In December of 2022, the Brazilian Federal Law No 14.478/2022 entered into force to establish a regulation on virtual assets, such as cryptocurrency, in Brazil.
The cryptocurrency matter was unregulated in Brazil until the Brazilian Federal Law No 14.478 was established, which has left investors and crypto exchange companies uncertain of the provisions that should be taken into consideration to trade digital assets in the country in the past.
The Brazilian Federal Law No 14.478, also known as Cryptocurrency Legal Milestone (in Portuguese, Marco Legal das Criptomoedas), establishes some definitions for important terms regarding the cryptocurrency matter, the principles that should be observed by virtual assets service providers (the term used by the law to refer to crypto exchange companies) and the activities that the regulating competent governmental organization will be responsible for.
Here are some important provisions of the Law that you should know:
- To act as a virtual asset service provider in Brazil, companies should apply for an authorization given out by the competent governmental organization, which has been defined to be the Central Bank of Brazil.
- The definition of virtual assets does not include (i) national or foreign currency, (ii) electronic currency (such as credit cards and PIX – which is a form of bank transfer in Brazil), (iii) points from rewards systems such as airlines and credit cards miles, and (iv) other representations of assets which emission, registration, trade or liquidation is regulated by other law or regulation (such as securities and financial assets).
Also, the Cryptocurrency Legal Milestone expressly establishes that its provisions are not applicable to virtual assets that can be defined as securities, according to the definition provided by the Brazilian Securities Commission.
- The definition of virtual assets service provider is an entity that carries out at least one of the following services on behalf of its clients: (i) trading virtual assets and national or foreign currency, (ii) trading virtual assets, (iii) administration or custody of virtual assets or of instruments that control virtual assets, and (iv) participating on financial services and services provision related to issuance or sale of virtual assets.
Also, in June of 2023, the Brazilian Federal Decree No 11.563/2023 entered into force to determine that the competent governmental organization responsible for regulating and supervising cryptocurrency trading in Brazil will be the Central Bank of Brazil (in Portuguese, Banco Central do Brasil). Since then, the Central Bank of Brazil has been working on drafting and publishing an official regulation on virtual assets trading but, until the date of publication of this newsletter, this regulation has not yet been published.
This does not mean that other Brazilian governmental organizations could not be involved in cryptocurrency operations in any way. The Cryptocurrency Legal Milestone expressly indicates that the Brazilian Securities Commission (in Portuguese, Comissão de Valores Mobiliários – CVM) will be responsible to regulate every transaction that involves virtual assets that can be defined as securities (in Portuguese, valores mobiliários). The Brazilian Securities Commission has already published, in October of 2022, an Orientation document (in Portuguese, the Parecer de Orientação CVM n° 40) with some recommendations for exchange crypto companies that want to trade crypto as securities in Brazil.
Also, the Cryptocurrency Legal Milestone defines that the Brazilian Consumer’s Defense Code (in Portuguese, Código de Defesa do Consumidor) will be applicable to the relationship between virtual assets service providers and its clients, which means that the governmental organization Consumer’s Protection and Defense Program (in Portuguese, Programa de Proteção e Defesa do Consumidor – Procon) can also be involved in virtual assets operations, to mediate conflicts between the virtual assets service providers and its clients.
The Cryptocurrency Legal Milestone and the Decree No 11.563/2023 were a big step into the regulation of virtual assets trading in Brazil, but this matter is yet to be complemented by the Brazilian Central Bank’s regulation, which has not yet been published, and which will determine the rules and provisions that virtual assets service providers should follow to get an authorization to act as a virtual assets service provider in Brazil.
Written by Mariana Tavares and Mariana Belisario
