Comissão de Valores Mobiliários

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Thu Jun 08 17:51:00 BRT 2017

New legal framework of enforcement

Legal reform is in line with CVM Strategic Planning launched on 2013

The Provisional Executive Order nº 784 (MP 784) was published on june 8th 2017, strengthening enforcement proceedings conducted in the ambit of Central Bank of Brazil (BCB) and Securities and Exchange Commission of Brazil (CVM).

The legal reform is aligned with Strategic Planning: Building the 2023 CVM, which, in 2013, highlighted the refinement of enforcement activities as a strategic goal (notedly through the updating of penalties provided in Law nº 6.385/76, which rules Brazilian securities market).

MP 784 aims to ensure:

(i) a greater effectiveness of CVM’s proceedings, fine-tuning enforcement as an effective instrument to provide guidance to securities market participants.

(ii) a larger pool of possible sanctions and regulatory tools to properly and proportionally deal with a number of different irregularities verified in the ambit of securities market.

(iii) conditions to support faster and more effective supervision actions, strengthening CVM’s role in discouraging malpractices.

Concerning CVM, MP 784 provides that convictions involving restriction of rights (i.e., prohibition to trade or act in securities market, suspension or disqualification to hold specified offices) will have immediate effects at first instance. When appealing, the indicted may request CVM to grant suspensive effects to the penalties until final trial.

MP 784 also enables CVM to cumulate penalties provided in Law nº 6.385/76 (i.e., jointly applying a fine and a restriction of rights in a penalty).

The new mechanisms to enhance effectiveness of CVM’s supervision and investigations also include a considerable raise in the maximum amount of injunctive fines (applicable in the event of noncompliance with CVM’s determinations). These fines (daily basis), which were limited to R$ 1.000, can now be applied up to the limit of R$ 100,000 or 1/1000 of the person/entity (or economic group) revenues (verified in the previous fiscal year).

In addition, MP 784 states the possibility of executing leniency agreements with indictees (natural or legal entities) that confess violations to legal or regulatory provisions under the legal mandate of CVM.

“A solid, consistent and timely enforcement allows an important pedagogical effect among securities market participants and, above all, enables investors to feel more protected and willing to invest in securities. Invigorate investigation procedures and make penalties level more proportional to market reality were core measures to reach this goal”. Leonardo Pereira, Executive Chairman.

The limits of pecuniary penalties provided in Law No. 6,385/76, last updated in 1997, were renewed. Now, CVM can apply penalties up to the higher amounts among the following:

(i) R$ 500 million;

(ii) twice the amount involved in the transaction deemed as irregular;

(iii) thrice the amount equivalent to the economic benefits or avoided losses due to illicit act; or

(iv) in the case of legal entities, 20% of the revenues (verified in the previous fiscal year) of such entity (or economic group).

Another relevant progress resulting of MP 784 is the establishment of a securities market development fund (Fundo de Desenvolvimento do Mercado de Valores Mobiliários), comprising funds deriving from the execution of consent decrees.

The Fund will be managed by CVM with the purpose of promoting market development and financial education through CVM projects.  

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