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Category: Capital markets

As part of its work of revision and consolidation of regulatory acts, the Brazilian Securities and Exchange Commission (CVM) promulgated Resolution 62, on January 19 of this year, fully replacing the former CVM Instruction 8/79, which dealt with unlawful acts in the securities market. Maintaining the lean wording of the instruction repealed, the new resolution does not bring in changes of merit, but only adjustments to the wording that became effective last February 1st.

Without conceptual changes, the resolution reiterates the provisions of the previous rule by providing for the prohibition on creating artificial conditions of demand, supply, or price of securities, price manipulation, fraudulent transactions, and use of unfair practices.

Since the origin of the regulatory act, one opted for a description of the conduct that resembles open criminal acts, in relation to which it is up to the interpreter of the law, as an integrating agent of the rule, to classify behaviors and artifices that, despite not being expressly described, represent conduct that fits within the prohibition via interpretation.

Over the years, many have questioned the need for greater detail on the crimes described in Instruction 8/79, but the broadness of the wording is part of the regulatory technique with the objective of ensuring flexibility to the CVM's sanctioning action and its adaptation to any changes and modernization of the characterization of unlawful acts.

Each of the prohibited practices is discussed briefly below.

Creating artificial demand conditions

According to the resolution, artificial demand conditions are created "as a result of trades by which their participants or intermediaries, by malicious action or omission, cause, directly or indirectly, changes in the flow of orders to buy or sell securities. In short, the following are elements for the establishment of the unlawful act:

• the execution of trades that change the order flow; and
• the agent's malicious action or omission.

Unlike price manipulation, there is no need to induce third parties to trade. It suffices to create any process that maliciously changes the order flow.

One of the known forms of artificial demand creation is called money pass. The agent's objective is to take advantage of the organized securities market to obtain some benefit not from the trade itself, but from the disguise of a certain factual situation supported by the trading of the asset. In such cases, it is common for agents to try to mask money laundering (creation of profit) or tax planning (creation of loss).

Unlike price manipulation, in which the agent uses the order book to make the trade with an advantage, in money passing the advantage is not related to the trade itself, but to the result it produces for the agent. The harm to third parties is not so evident, but depending on the magnitude of the practice, it is possible that the asset might have its quotation altered with the consequent inducement of third parties to trade with it.

Price Manipulation

Subsection II of article 2 of the new resolution describes price manipulation as the "use of any process or artifice intended, directly or indirectly, to raise, maintain, or lower the price of a security, inducing third parties to buy or sell it.” The following are elements for the establishment of the unlawful act:

• the use of a process or artifice;
• the intention to affect the quotation of securities; and
• the influence on third parties to trade with the securities.

Two recognized forms of price manipulation are  layering and spoofing practices. In both, the agent issues buy and sell orders for an asset, which, by the dynamics of the organized market, are registered on opposite sides of the order book. The objective is to arbitrate the value of the asset and complete the trade at the price created by the agent, and not at the asset price under market conditions. Such practices create an unrealistic price, inducing third parties to trade in assets whose values have been manipulated. They were recognized as irregular by the joint committee in CVM PAS 19957.006019/2018-26 and RJ 2016/7192.

In the first case, of layering, the CVM found that the accused inserted, without legitimate economic motivation, orders that he did not intend to execute just to create a "false impression of supply and demand". As a result, there was pressure from the buyer or seller side that led third parties to trade the securities based on the false condition created by the accused. To find willful misconduct, the reporting judge highlighted the pattern of the offers and the recurrence of the conduct. The agent was sentenced to pay a fine equivalent to one and a half times the economic advantage obtained, totaling more than R$2.2 million. In the second case mentioned, of spoofing, the accused inserted buy or sell offers with large lots of shares and options that were cancelled thereafter, in a short period of time, in order to attract counterparties. A monetary fine totaling approximately R$2.3 million was imposed on the accused.

Fraudulent Transaction

It is the transaction that uses "a ruse or artifice intended to induce or maintain third parties in error, with the purpose of obtaining an unlawful advantage of an asset nature for the parties to the transaction, for the intermediary, or for third parties. It is established based on the following elements:

• use of a particular artifice;
• intent to mislead third parties in securities transactions; and
• objective of obtaining an asset advantage.

