New Regime for Sustainable Collective Investment Products

On April 23, 2021, the Argentine Securities and Exchange Commission (the “CNV,” after its acronym in Spanish) issued General Resolution No. 885 (the “Resolution”) approving the new framework applicable to Mutual Funds (the “Funds”) and Financial Trusts (the “Trusts”) that invest in securities with an Environmental, Social and Corporate Governance impact.

The Resolution was preceded by Resolution No. 879, by means of which the preliminary General Resolution was submitted for public consultation.

With the purpose of raising awareness among actors of the local capital markets about integrating environmental, social and governance factors in investments and generating structures that improve sustainable financing in the country, the CNV released for comments the requirements applicable to Sustainable Collective Investment Products (the “CIP”).

Since the implementation of the “Guidelines for the Issuance of Social, Green, and Sustainable Securities in Argentina,” approved by General Resolution No. 788, the offer of sustainable financial products has increased and there are currently negotiable obligations and financial trusts labeled as green and social bonds, which is why a special regime that encourages investment in this type of products was implemented.

The Resolution mainly sets forth the following regulations, regarding the special regime for the constitution of Open-end Mutual Funds with Environmental, Social and Governance impact (“FCI ASG,” after its acronym in Spanish):

• Regarding the eligible assets for the constitution of these Funds, at least 45% of their assets must be invested in (i) securities listed in segments and/or social, green and/or sustainable panels; (ii) securities listed in panels highlighting corporate governance, social and environmental best practices and/or included in sustainability indexes; (iii) securities with external reviews that are deemed social, green and sustainable; and/or (iv) sociallyoriented financial trusts. Likewise, these funds may invest up to 30% of their assets in SME financial trusts.
• An investment of up to 10% of the Fund's assets in Closed Mutual Funds’ quotas is allowed.
• The possibility of extending, only once, the 180 day period provided to complete the incorporation of the Fund’s assets for an equal or lesser term.
• A forewarning period, which may not exceed 15 business days, is established to request the redemption of quotas when the amount to be reimbursed exceeds ten percent of the net worth of the Fund.

The main regulations implemented by the Resolution for CIP, applicable both to the Funds and to the Trusts, include the following:

• The request for listing in a market that has green, social and sustainable segments and/or negotiation panels is now a requirement for the constitution of CIP.
• The funds obtained through the placement of this type of product and/or its underlying assets must be used for projects or activities with environmental and/or social benefits.
• When placing these instruments, the reporting period may be reduced to 1 business day when the offer is addressed to qualified investors.
• The requirements provided for the external reviewers are simplified so that all they need to accredit is experience in environmental and/or social matters demonstrating their suitability to carry out the review and meet the requirements for the market in which they are listed.
• In the event of exclusion of the specific segment or panel where the negotiable securities are listed, the written offer must be adapted, providing, where appropriate, the agreement of the beneficiaries or shareholders.

The main regulations implemented by the Resolution regarding Funds are the following:

• The possibility that Sustainable Closed Mutual Funds invest in shares of Openend Mutual Funds, provided that they are managed by another Mutual Funds Manager and that they do not include reciprocal participations.
• If the initial assets are not predetermined, the written offer must include the pertinent warnings and risk considerations arising from the failure to identify the specific assets.

Finally, the main regulations found in the Resolution on Sustainable Financial Trusts include the following:

• The possibility of issuance in tranches, subject to CNV analysis and approval.
• Deferred integration of the subscription price, subject to the provisions of their respective financial trust agreements.