The Executive Management Committee at the Foreign Trade Chamber (“GECEX/CAMEX”) of the Ministry of Economy eliminated the import tax rate on Bitcoin mining equipment, through GECEX Resolution No. 339, of May 9, 2022. Such 0% tax rate is specifically aimed at machinery that uses the SHA256 algorithm, which is the encryption protocol used to protect passwords of Bitcoin users and prevent the hacking of wallets.
The Organisation for Economic Co-operation and Development (“OECD”) invited Brazil to adhere to two of its fundamental instruments: the Code of Liberalisation of Capital Movements and the Code of Current Invisible Operations.
The first document refers to recommendations for regulating the international financial flow, including payments, transfers, loans and investments, as well as the purchase and sale of foreign currency. Meanwhile, the second document essentially refers to the provision of cross-border services, such as consulting, legal and architectural services.
According to the President of the Central Bank of Brazil, adherence to such Codes is a sign that Brazil applies the best international practices regarding capital flow and provision of services, which will provide foreign companies a better understanding of our regulatory framework, lower cost of adaptation to the country’s unique characteristics and greater perception of legal certainty in international transactions, attracting investors.
The Central Bank of Brazil (“BACEN”) published a Notice of Public Consultation that proposes the regulation of a new law for Foreign Exchange and International Capital, Law No. 14,286 of November 29, 2021, which will take effect on December 31, 2022. The Public Consultation will remain open for contributions until July 1, 2022.
Among the main proposals of the Public Consultation are (i) the free format for carrying out foreign exchange operations, subject to established criteria; (ii) permission to apply the authorized institution’s own criteria to request or waive any additional documentation necessary for the course of foreign exchange operations, considering the client’s assessment and the characteristics of the operation; (iii) simplification of the classification process for the purpose of foreign exchange operations; and (iv) the reduction of asymmetries in requirements for opening, maintaining and operating non-resident accounts in Brazilian reais, compared to those required for resident accounts.
In addition to the topics mentioned above, the Public Consultation proposes a new definition of “residents” and “non-residents” for purposes of the new Law, for regulating the exchange market and other matters addressed by the new Law, such as matters concerning Brazilian capital abroad, foreign capital in Brazil and submission of information to the BACEN.
On April 26, 2022, the Senate Plenary Sitting approved, through a symbolic vote, the regulation for the Brazilian digital assets market. The text of Bill 4,401/2021 is under analysis by the Brazilian House of Representatives, and gathers three other propositions previously presented on the same subject (Bills No. 3,825/2019, No. 3,949/2019 and No. 4,207/2020).. The proposal establishes guidelines for the “provision of digital asset services” and regulates the operation of companies that provide such services.
“We made progress in discussions of the report so that we could finally vote here today on this matter of regulation of crypto assets, or cryptocurrencies, as they are also called, an extremely important and urgent matter. The Central Bank was constantly asking the Congress to take a stand in relation to a regulatory framework which understands the dimension of this new business environment” — explained Senator Irajá (PSD-TO).
In addition, the Bill proposes that “a body or entity of the federal public administration to be appointed in an act of the Executive Branch” be responsible for the regulation and inspection of digital asset providers. In the market, it is expected that the Central Bank of Brazil, which has been deepening the discussions on the subject, will be the appointed authority.
Joe Biden, President of the United States of America, signs Decree on Crypto Assets Regulation
On March 9, 2022, Joe Biden signed a decree on crypto assets, which will set guidelines for federal agencies on the regulation of this sector in the United States of America (“USA”). Through this action, the current president of the United States announces an “effort of the entire government” to regulate crypto assets. The decree, which is the first to focus exclusively on crypto, has six main goals: (i) protecting US interests; (ii) protecting global financial stability; (iii) preventing unlawful applications of crypto assets; (iv) fostering “responsible innovation”; (v) financial inclusion; and (vi) maintaining the US leadership in technology.