It is very similar to the misappropriation provided for in article 171 of the Penal Code, the fraudulent transaction has as its main objective to maintain or induce third parties into error.

In PAS CVM SP 2014/0465, a fraud modality known as churning was discussed, in which people with control of third-party funds conduct a high volume of trades on behalf of a client in order to generate fees and commissions for themselves or third parties. In this case, the investor, having established a relationship of trust with the person responsible for his funds, is misled and ends up authorizing transactions that are not in his best interests. The accused was ordered to pay a monetary fine of R$250,000.

Unfair practice

Subsection IV describes an unfair practice as one "that results, directly or indirectly, actually or potentially, in treatment of any party in securities trading that places it in an unbalanced or unequal position vis-à-vis other participants in the transaction.” According to the CVM's case law, the following are necessary elements for the establishment of the unlawful act:

• the securities transaction;
• the unbalanced or unequal position of the party to the transaction in relation to the market; and
• the improper nature of such imbalance (CVM administrative sanctioning proceedings CVM SP 2017/315, CVM 03/2015, and CVM 04/2010).

One recognized development is so-called front running. In Portuguese translation, the practice represents the act of "running ahead" and occurs, for example, when a broker has access to information about a client's order and tries to take advantage of this by making an early move. Given the characteristics of the unlawful practice, the agents that are usually most likely to commit the practice are brokers, managers, analysts, and other agents that manage funds.

The unfair practice is also related to the prohibition on insider trading, which is regulated by Law 6,404/1976, the Securities Law, and CVM Resolution 44/2021, which prohibit trading based on material information not disclosed to the public. The rules establish penalties of a civil, criminal, and administrative nature and include preventive and repressive rules.

In practice, the difference between the two situations is the fact that the agent of insider trading is usually present at the origin and formation of the inside information, while in front running and other unfair practices, the agent usually receives the information. In the CVM's case law, however, the accusation of insider trading cases has already been based on the specific paragraph of Instruction 8/79.

All the offenses mentioned are considered serious by the Securities Market Law, and the conduct can be punished with the penalties of temporary disqualification, suspension of authorization, or registration, and temporary prohibition, in addition, of course, to fines and warnings.

Category: Banking, insurance and finance

Nei Zelmanovits, Bruno Racy, Adriano Schnur, Matheus Wassano Ishigaki and Antonio Mesquita

Aligned with the trend of promoting the reduction of obstacles to exports and imports of goods and services and promoting productive investments and the free circulation of capital, the new legal framework of the foreign exchange market, established by Law 14.286/21 (New Foreign Exchange Law), consolidates several of regulations on the subject, also changing various provisions and revoking several regulations in this regard.

In this article, we provide a summary of the main changes that should be implemented once the New Foreign Exchange Law comes into force, which will take place on December 30, 2022, one year after the date of its publication. That being said, we do not intend to dissect all the changes promoted by the upcoming law, but to describe those with the greatest potential of impact and their possible repercussions. Please note that some of the provisions  listed below are not self-applicable and shall be implemented in accordance with the relevant regulations and regulatory requirements established by the National Monetary Council (CMN) and the Brazilian Central Bank (Bacen).

Payment in foreign currency (Article 13)

Previously consolidated in Decree-Law 857/69 and Law 8.880/94, the events in which the fixing of payment in foreign currency of enforceable obligations in Brazil were admitted was expanded by the New Foreign Exchange Law.

In addition to those historically provided for in the preceding regulations (e.g. in the case of assignment, transfer, delegation, assumption or modification of obligations arising from export contracts or which in a way involve a non-resident creditor or debtor), new events have been included, such as:

• contracts executed by exporters in which the counterpart is an entity responsible for granting a concession, permission, authorization or lease in relation to the infrastructure sectors; and
• contracts relating to indirect export, in the terms of Law 9,529/97.

The CMN may authorize the stipulation of payments in foreign currency, if this measure has the potential to mitigate the foreign exchange risk or increase the efficiency of the business. The payments in foreign currency of enforceable obligations in Brazil which do not comply with the new regulation shall be considered null and void in full, as provided for in the previous regulations.

The new events are well-known aspirations in the market. By expressly allowing the indexation of contracts related to indirect export, the new regulation seeks to lay the foundation for the ascension of a market of dollarized operations that may be exploited by companies operating in the export chain.

