Aline Pardi Ribeiro
Lawyer at Marcos Martins Advogados
On November 13, 2013, the Brazilian Securities and Exchange Commission (“CVM”) enacted Instruction No. 5391, which provides for the duty to verify the suitability of products, services and operations to the client’s profile, i.e., suitability rules for all members of the distribution system and securities advisors.
Thus, as of January 5, 2015, all securities advisors must verify that (i) the product, service or operation is suitable for the client’s investment objectives; (ii) the client’s financial situation is compatible with the product, service or operation offered; and (iii) the client has the necessary knowledge to understand the risks related to the products, services or operations offered.
The suitability rule aims to protect clients, especially those who are individuals and not used to the capital markets sector. In addition, the suitability rules are proposed to prevent the occurrence of possible conflicts of interest and possible manipulation by market agents in their relations with their clients.
CVM Instruction 539 proposes that suitability verification be waived if the client has experience and ordinary activities in the capital markets and belongs to one of the following categories, under the terms of Article 9: (i) persons qualified to act as members of the distribution system; (ii) insurance companies and capitalization companies; (iii) open and closed supplementary social security entities; (iv) investment funds; (v) non-resident investors; (vi) legal entities that are considered qualified investors, in accordance with specific regulations; and (vii) analysts, portfolio managers and securities consultants authorized by the CVM, in relation to their own funds.
In addition, the Instruction determines the establishment of written rules and procedures to verify actual compliance with suitability for agents organized as legal entities, including the establishment of internal controls. Agents will have to adapt to the various changes arising from the Instruction which alter the way they work. For example, agents will have to keep an up-to-date register of their clients and statements signed by clients when they choose to take out products that are not suitable for their profiles, in which case they will be advised by agents of this incompatibility.
Agents will have to ensure that clients understand the products and whether or not they are suitable for their profiles, which provides greater fairness in the relationship between agents and clients in terms of the risk involved in investments.
The international market has been adopting suitability rules for a long time, but the Brazilian market began to notice this trend less recently, through recommendations from regulatory bodies such as COREMEC (the Committee for Regulation and Supervision of the Financial, Capital, Insurance, Pension and Capitalization Markets).
The suitability rules add greater value to the Brazilian capital market, providing credibility to its participants and to the international market, which is following the global trend of verifying the suitability of products to the profile of their clients.
