Flávio Dino orders the government to review CVM and capital market rules

Brasília Minister Flávio Dino, of the STF (Supreme Federal Court), ordered the Lula government to review the rules that regulate the capital market and the activities of the CVM (Securities Commission), mainly the regulations on investment funds and prevention of money laundering.

The decision was taken this Sunday (20) in an action that discusses the budgetary structure and supervisory capacity of the CVM, the body responsible for regulating the Brazilian capital market, after the Master case, after a letter sent to the Supreme Court by Transparency International.

When analyzing the documents presented in the process, Dino stated that the authority's problems are not limited to the lack of resources and also involve governance and supervision mechanisms.

The minister once again cited Master's fraud when addressing the weaknesses identified in the CVM's control structure. According to documents analyzed in the process, a complaint presented to the CVM in 2022 already pointed out possible irregularities later identified at the bank, but was filed without due diligence considered sufficient.

Dino also suggests that the Ministry of Finance review the CVM rule on sanctioning processes, to make the fight against illicit activities more effective.

Dino also pointed out problems related to the way the CVM receives and handles complaints. Among the points mentioned are the overlapping of functions between internal control bodies and failures in the protection of whistleblowers.

In the same action, Dino has already determined that the CVM uses 70% of the funds it collects from inspection fees to invest in the municipality itself, without collecting the resources from the National Treasury.

Specifically regarding investment funds, Dino stated that the authority's resolution allowed successive investment structures between funds without quantitative limits, which could make it difficult to identify final beneficiaries and supervise operations.

"This circumstance makes it difficult to visualize the final economic composition of operations and increases the challenges inherent to regulatory supervision," wrote the minister.

Regarding money laundering prevention mechanisms, the minister ordered the government to assess whether current rules are sufficient to identify the final beneficiaries of complex financial structures and track resource flows.

"These [regulatory] difficulties end up expanding the activities of criminal organizations that are dedicated to very serious crimes (drug trafficking; arms trafficking; corruption; deviation of parliamentary amendments; buying and selling of judicial decisions involving magistrates, advisors and lawyers; fraud in tenders; market for illegal court orders, among others)", states the minister in the decision.

The objective, according to Dino, is to assess whether the current set of standards offers sufficient safeguards for transparency and market surveillance.

The Union will have 90 days to present the conclusions of the review, the proposed measures and the respective technical justifications. The work must be coordinated by the Ministry of Finance, the department to which the CVM is linked.