By determining that contracts executed by exporters in which the counterpart is an entity responsible for granting a concession, permission, authorization or lease in relation to the infrastructure sectors may be paid in foreign currency, the New Foreign Exchange Law eliminates doubts and mitigates risks on an ample range of transactions currently carried out, especially in the energy sector, with Power Purchase Agreements (PPAs) indexed to the US dollar, which constitute a booming market in recent years.

Export (Article 26)

The New Foreign Exchange Law also eliminated the restriction on the use of proceeds held abroad. According to the new law, Brazilian exporters continue to have the prerogative of maintaining proceeds arising from their exports abroad. However, the application of such proceeds is no longer limited to the exporter's own investments, financial applications or obligation payments. In the same direction, the new law also eliminates the prohibition of using these resources for loan or mutual of any nature apply.

Application of funds raised in Brazil and abroad (Article 15)

As an indication of a major change in the legal regime in force since the mid-1960s, the New Foreign Exchange Law expressly provides for the possibility of financial institutions and other institutions authorized to operate by Bacen to allocate, invest and destinate, for credit and financing operations, locally and abroad, the funds raised in Brazil and abroad. This provision is not self-applicable and shall comply with the relevant regulations and regulatory and prudential requirements established by CMN and Bacen to be valid. The expectation generated by such disposition is that Brazilian financial institutions may allocate funds raised in Brazil to credit and financing operations abroad, respecting the specific activities of each institution.

Payment orders in Brazilian Reais (article 6)

In another change in relation to the former legislation, the New Foreign Exchange Law stipulates that banks authorized to operate in the foreign exchange market may send payment orders in Brazilian reais from third parties abroad, by means of accounts in Brazilian reais held in banks controlled by institutions domiciled or based abroad and that are subject to financial regulation and supervision in their country of origin. Such rule is not self-applicable. For it to be effective, the terms of the regulation to be edited by Bacen shall be complied with. Previously, this matter was discussed in Article 126 of Circular 3,691/13, which limited this possibility to residents, individuals domiciled abroad temporarily in the country and to Brazilians residing or domiciled abroad.

This measure aims to encourage the use of the real in international transactions, since it allows the receipt, from third parties abroad, of payment orders from accounts in Brazilian reais held in Brazil through foreign banks. It will be important to develop the international banking correspondence market of the real and will even allow foreign banks directed to Brazilian companies or their partners abroad, to diversify the offer of products and services in Brazilian reais, even those related to investments in the country and the settlement of obligations directly in national currency.

Entry and exit of national and foreign currency from Brazil (Article 14 and Article 19)

In order to expand the flexibility in the flow of resources between individuals, with the creation of a foreign exchange peer-to-peer market up to the transactional limit and conditions mentioned, the limit of cash that each individual can bear when leaving or entering Brazil was increased from R$ 10,000 to US$ 10,000, or its equivalent in other currencies. The New Foreign Exchange Law also admits the purchase and sale of foreign currency in cash, in the amount of up to US$ 500 (or equivalent), in an eventual and non-professional manner, between individuals.

Private compensation (Article 12)

The New Foreign Exchange Law provides authorization for the private compensation of credits or amounts between residents and non-residents. However, once again, this regulation is not self-applicable, as this possibility is restricted to the events regulated by the Bacen. Such measure takes down the previous prohibition on private compensation  derived from Decree-Law 9,025/46.

Prevention of money laundering and combating terrorism (Article 4, §1)

Aligned with the imperatives of prevention and opposition against money laundering and terrorist financing, the New Foreign Exchange Law provides for the adoption of measures and controls aimed at preventing the execution of transactions in the foreign exchange market for the practice of illicit acts, such as money laundering and terrorist financing, adopting precautions regarding enrollment, registration and monitoring, in compliance with the regulations to be edited by Bacen.

The inclusion of money laundering control measures and the fight against terrorism follow the market patterns pursued by financial institutions, which use very strict controls when analyzing their transactions.

Remittances abroad (Article 9)

In response to an long-standing market expectation, the New Foreign Exchange Law establishes that remittances abroad as profits, dividends, interest, amortization, Royalties, scientific, administrative and similar technical assistance are exempt from prior registration in the Bacen, although they remain subject to the presentation of proof of payment of the due income tax, as the case may be.

