/ CMF regulatory project on investment advisory services

Article 3 of Law No. 21,314 establishes that investment advisory services in Chile will be a regulated activity, and those who provide them on a regular basis must register in a special registry kept by the CMF.  By means of a General Applicability Rule, the CMF must set the conditions and requirements necessary to register and remain in said Registry.

Nicole Cartier
Senior Associate
Alessandri Abogados

From March 4 to 25, 2022, the Financial Market Commission (“CMF”) issued a Draft General Applicability Rule (“NCG”) to comply with the legal obligation imposed by Law No. 21,314 (the “Law”), published on April 13, 2021.

Said Law subjected the provision of investment advisory services in Chile to the oversight of the CMF, indicating that whoever habitually engages in providing such services must be previously registered in the Registry kept for such purpose by the CMF.

For such purposes, the Law granted the CMF a term of twelve months from its publication to issue the NCG establishing the registration requirements, the cases and procedure for cancellation and suspension of the Registry, the determination of the requirements to be met in terms of solvency, risk management, suitability and conduct, as well as the minimum information that investment advisors must provide to the general public and to the Commission itself.

In compliance with said mandate, the proposed regulation starts in its Title I by listing the requirements necessary for investment advisors, whether individuals or legal entities, to apply for registration in the Investment Advisors Registry (the “Registry”).

Within the information requested, it is noteworthy that the term to be considered to estimate that the applicant has had a previous irreproachable conduct is limited to only 24 months, in circumstances that the rest of the regulations, both legal and normative, have considered much longer terms. The same occurs with the number of years of experience required for individuals who wish to provide these services, since a minimum of one year is established, which is a low requirement in consideration of the complexity of the different financial instruments currently available in the market.

Then, in its Title II, it refers to the obligations that investment advisors must comply with. In this regard it is possible to highlight the following:

1)       Implementation of policies, procedures and controls that allow avoiding that the information or recommendations they disseminate or deliver in relation to investment decisions, contain statements that may mislead or cause confusion to the public about the nature, prices, profitability, redemptions, liquidity, guarantees, control or any other characteristic of the products or services offered, or with respect to those referring to the persons who provide or offer them.

2)       Ensure that in the advisory services provided, the interests and needs of each client are always prioritized, informing them of any conflict of interest that may be affecting them, as well as the inherent risks of the recommended product or service.

3)       To ensure that the advice provided is consistent with the savings or investment needs of each client.

4)       Adequately safeguard client information.

5)       Those who make the recommendations must have the necessary independence of judgment, suitability and knowledge.

6)       Implementation of an annual training program for all those who make recommendations, allowing them to update their knowledge on applicable legislation, management of conflicts of interest, inherent risks and main characteristics of the financial products or services they recommend, and to acquire tools to enable the advisor to detect the products or services that best meet the needs of their clients.

7)       To have a Code of Conduct that establishes the principles and rules that will guide the actions of the advisor and its personnel in the provision of investment advisory services, especially with regard to the prevention, management and communication of conflicts of interest.

8)       In the case of advisory services that are the result of computer processes without human intervention, the policies, procedures and controls shall be designed to ensure that the algorithms used are designed and implemented in such a way that the results are always consistent and related to the needs and expectations expressed by the client. Likewise, they must ensure that the results obtained cannot be altered by human intervention and that the client is aware that such results have emanated from an algorithm with these characteristics.

Title III lists a series of information that investment advisors registered in the Registry must disclose. Such as: i) The Code of Conduct; ii) The identification of the person making the recommendation and the technical grounds on which it is based; iii) The number of hours of annual training that the person making the recommendation has satisfactorily completed; iv) Conflicts of interest of those who have issued the recommendation; among others.

Finally, Title IV states the grounds for suspension and cancellation of the Registry.

It is important for the analysis to bear in mind that the so-called Fintech Bill (Bill No. 14,570-05) is currently under discussion in Congress, and that such bill contemplates the repeal of Article 3 of the Law. The existence of this regulatory project is directly linked to the permanence of Article 3 in question, because although the Fintech Bill also contains a regulation of investment advice, it does so in much more demanding terms and in a different context.

This draft regulation must be issued no later than April 13, 2022 and will only enter into force 90 days after such issuance. In the meantime, the discussion of the Fintech Bill will continue and only when its processing is completed, it will be possible to have more clarity about what will be the final regulation on Investment Advisory.