Mexico, Chile and Peru have recently established a flurry of new, industry-shifting market regulations surrounding compliance and reporting procedures that will drastically alter the scope of daily operations for each of these countries’ investment firms. These regulations are expected to be only the beginning of many more market changes to follow as much of Latin America looks to modernize the level of transparency existing between firms, regulators and clients.
The updates call for a higher degree of attention and resources from firms to meet compliance requirements. The main components surrounding these recent legal updates are related to the disclosure of:
Anti-Money Laundering Controls
As a part of the Know Your Client (KYC) standards, operating firms now must have a system in place to adhere to Anti-Money Laundering (AML) procedures. The system must have measures to evaluate the proof of origins of the resources of the investor and other related parties, both while onboarding and on an ongoing basis. It must also impose limits for customer transactions, restricting the number of transactions and the amounts related through monetary limits on deposits and withdrawals. Client risk ratings must be disclosed to regulators.
Additionally, these operational systems must be reevaluated bi-annually to ensure compliance. Thus, not only do firms need to implement the initial infrastructure for AML, but they must spend time to monitor and update it on an ongoing basis.
Regulatory Reports
Mandatory reporting protocols are becoming much more robust in these markets. In addition to the necessary reporting required under AML and KYC policies, now required are daily reports containing shareholder’s total AUM, detailed down to the percentage of respective investment and mutual fund holdings. Also required to be disclosed are major shareholders, administrators and account balances for the firm.
For managed portfolios, quarterly reports to clients are now required and must disclose client fees, earnings, and taxes.
Taxation
The taxation of various investments and income are now to be disclosed as follows: investment profit and loss earnings and value-added tax (VAT or IVA) on an annual basis. Income taxes for customers, whether natural persons or legal entities, are also required to be disclosed.
Depending on the country, these taxes can either be flat rate or variable rate. There are also certain workarounds to avoid double taxation for certain countries by using the USA’s W-8 Form, claiming exemptions from certain withholdings. In some cases, failure to submit this form can result in a full 30% tax withholding to foreign entities.
Having a team that knows the governing details surrounding these different rules will prove critical in saving wealth managers time and money.
Local Fixed Income Operations
To meet potential liquidity needs, regulators have enacted REPO programs – a market to re-purchase fixed income securities through buyback clauses. The reporting surrounding REPO requirements has been updated to reflect specific guarantees and bonuses in each of these markets. Many investors utilize this strategy to generate next-day returns with available cash holdings.
Most of the popular FinTech software companies lack the capability to handle this reporting and are actively working to update their systems to be able to do so. BRITech has already built this reporting requirement into their platform.
We can expect similar regulatory changes to sweep through the rest of Latin America’s markets as heightened reporting and fiduciary requirements become standard practice across the globe. Wealth managers in these countries stand to benefit by staying ahead of these changes and implementing proper operational updates in advance.
Much of the new oversight is modeled after the practices of stricter regulatory countries including Spain, Brazil and the USA. These nations have established a standard for fiduciaries in terms of disclosing information.
BRITech is Helping Firms Manage These New Regulations
Latin American regulators are heightening the compliance standards surrounding audits and reporting. Rather than overhauling systems and increasing staff to combat these measures, consider collaborating with BRITech to handle all reporting requirements instead.
BRITech creates all mandatory reports and sends them to the regulatory oversight bodies so wealth managers do not have to worry about it. Client reports are also generated and sent through BRITech.
Wealth managers need not bother watching and preparing for market changes because BRITech monitors the regulatory market for them, allowing advisors to focus solely on their clients’ investments instead of legal reporting.
The Brazilian Securities and Exchanges Commission (CVM) is known as one of the strictest, most regulated markets in all of Latin America. Consequently, BRITech’s origins in Brazil have resulted in systems that are already built out to satisfy the new reporting requirements in these countries. In fact, we are already supporting Mexico and Chile.
With over 50% of the FinTech market share in Brazil, from small and medium-sized firms to even the largest bank in the country, BRITech has proven that it can handle the specific aspects of any firm, anywhere. Our service is built to scale and grow with you.
The regulatory system is complex and continuously evolving. BRITech is flexible and adaptable, capable of updating systems to match market changes immediately, well within the allotted 90-day legal window.
We work directly with lawyers, regulators and clients in each country to ensure our systems are developed to meet all requirements of each respective governing body. We can comply with any regulatory requirement in the world, new or old.
Contact BRITech today and see how we can help you prepare for the new regulatory climate.