The exemption from the registration of these remittances has the potential to directly impact companies with foreign shareholders and partners, bringing more operational facilities related to its financial aspects, especially in accountability.

Bank account in foreign currency (Article 5, IX)

One of the most anticipated measures by the financial market, with major impacts on transactions involving investors in Brazil and abroad, the New Foreign Exchange Law also innovated by determining, yet again in an indirect manner, the possibility of opening a foreign currency bank account in Brazil, delegating to Bacen the duty to regulate and implement the requirements for its legitimation.

This change has the potential to generate important impacts on transactions involving investors in Brazil and abroad, as it can mitigate the risk of exchange variation and reduce transactional costs with derivative transactions and exchange closing.

Foreign domiciled account (Article 5, §4)

The accounts in Brazilian reais of non-residents will have the same treatment of the accounts in Brazilian reais of residents, without prejudice to the requirements and procedures that the Bacen will establish, including those with respect to payment orders in Brazilian reais abroad.

As described above, it is expected and, in some cases, necessary that CMN and Bacen regulations are published in the future to regulate some of the provisions stipulated in the New Foreign Exchange Law. Since it is a law that consolidates a series of changes and innovations which is currently in a period of vacancy, new changes can be implemented until its entry into force, to reflect any needs that the various market agents and participants may identify.

Category: Tax

Enacted by CAMEX Executive Management Committee (Gecex) at the end of last year, Resolution n. 291/21 extended the term of the Ex-tariffs listed in Section 1^st of that document to April 30, 2022. The same Resolution authorized the Secretariat for The Development of Industry, Trade, Services and Innovation, of the Special Secretariat of Productivity and Competitiveness, of the Ministry of Economy to set forth a simplified proceeding for additional extension of the deadline, extending the term to December 31, 2025.

Those interested in requesting such additional extension shall present their manifestation by February 28, 2022. Within the same period, representatives of the national industry may also present a manifestation against the extension of the regime.

The Ex-tariff regime allows the temporary reduction of the Import Duty rate to up to 0% for capital goods (BK) and IT and telecommunications goods (BIT), in cases in which there is no similar in national industry.

This regime is relevant because it contributes to increase innovation and the use of new technologies in Brazil, enabling advances in various sectors of the economy.

The Ex-tariff regime directly impacts the cost of projects and the cash flow of companies, since the Import Duty is not recoverable and is included in the taxable basis of other customs taxes, such as IPI and ICMS.

It is important to highlight that the Ex-tariffs to which the additional extension of the term until February 28 is not requested will be revoked, requiring the submission of a new claim subject to the entire regular process of analysis and approval.

Category: Litigation

In order to encourage the use of out-of-court mechanisms for dispute resolution, the Federal Judiciary Board (CJF) held the II Working Group for the Prevention and Out-of-Court Dispute Resolution in the second half of last year.

Among the 143 precedents approved, one should emphasize the recognition that social and environmental, collective, and complex disputes can and should be solved by more adequate methods than the usual state adjudication, as stated in two precedents:

• Precedent 178: "It is recommended that studies and research be conducted, within the scope of the Judiciary, in partnership with universities and professionals with expertise in the environmental area, for the preparation of guidelines aimed at the use of appropriate methods of solving complex environmental disputes, without prejudice to any specialization of CEJUSCs in environmental matters."

• Precedent 225: "The use of mediation is recommended for the resolution of social and environmental disputes, notably to make viable, in the manner set forth in article 3, paragraph 2, of the Mediation Law, access to justice and the satisfaction of waivable and unwaivable transactable rights, including preventive, repressive, and restorative measures for damages to the environment and the public."

This is a relevant position of the CJF. For those who work in the field, it is evident that judicial litigation alone is usually not enough to resolve disputes of this magnitude.

Going beyond the provisions of Precedent 225, we believes that it is not necessary to limit ourselves to mediation, which will not always be the ideal means. If the intention is to seek a more adequate method to resolve a dispute, there is no reason to stick to just one mechanism. It is possible to combine this with other mechanisms and guarantee a procedure that ensures access to justice, fundamental rights, and satisfaction of waivable and non-waivable transactable rights.

Reparation programs, a growing trend over the last few years in Brazil, are prepared from the design of a customized procedure for each specific case, through the combination of several mechanisms (mediation, conciliation, and negotiation, for example) as gears of a single system.

