INTRODUCTION
As the digital ecosystem evolves, financial assets such as NFTs, cryptocurrencies and other digital currencies take on a leading role when searching for investment.
In Brazil, according to data from the Brazilian Association of Financial and Capital Market Entities (Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais/ANBIMA)1, the volume transacted by investors in the crypto market was BRL 300,000,000,000.00, equivalent to half the total value of investments traded by B3 (Brazil’s largest and principal stock exchange).
Moreover, the Central Bank of Brazil (Banco Central do Brasil/Bacen) has been promoting discussions concerning CBDC (Central Bank Digital Currencies) for the creation of a digital currency called the Real Digital. Guidelines for the latter were published in May 2021 towards improving the efficiency of Brazil’s National Financial System (Sistema Financeiro Nacional) and Brazilian Payments System (Sistema de Pagamentos Brasileiro), as well as monitoring the dynamism of the technological evolution of Brazilian economy in the global stage, thus facilitating international payments.
REGULATION OF CRYPTO ASSETS IN BRAZIL
Despite rules referring to investments in digital currencies, as in the case of Brazil’s Normative Instruction RFB 1888/2019 –which obliges legal entities and individuals to report any operations carried out with crypto assets to the Federal Revenue –, Brazil was among the countries lacking any specific regulation for crypto assets and NFTs until the end of last year.
On November 29, 2022, the National Congress approved Bill 4401/2021, which, inspired by arguments that are similar to those presented in the past by the European Central Bank on the systemic risks involving investment in cryptocurrencies, aims to ensure that activities involving digital currencies are regulated.
The bill now awaits presidential sanction, which may occur in full agreement with the National Congress, or suffer vetoes.
According to the proposed regulation, the following companies that provide the following services will be considered providers of digital asset services: (a) exchange between digital assets and national currency or foreign currencies; (b) exchange between one or more digital assets; (c) transfer of digital assets; (d) custody or management of digital assets or instruments that allow control over digital assets; and/or (e) engaging in financial services and providing services in connection with an issuer offering or selling of digital assets.
The President will be responsible for appointing the public entity that will regulate and supervise activities involving crypto assets. Bacen will probably be responsible for the operation, regulation and supervision of crypto services, including authorization for companies to operate in Brazil.
The regulatory entity will take on the following responsibilities concerning digital asset service providers: (a) authorize operation and corporate changes; (b) establish rules for the management and exercise of statutory and contractual positions; (c) supervise performances and apply penalties; (d) cancel operating permits; and (e) establish rules and criteria about the foreign exchange market.
SECURITIES CONCEPTS
Alongside regulation of crypto assets, in October 2022 Brazil’s Securities and Exchange Commission (Comissão de Valores Mobiliários/CVM) issued an opinion concerning the criteria for classifying crypto assets as securities, in order to express its concerns and limits as a regulatory power.
From the concepts of securities applied to crypto assets, inspired by the USA, the CVM highlights the following: (1) the Expectation of Economic Benefit created in the investor, who expects to be entitled to redeem, receive or share in investment results; (2) the Entrepreneur or Third Party Effort, since the result of the investment does not depend on the direct action of the investor, but on third parties; and (3) the Public Offering, taking into account the digital means that are used to reach the public and carry out investments in Brazil. In other words: the so-called “Howey Test” will be considered.
CVM’s understanding is that legal protections for crypto assets should cover financial liquidity, systemic risk mitigation and fraud and crime prevention. In order to ensure the transparency and trustworthiness of crypto assets in a public offering, the CVM defends measures to ensure that the information on the offerings is clear, consistent, understandable and complete to all investors, with no discrimination.
EXPECTATIONS
The law foresees its entry into force within 180 days of its official publication. There is as yet no specific deadline for the act that will establish the body responsible for supervising crypto asset activities.
While all regulatory guidelines have not been completely defined by the body that will be responsible for supervising crypto assets, it is worth mentioning that operations involving digital currencies continue to be risky – and considered of high risk by financial and capital market regulators –, since they are not guaranteed by any national monetary authority, nor backed by any real assets.
So far, there is no bill in progress involving NFT regulation in Brazil, although it is being discussed and explored by investors and investment companies.
TIPS (Top Tips)
When entering the Brazilian market, companies providing digital asset services must pay attention to the new regulation, which should undergo substantial changes following the probable control of the Central Bank in coming months.
The digital currency market also creates opportunities for companies that provide contiguous digital services. Technology and digital payment companies, for example, may add value to their flow of investments, to the functionalities and to the security of transactions and custody of digital assets.
The new regulation indicates that companies that have already been authorized to operate by the Central Bank will be able to accumulate digital asset services – which is why many companies in the financial market are already looking for projects that involve a relationship with the Central Bank, thus facilitating future entry into the digital currency market.
When exploring investments in crypto assets, it is important to seek the advice of specialists who understand and are familiar with Central Bank and CVM rules, as well as the legal aspects involved in each service that the company wants to provide.
By Giancarllo Melito and Luiz Felipe Attié.
