The Regulatory Framework for Crypto Assets, approved by Law No. 14.478 of December 21st, 2022, will come into force 180 days after its publication (06.18.2023). However, the guidelines brought in by the law, which must be observed by the sector of virtual assets (crypto) that do not represent securities, are already starting to be incorporated. Crypto Assets representing securities remain subject to the regime of Law no. 6.385/1976 and the regulation of the Brazilian Securities and Exchange Commission (to learn more about the qualifications of crypto assets, click here).

The Framework defines a virtual asset as the digital representation of value that can be traded or transferred by electronic means and used for payment or investment purposes, except for (i) national and foreign currencies; (ii) electronic currency; (iii) instruments that provide their holder access to specified products or services or benefits arising from these products or services, such as points and rewards from loyalty programs; and (iv) representations of assets whose issuance, bookkeeping, trading or settlement is provided for by law or regulation, such as securities and financial assets.

The operation of the virtual asset services providers depends on prior authorization from an agency or entity of the Brazilian Federal Public Administration. However, the regulation of the procedure and the indication of the public entity are still pending. As indicated, the relevant entity must grant at least six months for the adequacy of the service providers that are in activity.

A relevant point brought by the Framework is the inclusion, in the Criminal Code, of a new type of fraud, punishable by imprisonment from four to eight 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 an illicit advantage to the detriment of others, inducing or keeping someone in error, through artifice, trickery, or any other fraudulent means”.

The Blockchain Desk at Fraga, Bekierman e Cristiano Advogados is available to clarify any doubts on the subject.

With the publication of Guidance Opinion No. 40 of October 11, 2022, the Brazilian Securities and Exchange Commission (CVM) consolidated its understanding and guidelines about the definition and regulation of cryptoactive assets in Brazil and their relationship with the securities market.

The entity reaffirmed that these assets, as a rule, are not subject to the specific regulatory regime of the securities market. However, this regime and its legislation (Law No. 6385/1976) may apply depending on the nature, characteristics, services, or purposes of the cryptoactive assets.

In the Opinion, CVM adopted the following functional criteria for the taxonomy of tokens:

  1. Payment Token (or crypto currency): seeks to replicate the functions of currency, notably as a unit of account, medium of exchange, and store of value;
  2. Utility Token: used to acquire or access certain products or services; and
  3. Asset-backed Token: represents one or more assets, tangible or intangible. Examples are security tokens, stablecoins, non-fungible tokens (NFTs), and other assets subject to tokenization operations.

Following the position already adopted in the international market, CVM stated that such classification is not exhaustive and the same asset may fall into one or more categories, depending on the functions it performs and the rights associated with it in the particular case.

Furthermore, considering that such assets are usually offered via the Internet and without geographical restrictions, their analysis must consider Guidance Directives 32/2005 and 33/2005 about the Internet’s use in (i) securities offerings and (ii) the intermediation of operations and offering of securities issued and admitted for trading in other jurisdictions, respectively.

The Opinion also highlighted the need to adopt a disclosure and transparency enhancement regime concerning securities represented by cryptoactive. For the CVM, the disclosure system is not an end but a tool to ensure that investors have sufficient elements to decide on the acquisition, maintenance, or disposal of securities.

In this sense, CVM listed, in its Opinion, a minimum set of information related to the securities that must be included in the documents foreseen in the rules required for the offering and trading of tokens.

CVM disclosed that it has already tested the cryptoactive operation as a security and will continue to deepen its analysis and application in the capital market. Also, if necessary, it may regulate it within the limits of its competence and consider its experience in the Regulatory Sandbox context, whose first admission process had approved 4 (four) proposals involving the issuance and trading of digitally represented securities.

For more information about CVM pronouncements on the subject over the past few years, click on our Special Blockchain Descomplicada Newsletter.

The Blockchain Desk of Fraga, Bekierman e Cristiano Advogados is available to clarify any questions on the subject.