In addition to being able to quickly deliver repair that is better suited to the reality of those who have suffered damage, reparation programs increase the chances of maintaining business. They also distinguish themselves by involving the community and making it an active part of the reparation process, including the social component in the equation and taking the affected people out of the condition of mere spectators in the resolution of their disputes.

They are, in short, an organized, coordinated procedure focused on obtaining full reparation in an effective and expeditious manner. The amounts involved in the process are directed to the reparation itself, and not to expenses related to excessive judicialization and/or exacerbated bureaucracy. To this end, dialogue is sought with the most diverse of stakeholders, such as institutions of the Judiciary, those affected, companies, advisors, and regulatory agencies, among others. As they pursue the same result (full and expeditious reparation), all should seek a constructive solution, considering technical, legal, social, and economic issues.

The heavy rains that reached record levels in January and caused social and environmental damage, especially in the state of Minas Gerais, show that the dialogue between the various stakeholders is even more necessary. The guidance of the CJF, with its incentive for out-of-court resolution of complex environmental disputes, is extremely salutary and important, especially considering the State Dam Safety Policy (Pesb) instituted in 2021, which increased the demand for faster and more assertive responses to environmental crises.

Category: Real estate

In progress at the House of Representatives, in an emergency regime, is the Bill of Law 4.188/21, so called the new Legal Framework of Guarantees. The proposal consists of a short- and long-term strategy of the Ministry of Economy to boost the financial market, facilitating the obtaining of credits with reduced rates through the provision of guarantees.

The first and relevant change introduced by the project is the creation of the specialized management service of guarantees, real or personal. The service will be carried out by the Guarantee Management Institutions (in Portuguese, IGG), legal entities of private law regulated by the National Monetary Council and whose operation is authorized and supervised by the Central Bank.

The expectation of the federal government is that, with the separation of the management activity of guarantees, the operational costs will become the responsibility of the IGGs. Once contracted for this purpose, these institutions shall act on their own behalf with "exclusive power to constitute, record, manage and plead for the execution of the guarantees transferred to their ownership by means of the collateral management contract".^[1] They will be prohibited from performing any typical activity of a financial institution.

The expectation is that due diligences and analyses of the legal and legal viability of the assets dealing with the collateral migrate from creditors to IGGs. Naturally, including by assuming the responsibilities for valuations, representations and guarantees, IGGs are expected to act with outstanding criteria in the exercise of their asset analysis functions.

There is also room for the increasing of the insurance and reinsurance markets, as ultimately the market – and operating costs – will be regulated by the assessment and division of the risks inherent in the assets that are subject to the collateral.

To act, IGGs need to enter into a management contract with the warranty provider. The Bill of Law also provides for the requirements that must be provided for in the contract, mainly:

• maximum amount of credit that may be linked to the guarantee;
• term of validity; and
• types of operation expressly authorized by the warranty provider, including in favor of third parties.

In addition, the contract must provide for the authorization for, in the event of default, IGG to consider the other transactions linked to the guarantee due in advance, regardless of notice or judicial challenge, which allows the execution of the entire debt (cross default).

For greater legal certainty, the Bill of Law provides for the separation of the assets of the IGGs from the rights corresponding to the guarantees of the debtors, also segregating the fruits and income, in addition to the possible product of the execution. The adjudication of bankruptcy or dissolution of the IGG will not prejudice the effectiveness of the guarantees.

Another major change provided for in the Bill of Law is the change in the rules of guarantees, especially in the property execution. Considering the objective of giving greater speed in case of default, modifications were proposed in Law 9,514/1997, especially regarding extrajudicial execution.

As for fiduciary lien, the main innovation of the Bill of Law is the possibility of the same property guaranteeing more than one credit operation, allowing subsequent degrees of fiduciary guarantee. There are two requirements for the extension of the guarantee: that the new credit be granted by the same financial institution holding the fiduciary property and that there are no obligations with other creditors that are guaranteed by the same property.

Another guarantee that received special attention from the Bill of Law was the mortgage, a institute practically in disuse in the financial market. The proposal aims to bring back the prestige of this guarantee – used in only 6% of real estate credit operations^[2] – equating it to the faster procedures of fiduciary alienation, with the possibility of its extrajudicial enforcement, regardless of contractual provision.

