BC calls for contributions on draft resolution that includes virtual asset services in the foreign exchange market

On November 29, 2024, the Central Bank of Brazil (“BC”) initiated Public Consultation No. 111, proposing to amend BC Resolution No. 277, of December 31, 2022, BC Resolution No. 278, of December 31, 2022, and BC Resolution No. 279, of December 31, 2022. The consultation aims to regulate item V of Article 7 of Law No. 14,478, of December 21, 2022 (“Legal Framework for Cryptoassets”), to include the activities or transactions of virtual asset service providers (“VASPs”) in the foreign exchange market. The consultation also provides for the circumstances under which these institutions must comply with the regulation of Brazilian capital held abroad and foreign capital held in Brazil.

After placing the draft regulation – on the constitution and operation of VASPs – and the corresponding authorization processes on public consultation, the BC initiated a new consultation aimed to develop new technologies and business deals involving virtual assets in the foreign exchange market, thus ensuring compatibility with international capital flows and stocks.

According to the BC, a number of business models that involve virtual assets can contribute to streamlining the provision of services within the foreign exchange market, as well as offering more efficient methods within the scope of business deals and investments. However, implementing these models inevitably leads to discussions on consumer and investor protection, privacy, cybersecurity, preventing their use for illegal purposes, financial and market integrity, in addition to the essential need to maintain fiscal and macroeconomic stability.

In this regard, considering Article 7, item V, of Law No. 14,478/2022, and Decree No. 11,563, of June 13, 2023 – which establishes that it is the BC’s responsibility to decide on the events in which the activities or transactions carried out by VASPs will be included in the foreign exchange market or governed by the regulation of Brazilian capital held abroad and foreign capital held in Brazil – we notice the importance of supervising the market and further adopting regulations that are consistent with the functionalities provided and the risks posed by these assets.

In addition to the draft regulation, the BC also seeks to collect contributions on the following questions:

1. Is it necessary to establish additional limits for VASPs – besides those listed in the draft regulation – regarding transactions involving the provision of virtual asset services in the foreign exchange market?
2. What mechanisms could be used to calculate the equivalent amount in sovereign currency (Brazilian reais or US dollars) regarding the virtual assets traded?
3. How could VASPs verify that their counterparty providing equivalent services abroad is subject to regulation and supervision in their corresponding jurisdiction?
4. How must the regulation of foreign capital held in Brazil and Brazilian capital held abroad (including in credit transactions) provide for transactions involving virtual assets for investment purposes, either as a class of assets or as a form of intermediation (virtual asset loans, payment in kind with virtual assets, among others)?
5. What role could VASPs play in international capital flows and stock transactions, including in non-portfolio investment transactions (for example, as a representative)?

Key points of Public Consultation No. 111

A. Amendments to BC Resolution No. 277

• BC’s responsibilities
  • BC Resolution No. 277 proposes that the “provision of virtual asset services in the foreign exchange market” be included within the scope of the BC’s responsibilities involving the foreign exchange market, including: (i) purchases and sales of foreign currency; (ii) international payments and transfers carried out through payment service or international transfer; (iii) accounts in Brazilian reais held by non-residents; (iv) accounts in a foreign currency held in Brazil; and (v) transactions with gold as a foreign exchange instrument.

• Business deals that must be reported to the BC
  • BC Resolution No. 277 proposes that operations involving the provision of virtual asset services in the foreign exchange market – with transfers of virtual assets on the same date – be reported to the BC at their gross values, and transfers of funds (to and from a foreign country) be carried out at their net value.

• Authorizations for exchange brokers, CVTMs, DTVMs, and financial brokers
  • The draft resolution proposes that securities brokers (“CTVMs”), securities distributors (“DTVMs”), foreign exchange brokers, credit, financing, and investment companies, and funding agencies – provided that they are authorized to operate in the foreign exchange market – be able to provide virtual asset services in the market in question. International payments or transfers of virtual assets are limited to USD 500,000.00.

• Authorizations for VASPs to operate in the foreign exchange market
  • The draft resolution proposes the inclusion – as part of the authorizations to operate in the foreign exchange market granted to the VASPs – of a permit to provide virtual asset services in the foreign exchange market. In this regard, transactions involving currencies in cash are prohibited (whether in national or in a foreign currency) and international payments or transfers of virtual assets are limited to USD 100,000.00.

