Brazil’s Crypto Regulation Push Explained
Brazil is one presidential signature away from becoming South America’s first nation to regulate its crypto business. The legal blueprint isn’t flawless but will boost retail investors' faltering trust in a hurting industry.
Why it matters: South America is overseeing Brazil’s approach to crypto. Whatever regulatory frameworks Brasília approves of will likely serve as a role model for the rest of the region.
Driving the news: A bill proposing to regulate the crypto industry was approved by Brazil’s Chamber of Deputies on the 29th of November. It made its way through the Senate in April after about seven years of scrutiny.
● Pressure to approve the bill mounted as Brazil’s executive branch will undergo a change of management from the 1st of January 2023 after Luiz Inácio Lula da Silva will be sworn in as the country’s 39th president.
● This could undo much of the work on the legal blueprint. Jair Bolsonaro, the incumbent president, has until the end of the month to sign off on the bill.
● Despite what media headlines often claimed, the bill does not legalize crypto payments. It does define the crime of embezzlement of digital assets as punishable by a fine and imprisonment of up to 2 to 6 years.
● Additionally, it outlines a license for “virtual service providers” in the country. Exchanges will have 180 days to comply with the new ruleset, including the requirement to report to Brazil’s central bank directly and conduct business through a local firm.
The good: The approved bill seems keen on alleviating many of crypto’s ailments.
● “The meltdown of FTX and many other fraudulent crypto schemes seemed to be present in the minds of policymakers when composing the bill,” says Vinicius Dias, head of marketing for Latin America with LBank, a global crypto exchange. “By forcing exchanges to establish a local branch which abides by clear corporate laws and setting a minimum equity requirement, Brazilian investors will be better protected from fraud.”
● Digital assets that can be considered securities, like derivatives trading on exchange platforms, will fall under the jurisdiction of the Securities and Exchange Commission of Brazil (CVM).
● Other digital assets, such as utility tokens, will have another regulatory body appointed by the executive branch. “By all indications, this will most likely be the central bank,” Dias says.
The bad: Brazil’s crypto bill was altered before being approved.
● The Chamber of Deputies decided to cut a tax exemption for crypto miners utilizing clean energy to run their businesses.
● A requirement for brokers to separate user and company equities was also expunged, causing a head-scratching moment for most Brazilian crypto experts. “Given what happened with FTX, asset segregation was seen as a top priority by many to ensure user assets wouldn’t be at risk in case a brokerage goes bankrupt,” Dias says.
● Crypto exchange Binance allegedly opposed the segregation of assets as it would comprise its yield-staking products in the country
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