Brazil, a prominent user of cryptocurrencies globally, took a step forward in achieving regulatory transparency on Wednesday. The country’s president signed a law this week granting the Central Bank of Brazil significant authority in crypto regulation, yet it also poses various inquiries, specifically concerning the categorization of cryptocurrencies as securities.
Decree no. 11.563, signed by Brazil’s President Luiz Inácio Lula da Silva, empowers the Central Bank of Brazil to regulate and oversee virtual asset service providers. This decree ensures that token projects considered as securities will fall under the supervision of the Brazilian Securities and Exchange Commission (CVM).
The objective of this new law is to define the distinct responsibilities of the central bank and the securities regulator concerning cryptocurrencies. The decree, dated June 13, 2023, will be enforceable starting from June 20.
One significant challenge remains with the new law in Brazil as it fails to provide a clear distinction between digital assets classified as securities and those that are not. The country’s definition of a security draws inspiration from the collective investment agreement concept influenced by the Howey Test, originally established by US courts. Under this interpretation, it is probable that Bitcoin (BTC) would not be considered a security.
In contrast to the United States’ Securities and Exchange Commission (SEC), Brazil’s recent regulatory move differs significantly. While the SEC’s chair, Gary Gensler, seeks to classify nearly all cryptocurrencies as securities, the Brazilian approach stands apart.
The SEC, in a recent legal action against Binance, specifically targeted some of the market’s widely used tokens. However, while designating tokens as securities may bring clarity, it would also impose regulatory responsibility on the SEC, a prospect that many within the crypto industry are displeased with.
Brazilian regulators are actively advancing their understanding and oversight of cryptocurrencies and related technology, according to Bruno Ramos de Sousa. The Central Bank and the Securities Commission (CVM) have been engaged in in-depth research on the crypto industry.
Recently, the Central Bank of Brazil, now endowed with greater regulatory powers, revealed its selection of 14 institutions to participate in a pilot program for the nation’s central bank digital currency (CBDC). Notable local banks like Bradesco, Nubank, and Itaú Unibanco, as well as major payment companies like Visa and Mastercard, have been chosen by the bank. Regulating digital assets in Brazil is a crucial matter as the country ranks among the top cryptocurrency users worldwide, surpassing all its neighboring countries in South and Central America, and securing the seventh position globally, according to Chainalysis.