CVM provides explanations after debate with institutional investors

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The Brazilian Securities and Exchange Commission – CVM – has made a number of enhancements after the “Institutional investors and SEP’s supervision” roundtable. In the meeting held last year, the Office of the Superintendent of Corporate Relations – SEP – questioned guest investors about the tools used to improve the companies’ governance practices and described how CVM has been helping the market perform the task. The debate has given rise to a number of explanations, most of them included in the Official Letter published by SEP in February.
One of the topics addressed in the roundtable was the transparency given to indemnity agreements. After the debate, the CVM has included new guidance in SEP Official Letter No. 02/18. As of now, the regulator recommends that, in the event the matter is discussed in the Annual General Meeting, companies should disclose the necessary information so that investors can take well-informed decisions. One of them is the reason why the Board preferred to propose the indemnity agreement rather than the Directors and Officers (D&O) Liability Insurance, and whether the indemnity agreement includes the payment of damages and fines. Additionally, companies must inform shareholders of the main clauses in the agreement and the value of a D&O insurance with similar coverage.
Companies with agreements already in force must provide information in the reference form. Because it is a sensitive topic, the CVM has included a warning in the Official Letter: the guarantee of payment or reimbursement of fines and indemnities to the directors and officers covered in the indemnity agreement can be considered a violation of the fiduciary duties of shareholders or officers that approve them.
In addition to the indemnity agreements, other topics were also broadly discussed. These are:

  • Explanation that complainants do not have to identify themselves (item 8.1 of SEP Official Letter No. 02/18) when they file complaints at the CVM;
  • Brief and clear explanation about how the supervision/punishment process conducted by the SEP (item 8.1 of SEP Official Letter No. 02/18) works;
  • Guidance on how to improve the quality of information about transactions with related parties (item 4.16 of SEP Official Letter No. 02/18);
  • Explanation that the fees paid to attorneys and arbitrators in arbitral proceedings in which the fund takes part can be paid by the fund itself (SIN Official Letter No. 4/2017).

Amec was represented in the event by its CEO Mauro Rodrigues da Cunha. Representatives of institutional investors, including the Brazilian National Bank for Social and Economic Development – BNDES – also participated in the roundtable. The CVM will be holding another debate this year to discuss the demands of foreign institutional investors.
Click here to read SEP Official Letter No.02/18 (portuguese).