BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (COMISSÃO DE VALORES MOBILIÁRIOS – “CVM”) DISCLOSES CIRCULAR LETTER ON INDIRECT INVESTMENT IN “CRIPTOCOINS” BY INVESTMENT FUNDS
On September 19, 2018, the Superintendence of Institutional Investor Relations (“Superintendência de Relações com Investidores Institucionais” – “SIN”) of the Brazilian Securities and Exchange Commission (“CVM”) issued Circular Letter 11/2018 / “CVM” / “SIN” (“Circular Letter no.11/2018 “), which has the purpose of complementing Circular Letter 1/2018 / “CVM” / “SIN” (” Circular Letter No. 1/2018 “), which consigned the understanding of the “SIN” regarding the possibility and conditions of indirect investment in by investment funds regulated by “CVM” Instruction 555/2014 (“ICVM No. 555/14”).
Circular Letter No. 11/2018 states, however, that administrators, managers and independent auditors must observe certain diligence duties when making such investment by the fund, checking the relevant variables associated with the issuance, management, governance and other characteristics of the “crypto asset”.
As clarified in Circular Letter No. 11/2018, “SIN” is concerned that such investments will end up financing illegal operations involving money laundering, unfair practices, fraudulent operations or price manipulation, among others.
Therefore, in order to avoid such practices, it is recommended that these operations be carried out through trading platforms, which should be subject to the supervision of regulatory agencies that are known to be able to prevent illegal practices.
“SIN” is concerned with the pricing of assets at fair value, especially when it comes to less liquid assets, which may lead to an undue transfer of wealth among the fund’s shareholders, especially in open-end funds.
As there is no consensus or internationally accepted model for calculating the fair value of this type of investment, Circular Letter No. 11/2018 highlights the importance of the invested “crypto asset” liquidity compatible with the periodic pricing needs of the fund, as determined for the funds regulated by “ICVM” No. 555/14.