The regulatory landscape for the Brazilian cryptocurrency market is rapidly evolving. The market is still in its early stages, with significant potential. This article will provide a comprehensive overview of the current Brazilian legislative framework and recent developments, enabling investors to anticipate and navigate Brazilian regulatory procedures effectively. This proactive approach aims to facilitate their entry into the market on a level playing field once the applicable regulations are issued.
Law No. 14,478, enacted on December 21, 2022, sets forth the guidelines for the provision of services related to virtual assets (such as cryptocurrencies), regulating service providers operating within this sector. The law stipulates that such providers may operate in Brazil only with prior authorization from the relevant regulatory authorities. It also defines virtual assets (excluding national currency, foreign currency, electronic money, loyalty points, and assets regulated by law) and establishes core principles, including transparency, security, consumer protection, and anti-money laundering measures.
In addition, the law sets forth deadlines for compliance by companies and delineates the responsibilities of regulatory agencies, which will oversee and authorize these activities. In summary, this legislation establishes a regulatory framework for the virtual asset market in Brazil, emphasizing controls, crime prevention, and operational requirements for sector participants.
Decree No. 11,563, issued in June 2023, designates the Central Bank of Brazil as the primary regulatory authority responsible for overseeing the operation of VASPs. The Central Bank is implementing a phased approach to regulation, allowing for gradual adaptation to new rules. This process involves cooperation with international regulatory bodies, public consultations, and the development of operational standards for VASPs. The objective is to implement the regulatory framework by the end of 2025, ensuring market security and investor protection.
In this context, foreign investors seeking to operate as VASPs in Brazil through Brazilian subsidiaries must proactively address regulatory requirements. The process of registering a foreign entity to act as a direct shareholder of a Brazilian subsidiary, though straightforward, may encounter bureaucratic hurdles that could delay the process.
Specifically, to operate in Brazil as a direct shareholder (notably the most common model), a foreign entity must appoint a legal representative residing in Brazil. Often, investors do not have a designated individual for this appointment, generating the need for engagement of reputable firms specializing in such services.
Following the appointment, the issuance of a power of attorney (POA) is required to such legal representative resident in Brazil. This step also involves other time-consuming administrative actions such as notarization and legalization (apostille or through the nearest Brazilian Consulate, depending on whether the country where the POA is being issued is signatory to the Hague Convention or not) of the entity's corporate documents. Once notarization and apostille requirements are met, all documents will then be submitted to Brazil for translation into Portuguese by a sworn translator and registered with the Public Registry of Titles and Documents.
Upon the conclusion of the procedures mentioned above, the foreign entity will need to be registered with the Federal Revenue Service to obtain its Federal Taxpayer Registration Number (CNPJ), which is mandatory for conducting business in Brazil, including for the formation of Brazilian subsidiaries.
Consequently, understanding the Brazilian legal environment and establishing subsidiary entities in Brazil in advance of the issuance of the Central Bank of Brazil’s regulation on the matter provides strategic advantages for those wishing to distinguish themselves as pioneers in the competitive virtual assets market. Being prepared for the regulatory framework to be set forth by the Central Bank will enable these entities to initiate their operations immediately and in full compliance with local regulations.
Author:
João Carlos A.C. de Mendonça
Email: joaomendonca@felsberg.com.br
Cindy Massesine Pimentel
Email: cindypimentel@felsberg.com.br