One of the most disruptive segments of the real estate market, asset tokenization – that is, transforming assets into blockchain tokens – plays an important role in essential topics such as liquidity, security and innovation. The estimate is that real estate tokenization (of assets related to this market) alone will reach USD 1.5 trillion by 2026, and it is in this market that Insignia intends to work. The main goal of the startupis to democratize access to the real estate market, both for developers and potential consumers. Created by winners of the Real Estate Tokenization Challenge 2021, in partnership with Daniel Chor, CEO of Tropix, and Alexandre Frankel, CEO of Housi, the company will tokenize and distribute real estate assets, subsequently transforming its tokens into digital collectibles through the use of NFTs. The Real Estate Tokenization Challenge 2021 brought together worldwide real estate professionals and blockchain experts to develop and execute real asset tokenization, driving its adoption in the sector.
In order to deepen and broadcast knowledge concerning the topic, the Brazilian Financial and Capital Markets Association (“ANBIMA”) published an informative material called “Tokenization of Assets: initial concepts and ongoing experiments.” The publication, which can be downloaded free of charge, has the purpose of serving as a source of initial knowledge on the topic and its impacts on the capital market.
The tokenization of assets is one of the innovations enabled by the popularization of blockchain technology and can be explained as the transformation of assets or ownership of physical, electronic, book-entry or even other digital assets into digital assets. The publication introduces the initial concepts for understanding such technology and addresses potential impacts of asset tokenization on the operation of financial and capital markets. The experiments presented in the Webinar “Blockchain in the capital market: Brazilian experiments” are some of the cases explored in the material.
Decentralized Finance is one of the topics of ANBIMA’s strategic planning for 2022. This publication is another initiative of this agenda that seeks to build and disseminate knowledge about uses and impacts of blockchain technology within the capital market.
Read in full and access ANBIMA’s material on Tokenization of Assets.
On June 1, 2022, another investment option intitiated operations following the approval of the Brazilian Securities and Exchange Commission (“CVM”). It is the first regulated tokenized asset trading platform.
Its history commenced in 2020, when the CVM launched Sandbox, an opportunity for two companies to come together. In 2021, the holding QR Capital and fintech Vórtx were selected and created a joint venture, Vórtx QR Tokenizadora, which officially initiated operations of the first regulated tokenization company in Brazil.
The new company will intermediate, keep custody and issue tokens that represent debentures and shares of closed-end investment funds using blockchain technology, which ensures more security and transparency in the process, and is executed directly by investors or issuers. Such transaction format democratizes the process and enables the expansion of the base of operators and market access.
Within the next few months, there are also plans for the launch of a new platform for trading tokenized assets regulated by the CVM, within the scope of the Regulatory Sandbox. This is an organized over-the-counter market managed by Start Me Up (“SMU”), whose goal is to allow secondary trading of investments carried out on its crowdfunding platform. The assets will be represented by tokens to be issued under the Stellar blockchain protocol.
Regulatory Framework for Digital Assets in Other Countries
Regulators around the globe have been monitoring and, in certain cases, proposing the enactment of rules aimed at regulating the different types of virtual assets that have emerged in connection with the new crypto economy. The enactment of such rules seems to be linked to the need of improved legal certainty as the market based on a system of registration of digital and decentralized financial transactions is growing and becoming larger, offering greater protection for consumers. Within such context, US senators Kirsten Gillibrand and Cynthia Lummis introduced a bill aiming at creating stability for the responsible development of financial innovations. Such bill comprises a definition of the regulatory matters reserved for the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), concerning the regulation and supervision of the digital asset market, and addressing other relevant issues, including stablecoins.
Read in full
On May 12, the Superior Court of Justice (“STJ”) denied Special Appeal 2,077,602/RS, in which two men requested compensation for pain and suffering after being harmed by the financial pyramid scheme of Unick Forex, a company that promised profits from trading cryptocurrency and from the binary options market.
According to the president of the Court, what happened was a breach of contract, with no offense to the personality of the claimants, which is a requirement for the characterization of pain and suffering. In addition, the decision stated that investing in cryptocurrency is, by nature, a high-risk activity, given that it is a poorly consolidated market and subject to instability.
