Our partner Roberto Panucci was featured in a Folha de S.Paulo article on the possible transfer of investment fund supervision from the CVM to the Central Bank of Brazil, following the sector's rapid growth and recent episodes involving fund structures.
The discussion is legitimate, but the diagnosis needs to be technical.
Fund regulation is hybrid in nature and requires two distinct regulatory vectors: (i) prudential/macroprudential (liquidity, leverage, interconnections with the banking system and contagion risk); and (ii) conduct and market integrity (fiduciary duties, governance, conflicts of interest, transparency and investor protection).
That is exactly what mature international models such as Twin Peaks do: they separate functions but integrate supervision.
The recurring mistake in Brazil is to think the problem is solved by changing the supervisor. It is not. If fund structures were used for regulatory arbitrage, masking bank risk or asset opacity, the right answer is to close the arbitrage channels:
Without this, changing the sign on the door is just institutional cosmetics. The risk remains and the cost shows up later, in crises.
- consolidated supervision by economic group;
- effective examination of cross-exposures;
- mandatory data sharing between regulators;
- coordinated supervision; and
- specific macroprudential tools for funds with systemic risk.
In addition, Roberto Panucci was featured in a Correio Braziliense article on FGC coverage for Banco Master clients, clarifying that "Do ponto de vista estritamente formal, a garantia cumpriu sua função. Os valores cobertos estão sendo restituídos, preservando o principal investido. No entanto, essa constatação é insuficiente para avaliar o impacto econômico real do episódio." [From a strictly formal standpoint, the guarantee fulfilled its function. The covered amounts are being repaid, preserving the principal invested. However, this finding is insufficient to assess the real economic impact of the episode.]
Links:
- Folha de São Paulo: https://lnkd.in/dcHN6r-H
- Correio Braziliense: https://lnkd.in/dxxYBKaQ
