Our partner Roberto Panucci was featured in an article in Folha de S.Paulo and on the potential transfer of oversight of investment funds 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 must 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).
This is exactly what mature international models, such as Twin Peaks, do: they separate functions but integrate supervision.
The recurring mistake in Brazil is to believe that the problem is solved by changing the supervisory body. It is not. If fund structures were used for regulatory arbitrage, masking of banking risk or asset opacity, the correct response is to close the arbitrage channels:
- consolidated supervision by economic group;
- effective review of cross exposures;
- mandatory data sharing among regulators;
- coordinated oversight; and
- specific macroprudential instruments for funds posing systemic risk.
Without this, changing the sign on the door is merely institutional cosmetics. The risk remains and the cost appears later, in crises.
In addition, Roberto Panucci was featured in an article in Correio Braziliense on the FGC's coverage of Banco Master clients, in which he clarified that "From a strictly formal standpoint, the guarantee fulfilled its function. The covered amounts are being reimbursed, preserving the principal invested. However, this finding is insufficient to assess the real economic impact of the episode."
