OREANDA-NEWS. One of the effects of the Brazilian Securities and Exchange Commission's (CVM) Instruction 558/2015, that becomes effective on Oct. 1, is a possible increase in costs for asset managers resulting from additional requirements on providing public information, and improving the rules of conduct and internal controls, according to Fitch Ratings. In Fitch's opinion, despite the cost increase, the new regulation also brings positive aspects regarding transparency and new possibilities to the fund distribution segment.

Some changes introduced by the new regulation that are worth highlighting are: new requirements on the disclosure of periodical and eventual information, improvements to the rules of conduct, publication of risk policies, improvement of internal controls, and authorization for asset managers to distribute their own managed funds .

With regard to additional disclosure, one of the main changes is the need to fill in a 'Reference Form,' to be published on the Internet and updated annually. Such forms will include detailed information about the company and its history, human resources, current auditors, financial condition, fees received from clients, operational structure and compliance policies, among other information. In addition to the Reference Form, asset management companies will have to publish information on the Internet such as the company's code of ethics, risk management policies, as well as internal control procedures, among other manuals and policies.

In Fitch's view, these new measures will demand improvements to the asset managers' processes and to the back-office, middle-office and compliance structures. Fitch notes that the costs for these improvements would be more difficult to absorb for smaller niche managers. However, the new regulation will increase the Brazilian fund industry transparency, which was one of CVM's main goals while reviewing the regulation and which Fitch views positively.

On the other hand, the authorization granted to asset management companies to distribute the funds which they manage could result in a more competitive fund distribution market. Even with over 500 asset managers in operation in Brazil, some important distribution channels such as retail, for example, are highly concentrated, mainly among the large banks. Such permission opens more possibilities to access these channels and can expand the product offering available to retail investors.

In Fitch's view, these conditions will increase the minimum levels of scale necessary for the feasibility of funds and portfolio management businesses but, at the same time, they should allow increased competition among the consolidated participants which would benefit investors.

These and other consequences of the new rule are analyzed in the special report 'ICVM 555, the 'New 409': Changes to the Brazilian Fund Sector', published July 31, 2015, available at www.fitchratings.com.br and www.fitchratings.com.