OREANDA-NEWS. August 04, 2015. Fitch Ratings has published a special report on the main changes to the new asset management regulatory framework enacted by the Brazilian Securities and Exchange Commission (CVM) and its consequent impacts. The new framework simplifies the relationships among agents, increases transparency and, above all, modernizes the regulatory environment following the industry's evolution and increasing complexity.

A modification greatly expected by the market and introduced by the new law was the easing of limits for investments abroad. While still making up a small portion of industry assets under management (AUM), recent exposure to international investments has expanded significantly. Fitch expects this change to be beneficial for the development of the Brazilian asset management industry, given the greater ability of investors to increase their portfolio diversification, both geographically and through new asset classes.

One of the aspects that generated uncertainty among the market participants refers to changes in service providers' compensation. Pursuing higher transparency and alignment with international practices, the rule prohibits receiving any remuneration which might affect the independent decision-making of portfolio managers. This measure directly affects the kickback or 'rebate' paid by invested funds to distributors. Exceptions are only in cases where the regulator sees no conflicts of interest, such as for mirror-funds or for participants classified as professional investors. These changes directly affect some product structures, such as the Fund of Funds. In some of these cases, the products are only profitable upon receipt of the kickback.

The instruction also outlines more clearly the responsibilities between fund administrators and managers. Furthermore, it adds new manager responsibilities, such as related to portfolio liquidity and concentration limits, in addition to clarifying the rules that must be observed in relation to co-managed portfolios.

Other points of evolution noted in the report relate to the rationalization of documents and information on funds, increase of investor interaction possibilities via electronic channels, and adequacy of investor classification categories.

Fitch expects these changes to be positive and pave the way for further developments in the Brazilian investment fund industry. However, challenges such as the level of information and expertise related to investments in global assets and the cost increase related to regulatory obligations will demand improvements to the process. The special report 'ICVM 555: The New 409 - Changes to the Brazilian Fund Sector', of July 31, 2015, is available at www.fitchratings.com or by clicking on the link.