In addition, the project also clarifies one of the main gaps that permeate the theme of the execution of guarantees, with the definition of the price considered vile. The proposal establishes an objective criterion: in the event of a public auction for disposal of the property given in guarantee, the value of the auction may not be less than 50% of the value of the property.

Regarding the new rules for guarantees, there are provisions for the out-of-court enforcement of the real estate guarantee in the event of multiple creditors. To this end, registrations must be made in the respective competent enrollment certificate at the Real Estate Registry Office, which, in case of execution, will simultaneously notify all competing creditors to enable their claims within 15 days.

In addition to the above provisions, the Bill of Law provides for changes to the Brazilian Civil Code, including the figure of the warranty agent, responsible for constituting, registering, managing and even executing the debt – in or out of court. The agent may be one of the creditors or any third party appointed by them. According to the Federal Government, the measure will result in "efficiency and professionalization in the management, registration and execution of guarantees".^[3]

The Bill of Law also proposes changes to Law 8,009/1990, that regulates the impenhorability of the homestead right. Currently, the impenhorability is oppoable in any execution process, except for foreclosure on property offered by the couple or the family entity. The current situation is criticized by financial institutions because the execution of the property is restricted to cases in which the property is offered by the family entity to constitute a mortgage. With the proposal, the impenhorability will not be apply to the execution of property offered as a real guarantee, regardless of the guaranteed obligation or the allocation of resources, even when the debt is incurred in favor of third parties.

The project was well received by the Brazilian Federation of Banks (Febraban), which published a note in favor of legislative change on November 25, 2021. In note, Febraban reiterates that the process of recovering guarantees is too time-consuming for financial entities, stating that the "current legal framework provides little effectiveness of guarantees", so that the expectation is "to have an expansion of the supply of credit and at lower rates".

If the Bill of Law is approved, the prospect is that the new dynamic will enable other configurations in the market with advantages for the borrower, who will have access to lower interest rates and greater credit, with the reduction of underutilization of guarantees. This will allow small businesses and families to access to investment credit. The change can also bring advantages for financial institutions, with the lower costs related to warranty management, which allows more institutions to actively participate in the market, such as Fintechs, medium-sized banks and credit unions.

REFERENCES:

SIDNEY, Isaac. Note from the President of the Brazilian Federation of Banks. Febraban. Published on November 25, 2021. Available in: <https://portal.febraban.org.br/noticia/3717/pt-br/>.

Financial market supports project that creates new milestone of guarantees. InfoMoney. Posted on November 27, 2021. Available in: <https://www.infomoney.com.br/economia/mercado-financeiro-apoia-projeto-que-cria-novo-marco-de-garantias/>.

Milestone guarantees is a big advantage for consumers, he tells CNN. CNN Brazil. Published on November 25, 2021. Available in: <https://www.cnnbrasil.com.br/business/marco-de-garantias-e-grande-vantagem-para-o-consumidor-diz-secretario-a-cnn/>

MENDES, William. Legal Framework of Guarantees is filed in the House of Representatives. Congress in Focus. Published on November 29, 2021. Available in: <https://congressoemfoco.uol.com.br/area/congresso-nacional/marco-legal-das-garantias-e-protocolado-na-camara-dos-deputados/>

MOREIRA, Talita. New Guarantee Framework may expand credit supply at lower rates, says Febraban. Economic Value. Published on November 25, 2021. Available in: <https://valor.globo.com/financas/noticia/2021/11/25/novo-marco-de-garantias-pode-ampliar-oferta-de-crdito-a-taxas-mais-baixas-diz-febraban.ghtml>.

^[1] According to the explanation memorandum of Bill of Law 4.188/21.

^[2] According to the explanation memorandum of Bill of Law 4.188/21.

^[3] Justification of Bill of Law 4.188/21.

Category: Capital markets

In order to carry out a reform of the informational regime which publicly-held companies are subject due to the issuance of securities, the Brazilian Securities and Exchange Commission (CVM) issued the CVM Resolution 59, which promotes several changes in CVM Instructions 480 and 481.

The purpose of the new rule is to reduce costs involved in regulatory compliance and to eliminate provisions requiring for repeated information, especially in the Reference Form. In addition, aligned with the international movement and the greater engagement of investors with environmental, social and corporate governance matters, commonly known as ESG, the new rule also deals with the report of certain information related to these matters.

