Will foreign investment advisers be required to register in Chile?
A new law will regulate independent investment/financial advisory services in Chile for the first time, but there is some confusion as to its scope.
There has been some discussion about the scope of a new law (ie, Law 21,314 on Market Agents) that was enacted recently (published on 13 April 2021), which was originally designed to regulate most, albeit not all, independent financial advisers. The reason for the confusion lies in the use of the terms 'asesores de inversion' in Spanish, which translated into English in literal terms is 'investment adviser'. This has led to speculation that foreign asset managers that are registered abroad (particularly in the United States) as investment advisers would be caught by this new statute.
Speculation has increased as a result of the fact that the new law specifically excludes Chilean registered asset management companies and Chilean registered portfolio managers from its scope. Some have gone on to say that, given that foreign asset managers are not excluded, the new law would also apply to them.
The new law has received much press in relation to investment advice provided on a large scale to the public, such as via social media, causing mass transfers between different types of pension funds, but it also refers to investment advisory services (servicios de asesoría de inversión), which are not specifically related to the Chilean pension fund statute law. Under Article 3, those that provide services or offers of products related to investments in financial instruments of any nature to the public or to specific sectors (sectores) of the public shall be required to register with the Chilean securities regulator (Comisión para el Mercado Financiero or CMF).
Indeed, the terms of the law are broad. So, while the spirit of the law was to require certain independent financial advisers in Chile to register with the CMF and not capture foreign asset management firms, certain precautions should be taken by those that do not register their funds in Chile for public offer.
The answer as to what should be done by such foreign investment advisers lies in part in the phrase 'the public or specific sectors of the public' contained in Article 3.
This language is similar to that used in the Chilean securities market law (Ley de Mercado de Valores) when defining public offers of securities. If we were to apply the same logic that the CMF has been using in its private placement rule (NCG 336) when defining when an offer of a security is not public, we would then consider that investment advisory services being provided to more than 50 non-qualified investors would subject the service provider to registration with the CMF. The same would apply to services being provided to more than 250 qualified investors listed in sections 7 and 8 of CMF NCG 216 (broadly speaking, qualified investors that trade via a Chilean registered broker or whose investment decisions are taken by a qualified investor, but which are neither institutional investors, do not have a discretionary account agreement with another qualified investor, nor have investments in public offer instruments over UF 10,000 – approximately US$ 380,000). The CMF will at some point have to issue guidance to clarify these points to determine the scope of the new law.
Under the new law, the CMF will have the power to set rules in relation to solvency, risk management, skill/integrity and conduct. The new law does not provide any guidance in this respect, so the CMF has been given a great deal of discretion to regulate these matters. The CMF will have until 13 April 2022 to issue the rules.
In the interim, foreign investment advisers that offer their funds in Chile under the private placement rules – NCG 336 – should not be concerned with having to register with the CMF. Nor should foreign investment advisers have to do so if their funds are registered in the foreign securities register (registro de valores extranjeros) kept by the CMF.