Federal Executive Branch publishes decree that appoints the Central Bank of Brazil as the regulator of the crypto market
The Federal Executive Branch enacted, on June 14, 2023, Decree No. 11,563 (“Decree 11,563“), which regulates Law No. 14,478, of December 21, 2022 (“Law 14,478“) and grants to the Central Bank of Brazil (“CBB“) the power to supervise and regulate the activities of virtual asset service providers in Brazil. Decree 11,563 was signed by the President, Luiz Inácio Lula da Silva, the Minister of Finance, Fernando Haddad, and the President of the CBB, Roberto Campos Neto.
As expected by the market, Decree 11,563 established the CBB as the regulatory authority for the segment, which will have the following competencies, according to Law 14,478:
- determine which financial assets will be regulated for purposes of Law 14,478;
- determine the parameters of the guidelines established by Law 14,478 for the perfomance of virtual assets services;
- authorize the performance of other services that are, directly or indirectly, related to the activities of the virtual assets service providers;
- regulate the performance and supervise the virtual assets service providers;
- authorize the operation, transfer of control, merger, spin-off and incorporation of the virtual assets service provider;
- set the conditions for the exercise of positions in corporate and contractual bodies in the virtual assets service provider and to authorize the tenure and exercise of persons for management positions;
- supervise virtual asset service providers and apply the provisions of Law No. 13,506 of November 13, 2017 in case of non-compliance with Law 14,478 or its regulations;
- cancel, ex officio or upon request, the authorizations referred to in items (v) and (vi) above;
- provide for the events in which the activities or transactions carried out by the virtual assets service providers will be included in the foreign exchange market or in which they shall be subject to the regulation of Brazilian capitals abroad and foreign capitals in Brazil; and
- set forth the events that may cause the cancellation set forth in item (viii) above and the respective procedure.
Upon the coming into force of Law 14,478 and Decree 11,563, as of June 20, 2023, the CBB may immediately announce regulations to govern this market, which must grant existing virtual assets service providers at least a 6-month grace period to adapt to the new requirements, according to article 9 of Law 14,478.
However, the most likely approach is to submit the proposed regulations to a prior public consultation process, since the CBB usually submits its proposals for regulation of innovative and impactful issues for the National Financial System to the discussion and contribution of all players in the segment and civil society in general.
Some issues are especially critical and should be the subject of more extensive discussions in this regulatory process, such as the need for asset segregation between the assets of customers and the assets of the virtual asset service providers themselves. This discussion was carried out during the course of the bill that gave rise to Law 14,478, but this provision was dropped from the final text that became law. Nevertheless, the market expectation is that the CBB will somehow face this issue through its regulation or an articulation with the National Congress to amend the law, considering the legislative competence of the matter.
The proposed regulation should also address the process of obtaining a license to operate virtual assets service providers, which will probably be aligned with the processes already in place for other regulated entities and under the supervision of the CBB. This means that there will be a need to evidence of the ultimate controllers of these entities, their economic capacity and expertise in the segment, and the origin of the funds invested in the business. Therefore, some of the brokerages organized as DAOs (decentralized autonomous organizations) may have to reconsider their corporate structure if they want to operate in the Brazilian markets, since the beneficiaries of these organizations are usually not necessarily identified.
According to Law 14,478, Decree 11,563 expressly states that the matter addressed in the decree does not apply to assets representing securities subject to the regime of Law 6,385, of December 7, 1976, and does not affect the competence of the Securities and Exchange Commission of Brazil (“CVM“). This means that transactions involving such assets, including those considered securities offerings, remain subject to CVM’s supervision. In this sense, the precedent of administrative proceedings and the parameters that CVM is currently using to define whether these transactions are being conducted in accordance with the legislation in force are already relatively substantial, even if there is still a certain expectation in the market for further adjustments in these parameters in the medium term.
Finally, the regulation to be issued by the CBB will also impact the criminal figures and hypotheses of increased penalties for crimes involving virtual assets, mentioned in Law 14,478, even though the competence of the CBB does not extend to these matters and Decree 11,563 correctly made this exception.
Lefosse’s Banking and Finance Team closely monitors the changes that impact the Brazilian Market. For further clarification on this matter, or others that may be of interest to you, contact our professionals.
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