund managers involved, in light of their fiduciary duties provided for in the CVM regulation applicable to them, are already making the best efforts required by the circumstances for the recovery of credit, in the interest of both the RPPS unitholders, as well as the other unitholders who invest in these same funds.

14. Thus, in this context, as it is an atypical and singular situation, and the expectation that the recovery process will last for a period longer than that provided for in the regulation for ordinary requalification, it is justified to authorize these RPPS to keep such funds in their portfolio for a period longer than the 180 days established, taking into account the losses that may arise with early divestment.

15. Therefore, the extension of the deadline for maintaining these specific disqualified funds in the RPPS portfolio beyond the 180 days is a justified measure based on the defense, by these unitholders, of their best interests in the circumstances. This extension applies to specific funds, whose portfolios were affected by the downgrade.

16. It is important to emphasize that the caput of Article 27 of CMN Resolution 4,963/2021, by establishing the 180-day deadline for the divestment of assets that became disqualified with respect to the guidelines of this resolution, confers upon the RPPS manager the prerogative to make the decision on the most appropriate moment to exit these assets. By establishing a specific deadline for divestment, CMN Resolution No. 4,963, of 2021, grants the RPPS manager a time space to carefully evaluate and analyze market conditions, considering the potential risks and impacts resulting from divestment. This deadline allows the regime manager to carry out in-depth studies and analyses, as well as seek alternatives that minimize losses and maximize results.

17. In addition, it is the responsibility of those responsible for the management of RPPS to adopt control measures to define the best moment for divestment, observing what is required by Article 125 of Ordinance MTP No. 1,467, of 2022, according to which the risks of resource investments must be identified, analyzed, evaluated, controlled, and monitored "through formalized procedures and controls".

18. Finally, it is noted that the Securities and Exchange Commission and the Secretariat of Self-Management and Complementary Regimes of the Ministry of Social Security, in accordance with Article 29 of CMN Resolution No. 4,963, of 2021, and the Technical Cooperation Agreements published on December 24, 2015, and December 16, 2020, have, over the last few years, intensified the exchange of information and the execution of coordinated supervision actions of the segments under their responsibility, aiming to achieve greater efficiency and effectiveness in their respective areas of operation.

Sincerely,

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

Digitally signed by
PAULO ROBERTO DOS SANTOS PINTO
Secretary of Self-Management and Complementary Regimes