Supreme Court Justice Flávio Dino used a striking phrase: “systemic permissiveness.” He was referring to one of the effects of Resolution 175, the sweeping investment-fund framework introduced in 2022 by Brazil’s securities regulator, the CVM. According to Dino, the rules allowed structured funds to invest in other funds of a similar nature, creating multiple layers of investment vehicles with no maximum quantitative limit. Such structures can make it harder to determine the ultimate economic exposure, identify the people behind the money and trace where funds actually end up. The Master case has therefore raised a broader question than whether one provision went too far. It has put an entire regulatory philosophy under scrutiny — one built around fewer controls, greater autonomy for market participants and the belief that a more sophisticated financial industry could operate with less friction.
That philosophy was developed inside the CVM itself. Work on Resolution 175 formally began in 2020, when Marcelo Barbosa chaired the regulator, and was led by its Market Development Superintendence, headed by Antonio Carlos Berwanger, with Claudio Maes overseeing regulatory development. The exercise went far beyond consolidating a patchwork of existing rules. The CVM wanted to incorporate changes introduced by Brazil’s Economic Freedom Law, cut compliance costs and redraw the division of responsibilities among fund administrators, asset managers, custodians and investors. Some of the changes now under scrutiny — including those affecting FIDCs, Brazil’s investment funds backed by receivables and other credit claims — were already present in the regulator’s original proposal. The underlying idea was clear: replace some of the constraints and checks of the old regime with greater autonomy for market participants. The CVM later described its ambition as creating a “more modern, efficient and competitive” fund industry. This was not deregulation by accident. It was a deliberate regulatory choice.
The industry helped shape that choice. The consultation generated thousands of comments, and some participants had a tangible impact on the final rules. ANBIMA, Brazil’s main financial-markets association, submitted extensive proposals on the obligations imposed on fund service providers and argued for changes to some oversight requirements. A group of independent asset managers, working with law firm Mattos Filho, participated in discussions over investment limits and greater flexibility in portfolio management. ANFIDC, representing the credit-rights fund industry, was directly involved in the rules governing FIDCs. Among other changes, it asked the CVM to drop a requirement that managers complete verification of the underlying receivables before those assets entered a fund’s portfolio. The CVM agreed. The regulator did not accept everything the industry wanted, and it would be wrong to suggest that the industry wrote Resolution 175. But it would be equally misleading to portray the consultation as a box-ticking exercise. Regulator and regulated shared a central premise: the industry could operate with fewer constraints and greater freedom.
What emerged was a far-reaching overhaul. Resolution 175 consolidated 38 sets of rules into a single framework, introduced fund classes with segregated assets, redistributed responsibilities between administrators and asset managers and substantially rewrote the rules governing FIDCs. Managers were given a central role in verifying the receivables backing these funds, while some checks previously performed by independent custodians were reduced. Verification could be carried out through sampling and, in certain circumstances, waived. The new framework also allowed increasingly layered fund structures. On December 14, 2022, with João Pedro Barroso do Nascimento as CVM chairman, the regulator’s board approved the overhaul, citing greater efficiency and lower compliance costs among its objectives. Nascimento captured its philosophy succinctly: “Lower costs, more opportunities.” Resolution 175 did not undergo a formal Regulatory Impact Assessment because its public consultation had begun before that requirement became applicable. The exemption was legally available. Given the scale of the changes, it is nevertheless notable.
Master did not merely expose the theoretical risks of that model. Investigations found FIDCs and chains of investment funds within the Master/REAG network — precisely the type of structures now under scrutiny. And there had been an early warning. In February 2022, an anonymous complaint first sent to the São Paulo Bank Workers’ Union was forwarded to Brazil’s deposit insurance fund, the FGC, and then to the CVM. It described illiquid assets, manipulation of fund valuations and the repurchase of impaired credits by third-party funds using money from the bank itself. It even predicted that the FGC would eventually be left with the losses. CVM staff deemed the allegations implausible and closed the matter without opening a specific investigation. Years later, the regulator’s own Master task force found that several elements of the complaint were consistent with irregularities subsequently uncovered. The uncomfortable conclusion is that the market gained freedom and complexity faster than the regulator gained the ability to see through them.
That may be the most important lesson from Master. Regulatory modernization cannot simply become a synonym for removing safeguards. When a check is eliminated, something has to replace it — greater transparency, better traceability, stronger enforcement, clearer accountability or more sophisticated supervision. The 2022 overhaul rested on the assumption that a more developed financial industry could safely be given greater autonomy. What Dino now calls “systemic permissiveness” suggests that this confidence may have gone too far. He has given the government 90 days to reassess Resolutions 175, 50 and 45, taking into account the findings of the CVM’s own Master task force. The question is not whether Brazil should reverse the modernization of its fund industry. It is which safeguards were dismissed as red tape — and how to restore them before the next Master reminds the market why they were there in the first place.
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