• Providing virtual asset services in the foreign exchange market
  • The draft resolution proposes that virtual asset services in the foreign exchange market cover the following activities or transactions:
    • Virtual asset payment or international transfer;
    • Purchase, sale, exchange, or stable virtual asset custody (known as “stablecoins”) in Brazilian reais held by non-residents; and
    • Purchase, sale, exchange, transfer, or custody of stablecoins in a foreign currency.

• • The draft resolution proposes that VASPs that have requested authorization from the BC be able to carry out the following activities until the authorization process is completed:
    • Purchase, sale, exchange, or custody of stablecoins in Brazilian reais held by non-residents; and
    • Purchase, sale, exchange, transfer, or custody of stablecoins in a foreign currency.

• • The draft resolution proposes that VASPs ensure that resident clients in Brazil be informed in a clear and timely manner about:
    • The VASP’s responsibilities regarding the service;
    • The scope and conditions of the service provided; and
    • Specific circumstances involving clients’ rights in operations carried out alongside the corresponding VASP.

• Virtual asset payment or international transfer
  • The draft regulation proposes that the following transactions be considered as payments or international transfers of virtual assets (except for transfers of virtual assets arising from their acquisition or disposal, whose payment is carried out through a foreign exchange transaction or transactions in a non-resident’s current account in Brazilian reais, including by providing international payment services or international transfers – “eFX”):
    • Payments or transfers whose settlement occurs upon the transfer of virtual assets between residents and non-residents, or between non-residents; and
    • Transfers of virtual assets held by the same client between Brazil and a foreign country.

• The draft regulation also proposes that transfers of virtual assets occur through:
  • The change of ownership of virtual assets held by the virtual asset service provider itself;
  • Submission or receipt of virtual assets by another virtual asset service provider responsible for the custody of the counterparty’s virtual assets; and
  • Submission or receipt of virtual assets by an authorized service provider abroad responsible for the custody of these virtual assets in the jurisdiction of origin or destination.
• The draft regulation proposes that VASPs be prohibited from transferring virtual assets to a self-custodian portfolio held by a non-resident.

• Purchase, sale, exchange, or custody of stablecoins in reais held by non-residents
  • The draft regulation proposes that non-residents be prohibited to operate on behalf of a third party within the scope of transactions such as purchase, sale, exchange, or custody of stablecoins in Brazilian reais.

• Purchase, sale, exchange, or custody of stablecoins in a foreign currency
  • The draft regulation proposes that transferring stablecoins in a foreign currency be admitted only in the following cases:
    • Between residents, in the event of a legal or regulatory provision for payment in a foreign currency, as provided for in Article 13 of Law No. 14,286/2021 (new exchange rate framework);
    • Between institutions authorized to operate in the foreign exchange market; and
    • Between VASPs, upon the transfer of stablecoins in a foreign currency held by the same client.
  • The draft regulation proposes that VASPs be prohibited from transferring stablecoins in a foreign currency to a self-custodian wallet.

• VASPs operations with institutions authorized to operate in the foreign exchange market
  • The draft regulation proposes that the VASP providing services to an institution authorized to operate in the foreign exchange market (in the interest of its clients) share information required by the BC.

• • The draft regulation proposes that the institution authorized to operate in the foreign exchange market submit information about its transactions with virtual assets until the fifth day of the month following a transaction involving:

• • • Payment or international transfer of virtual assets;
    • Purchase, sale, and exchange of stablecoins in Brazilian reais held by non-residents;
    • Stablecoin position in reais held by non-residents;
    • Purchase, sale, and exchange of stablecoins in a foreign currency;
    • Transfer of stablecoins in a foreign currency between residents; and
    • Stablecoin position in a foreign currency.

B. Amendments to BC Resolution No. 278

• Flows, stocks, and provision of information regarding foreign capital held in Brazil
  • The draft resolution proposes that external credit transactions (loans, export pre-payments, and import financing, all with a foreign creditor) and foreign direct investments (share capital integrations by a foreign investor in Brazilian companies) involving transfers of virtual assets be subject to registration before the BC, in compliance with the minimum amounts provided for in the regulation.

C. Amendments to BC Resolution No. 279

• Flows, stocks, and provision of information regarding Brazilian capital held abroad
  • The draft resolution proposes that virtual assets held abroad by Brazilian citizens be reported to the BC as part of their duty to submit the Declaration of Brazilian Capital Held Abroad (DCBE), as provided for in the regulation.

Suggestions and comments can be submitted to the BC through the website Participa Mais Brasil by February 28, 2025.

Demarest’s Banks, Financial Services, Fintechs, and Digital Assets team is monitoring the developments of this subject and remains available to assist clients and partners with any clarifications that may be necessary.