The Brazilian Securities and Exchange Commission (CVM) released on last June 28 its Risk-Based Supervision Report for the fiscal year of 2021. In the document, CVM points out the supervision actions carried out to treat risks and events considered priority by the Risk Management Committee, according to the Biennial Risk-Based Supervision Plan 2021-2022. In addition, the report discloses the expectations of the technical areas for 2022 on the risk levels of each event.

The four risks prioritized in the Biennial Plan 2021-2022 are:

  • relevant information not disclosed to the market;
  • transactions with related parties;
  • marginal market; and
  • tests of impairment and asset valuation.

With respect to the first two matters listed above, the following items of the report stand out:

  • Relevant information not disclosed to the market: the supervision actions were developed following the provisions of the Biennial Plan 2021-2022, which provides for the clarification request to the management institution in cases in which the technical area responsible for identifying the occurrence of atypical fluctuation in prices, volume or quantity of securities. Considering that this monitoring was constantly carried out by B3 and notices were sent in 100% of the suspected cases, the risk was reassessed and will no longer be considered as a priority in the 2022 financial year.
  • Transactions with related parties: the Biennial Plan 2021-2022 focused on the analysis of the adequacy of disclosure to the market and the availability to shareholders of the information required by Brazilian Law and other applicable rules. In cases in which CVM identified the need for additional due diligence, specific investigations were carried out on the issuers. The goal established in the Biennial Plan 2021-2022 was the opening of proceedings to analyze eight companies per year, selected according to criteria of nature and relevance of transactions.

In 2021, the Superintendence of Business Relations (SEP) met the target, having initiated nine lawsuits, out of which eight are still ongoing. B3 also conducted consistency tests on transaction information with related parties disclosed in the Reference Form and other communications as provided for in CVM Instruction No. 480/09 (revoked by Resolution No. 80/2022). Some divergences were identified and B3 interacted with the companies to obtain clarification. The risk should remain in the same category in 2022.

In relation to the Biennial Plan 2021-2022, the report concluded that all risks and respective events remained stable, with no level increase in comparison with the forecast. In addition, according to the report, CVM arranged 100% of the planned actions for the year, demonstrating its commitment to the integrity and development of the capital markets in Brazil.

The matter highlighted above, more related to corporate practice, are recurrent in the analysis of CVM over the years. In relation the disclosure of relevant information to the market, it is known that insider trading has the function of protecting the capital markets and the reliability of the information, considering the obvious asymmetry between the insider (person who acts and knows the company) and the regular investor. In addition, CVM has greatly evolved in the practices and techniques of investigation of this type of illicit.

In relation to transactions with related parties, in addition to the evident interest of the market and investors in being aware of this type of transaction given its potential to divert social interest and create situations of conflict of interest, it is important to highlight the recent change promoted in the Corporations Law by Law 14.195/21, known as the Business Environment Act.

Under the new rule, the resolution on transactions with related parties whose value exceeds 50% of the total assets of the company indicated in the last approved balance sheet shall be submitted to prior approval by the general shareholders’ meeting .

According to Marcelo Barbosa, the president of CVM during the evaluated period, the work carried out by CVM is an important part of the regulator's management system: "Based on a structured process of identification, analysis and risk assessment, CVM defines the priority actions of supervising the conduct of market participants to achieve the desired results in an increasingly dynamic and complex regulatory environment".[1]

 

[1] For more information on the topic, please visit: CVM publishes Risk-Based Supervision Report 2021