Dino’s fund-rule review puts CVM oversight under fresh scrutiny

Dino’s fund-rule review puts CVM oversight under fresh scrutiny
Supreme Court Justice Flávio Dino has ordered the federal government to reassess rules governing Brazil’s securities regulator, the CVM, giving the Finance Ministry 90 days to present the results. The review, issued in a case originally concerning a market-supervision fee, widened to address concerns raised by the Banco Master affair, money laundering risks and the regulator’s internal controls.

Dino’s central argument is that CVM Resolution 175, adopted in December 2022, created what he called “systemic permissiveness” by expressly allowing certain structured funds to invest in similar funds without a maximum number of layers. In his view, successive fund structures can weaken automated financial-intelligence alerts and make it harder for oversight bodies to reconstruct the path of money.

The justice also questioned arrangements in which proceeds may temporarily pass through an account associated with the seller of credits before reaching their final destination. His decision links difficulties in tracing funds to broader risks involving fraud, laundering and other financial crimes.

Reporting on the decision, however, stresses an important distinction between the expansion of the rule and the origin of the practice. Fund-of-funds structures involving credit-rights funds, known as FIC-FIDCs, had been provided for since 2001. Resolution 175 broadened their use, but did not create the underlying mechanism.

That distinction matters in the debate over Banco Master. Central Bank material described funds administered by Reag moving through a “complex and extensive chain of funds,” often on the same day, before ending in Master-issued CDB investments. But the documents reviewed in that account did not establish that the transactions specifically depended on the 2022 resolution. Dino’s review therefore focuses not only on a single rule, but on whether the regulatory design and CVM governance can reliably expose who ultimately controls financial flows.

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