On November 29, Brazil’s Chamber of Deputies approved Bill No. 4401/2021, which regulates the cryptocurrency sector in Brazil and legalises the use of crypto-actives as a means of payment in Brazil. The bill will now be sent for presidential sanction, allowing it to come into force 180 days after the publication of its approval.
Considering that the current president, Jair Bolsonaro, will leave office on December 31, this sanction will be left to the new president, Luis Inacio Lula da Silva. Lula has already acknowledged the expansion of crypto-activities in Brazil to the media during the election campaign period and added that it is necessary to create a framework to harmonise national practices with international standards, especially concerning criminal activities.
After the legal procedures for the law come into force, it will be up to the executive branch of the government – the president and his ministers – to determine the body or office in charge of overseeing crypto-activities.
The law establishes rules for the operation of brokerage houses and custody and administration services for crypto-active assets by third parties. The main initial objective of the PL was to combat crypto-active crimes, including money laundering, and to create mechanisms to protect investors. Accordingly, the law establishes that a virtual asset is now considered a “digital representation of value that can be traded or transferred by electronic means and used to make payments or for investment purposes”.
The bill considers a virtual asset a digital representation of value that can be traded or transferred by electronic means and used to make payments or for investment purposes. Will be considered service providers of virtual assets the legal entities that perform services such as:
- Exchange, on behalf of third parties, of virtual currencies for national or foreign currency;
- Exchange between one or more virtual assets;
- Transfers thereof;
- Custody or administration, even of control instruments;
- Participation in financial services and provision of services related to the offer by an issuer or sale of virtual assets.
Additionally, organs and entities of the public administration will be allowed to keep accounts in these companies and carry out operations with virtual assets and derivatives according to the regulation of the Executive Branch.
The approved law adds to the Criminal Code a new type of fraud, assigning imprisonment from 4 to 8 years and a fine for those who “organize, manage, offer or distribute portfolios or intermediate operations involving virtual assets, securities or any financial assets to obtain illicit advantage to the detriment of others, inducing or keeping someone in error, through artifice, ruse or any other fraudulent means”.
The approved text also encourages the reduction of environmental impact in cryptocurrency mining, establishes the regulatory competence of agencies, and requires crypto active brokerages to have a CNPJ number (the company registered in Brazil) and legal representation in Brazil. Companies linked to this market will also have to share a greater amount of information with government agencies and will have six months to adapt to the new rules. The expectation is that the Securities and Exchange Commission (CVM) will be responsible for the regulation of crypto actives considered securities, and the Central Bank for other types of assets and approval of the operation of brokers.
Furthermore, according to the text of the law, the chosen entity should establish conditions and deadlines, not less than six months, for the adjustment to the rules of the project by the service providers of virtual assets that are in activity. Among the powers of the regulator are:
- Authorise the operation, transfer of control, and other shareholder movements of the virtual asset service provider;
- Establish conditions for the exercise of positions in statutory and contractual bodies in virtual assets service providers;
- Supervise the providers;
- Cancel, ex officio or upon request, the authorizations; and
- Establish the hypotheses in which the activities will be included in the exchange market or should be subject to the regulation of Brazilian capital abroad and foreign capital in the country.
For now, we can affirm that the new law sets out general guidelines for the operation of the market, and many open questions will be left to specific regulations. Therefore, investors are not likely to feel immediate effects from the publication of the legislation, but only to the extent that the regulatory body is formed and begins the implementation stages of the new law.