The following amendments are some of the more general changes brought by CVM Resolution 59:

• The obligation to keep the eventual and periodic information available on the company’s official website for three years, as well as the obligation to deliver the report on the Brazilian Code of Corporate Governance, are now applicable only to issuers which, cumulatively: (i) are registered in category A; (ii) have securities admitted to trading on the stock market; and (iii) have shares or certificates of deposit of shares in circulation;

• The update of the Reference Form within seven working days is also required in the case of: (i) bankruptcy, judicial recovery, liquidation or out-of-court reorganization; (ii) replacement of the independent auditor; (iii) conviction of a member of the management or the fiscal council in criminal proceedings, in administrative proceedings within the competence of the CVM, Central Bank (Bacen) and Superintendence of Private Insurance (Susep), or any final conviction that determines the suspension or incapacity for the practice of any professional or commercial activity; and
• The rules and procedures for remote voting, according to CVM Instruction 481, must be provided in the call notice prior to the shareholders’ meeting, and no longer in the reference form.

The Reference Form has undergone a major change in terms of organization, besides the addition of new requirements and the streamlining of some of its items. For example, information related to the company's activities and key corporate transactions is now included at the beginning of the document, requiring new information on ESG matters and the explanation for the possible non-adoption of certain practices, such as materiality matrix, key ESG performance indicators and greenhouse gas emission inventories.

The other main changes regarding the content of the Reference Form are:

• It will no longer be necessary to include the last three fiscal years in the annual presentation of the Reference Form, except for the last fiscal year, unless when submitted to apply for registration as a publicly-held company or in some other cases specified in the regulation, such as compensation of the managers. In the context of public offerings of securities, the company remains obliged to disclose the latest accounting information, in addition to the last fiscal year;
• To fill out fields not structured in the reference form, it is now allowed to include information by way of reference to other documents made available by the issuer, provided that they have been previously sent to the CVM and that the investor is informed about the complete way to access these documents;
• Limitation of the requirement for management comments only to significant changes in items related to the statements of income and cash flow, replacing the previously required comments on each item of the financial statements;
• As required in prospectuses of public offerings of securities, the issuer shall indicate the five main risk factors among those listed in each of the specific risk categories;
• In the item related to the management, it must be included, if any, specific objectives that the issuer has with respect to the diversity of gender, color or race or other attributes in the composition of its management bodies and its fiscal council;
• In the same item, the role of management bodies in the assessment, management and supervision of climate-related opportunities and risks should also be explained;
• Information on the number of employees now requires indicators of diversity, such as gender identity, color or race, age group and other diversity indicators that the issuer considers relevant;
• The ratio between the highest individual compensation, including directors, and the average individual remuneration of the issuer's employees in Brazil should be informed, disregarding the highest individual compensation, as recognized in its results in the last fiscal year;
• Information on the current item 12.2, which deals with the description of the rules, policies and practices relating to the shareholders’ general meetings, will not be required in the new Reference Form;
• It will no longer be necessary to individually detail transactions with related parties involving the issuer and its subsidiaries and transactions between its subsidiaries, unless when there is the participation of the issuer's direct or indirect controlling shareholders, its directors or persons linked to them.

CVM Resolution No. 59 also brought new rules for the announcement on transactions between related parties provided for in Annex 30-XXXIIII of CVM Instruction 480:

• The issuer is now exempted from communicating new transactions related to a previous transaction already reported to the CVM, provided that they are routine and related to the normal course of the company's business, always following the same negotiation and approval process, and provided that the issuer has indicated, in a previous statement and in the same fiscal year, the routine character and the total estimated value of these operations until the end of the fiscal year; and
• The definition of transactions with related parties excludes credit operations and financial services provided by an institution authorized to operate by the Central Bank, in the normal course of business of the parties involved and under similar conditions to those carried out by them with unrelated parties, in addition to transactions preceded by bids or other public pricing procedures.

CVM Resolution 59 will come into effect on January 2, 2023, so that issuers have time to prepare for the compliance with the new rules. However, as the information to be disclosed in 2023 relates to the fiscal year ended in 2022, CVM advises that issuers be attentive and prepared to disclose the information, especially involving ESG matters, before the new resolution is effective.