In the past 18 months, regulation like CVM 175 has transformed the Brazilian funds market. But while there is an industry-wide understanding that the changes are needed to create a far leaner and streamlined fund industry, akin to the leading European markets, meeting the June 2025 compliance deadline remains a challenge.
Despite costly restructuring, the Brazilian fund industry—the world’s fourth largest—grew in 2024, with assets under management reaching 9.3 trillion reais by August 2024, up 15% from 2023
However, fully capitalising on upcoming opportunities requires greater connectivity and automation. The starting point here is a reckoning within many industry players of how much more they can automate their processes. According to Calastone research conducted in 2023, employees in the Brazilian fund industry were most likely to consider themselves ‘fully automated’, but the same survey showed that around 50% of firms still use fax machines.
While work has been done to phase out fax use in Brazil, in many instances, trades are simply sent via email instead. While this is better than fax, it’s still deeply inefficient and error prone, requiring multiple formats and the manual uploading of spreadsheets. Digital alternatives provided by open APIs and cloud transfers can process more trades and significantly reduce the time spent and errors made by manually inputting orders.
Perhaps the most concerning challenge is the prevalence of outages and connection issues – a uniquely Brazilian issue compared to other mature markets. This is particularly impactful when funds are dealing with third parties such as transfer agents, adding significant costs in terms of time, personnel, and resources. Currently many agents’ systems are individually linked, so when existing systems falter, spreadsheets must be manually uploaded via email, completely undermining the efficiency of straight-through processing.
Elsewhere, funds must move on from batch processing trades, a method that can be hindered by a single issue disrupting the entire sequence. By contrast, real-time automation allows transactions to be processed individually and immediately, boosting efficiency, accuracy, and reducing operational risks. This shift enables funds to adopt a variable, usage-based cost structure, where expenses are directly aligned with revenue.
Automation is essential to helping Brazil establish itself as a mature, global market. It’s a transformation we’ve seen up-close elsewhere, working in the UK, Australia, Luxembourg, and Singapore. In the UK fund market, for instance, there is a 95% automation rate for order routing, resulting in significant cost savings, thanks to technology providers like Calastone.
CVM 175 has laid the groundwork for Brazil to achieve something similar. In fact, in many cases it goes above and beyond what many funds in more mature markets have in place. However, current data reveals that, to date (Oct 2024), only 7,027 funds have fully adapted to the regulation, while 27,546 have not yet complied, indicating a vast potential for improvement. There is still time, but funds should be currently doing everything they can to beat the June 2025 deadline and digitalise their operations. This is a task that can be made far easier with the right partner in place.
As I wrote last year, the initial benefit is that transactions can be made faster, more efficiently, and at lower cost, but an automated system is also necessary to take Brazil’s traditionally domestic market worldwide. This is baked into CVM 175, which was designed to open up foreign funds to all investors, providing greater diversification opportunities and access to a wider range of products.
The June 2025 deadline may seem far off, but proactive funds should seize this opportunity now to digitalise operations, automate their back offices, and lead the way. Adopting these practices ahead of time will not only ease compliance but also position funds to capitalise on the expanded market access CVM 175 promises
