Central Bank defines next steps in the process of regulating crypto assets and Virtual Asset Service Providers

The Central Bank of Brazil (“BC”), exercising the duties assigned to it under Decree 11,563/2023, announced the next steps in the process of regulating virtual assets and providers of virtual asset services, known in the market as Virtual Asset Service Providers (“VASP”).

According to the BC, the regulatory process will be implemented gradually, taking into account the review and evolution of regulators’ interpretation of the matter, as well as considering actions proposed by international organizations. In collaboration with national regulatory and supervisory bodies, such as the Brazilian Securities and Exchange Commission (“CVM”), the BC indicates that it will develop a regulation aimed at specific virtual assets designed to capture the attention of these bodies.

As highlighted by the BC, the regulations to be developed must ensure the stability of the National Financial System. The rules on PLD-CFT (prevention of money laundering and combating the financing of terrorism), the monitoring of suspicious activities, and the prudential aspects to be followed by VASPs and other entities that may be authorized to operate in the Brazilian virtual asset market are particularly important.

In the words of Nagel Lisânias Paulino, from the Financial System Regulation Department:

“The crucial role of the regulation is to disseminate information regarding inappropriate practices that make use of these assets and could harm consumers and agents operating in the segment in cases of scams and fraud. The regulation aims to provide minimum requirements for virtual asset service providers to carry out their activities, while also establishing the appropriate practices when interacting with their clients. The idea is to make progress in the development of normative acts that will regulate virtual asset service providers, including business and authorization aspects.“

In a public statement published on May 20, 2024, the BC established the following guidelines for the regulation of crypto assets:

• New public consultation: as already anticipated by the market, a new public consultation on the general rules for the operation and authorization of VASPs must be held during the second half of 2024.
• Regulation of stablecoins: the BC must establish internally its plan to regulate stablecoins (a type of virtual asset whose market value is based on an external value reference, seeking to maintain the stability of its own value), especially regarding payments and the foreign exchange market.
• Development and improvement of VASP regulations: finally, the BC must develop and improve VASP operating regulations, regarding their activities in the foreign exchange market and aspects relating to their prudential regulation, the provision of information to the BC, accounting, among other significant topics.

Suggestions received in the public consultation will be analyzed by the BC, which intends to finalize the regulatory proposals based on these contributions by the end of 2024.

Demarest’s Banking and Finance team is available to provide any further clarifications on the topic that may be necessary.