The decision further emphasizes that the risk associated with such type of investment must be calculated in advance and that investment managers with ballast and authorization to operate in the financial market are a more reliable option, in order to avoid scams
The Third Panel of the STJ denied Special Appeal No. 1,965,982, thus determining that the effects of disregarding legal personality can affect investment funds, even if such funds do not have a legal personality, given that they are holders of rights and obligations and can be organized or used in a fraudulent manner by shareholders.
Such ruling maintained the understanding of the São Paulo Court of Justice that, in the course of an execution, confirmed the dismissal of a third-party motion to stay an execution filed by a Private Equity Investment Fund (FIP) against the blocking and transfer of its assets, after the legal personality of a certain holding company was disregarded.
On May 20, 2022, the National Monetary Council (“CMN”) and the National Council of Private Insurance (“CNSP”) published Joint Resolution No. 5, which brings greater clarity and rules interoperability within the scope of Open Finance. The purpose of such regulatory measure is to reflect the current Open Finance framework in Brazil, which is transitioning into a broader strategy, aiming to contemplate sharing of data concerning exchange operations, registration of payment arrangements, term deposit accounts and other products of investment, insurance and open supplementary pension nature.
Among the benefits sought through the implementation of interoperability between Open Finance systems are: (i) greater security for consumers, who have guaranteed full rights over their data and can transfer their financial relationship between institutions supervised by different sectoral regulators, through secure, agile, accurate and standardized means; (ii) greater process efficiency in financial, capital, insurance, pension and capitalization markets, simplifying integration costs and reducing information asymmetries between economic agents; and (iii) equalization of the regulatory treatment given to different providers and distributors of financial products and services within the scope of Open Finance, among others.
BACEN Resolution No. 224/2022, which entered into force on May 2, 2022, is an amendment to Circular No. 3,689/2013, which regulates provisions on foreign capital in Brazil, within the scope of the Central Bank. Such Resolution enables changes in the Registration of Financial Operations of the Electronic Declaratory Registration System (“RDE-ROF”), for information concerning interest rates when the indexer is not published (such as the Libor rate).
CMN Resolution No. 5,011/2022, which also entered into force on May 02, 2022, amends CMN Resolution No. 3,844/2010, which deals with foreign capital and its registration with the Central Bank of Brazil. As a result, it is no longer necessary to write-off original debt records, make a new registration and carry out simultaneous exchange operations or international transfers in Brazilian reais, in the event of changes in RDE-ROF interest rate registration whose indexer is not disclosed.
BACEN’s Normative Rule No. 229, of May 12, 2022, changed the rules on the calculation of capital requirement for credit risk, based on the international agreement Basel III. The new regulation will allow lower capital requirements for credit operations with less risks, even within the same modality. The monetary authority believes that, in addition to reducing the demand for resources from financial institutions by up to BRL 3.8 billion, this measure will bring improvements to the prudential legal framework by differentiating the credit risk of operations.
CMN Resolutions No. 5,006 and No. 5,007, of March 24, 2022, entered into force on May 02, 2022. The Resolutions consolidate rules that govern conditions for the issuance of Agribusiness Credit Letters (“LCA”) and Financial Letters (“LF”), in addition to repealing CMN Resolutions No. 4,296/2013 and No. 4,733/2019, among others, which were previously in force.
The BNDES and the Brazilian Audit Court (“TCU”) held an event for signing the Technical Cooperation Agreement for the creation of the Brazilian Blockchain Network (“RBB”). The use of blockchain technology has been widely discussed within the context of the digital transformation of public administration, as it is an instrument for improving institutions’ security and transparency. At the event, a few potential participants of the network were heard. Such participants are using it in its experimental stage and are already discussing the technical aspects of blockchain technology based on their respective user experiences.
The BNDES and AWL Consortium held an online event to announce the selection call of 45 impactful startups for the 2022 cycle of the BNDES Garagem Program (Garage Program, in English), an initiative whose mission is developing and fostering entrepreneurship in Brazil by supporting entrepreneurs and startups. The current cycle will focus on the areas of education and employability; financial inclusion and education; health and wellness; sustainable cities and citizenship; and environment and circular economy.
In partnership with the Inter-American Development Bank (“IDB”), the Mexican Banco Nacional de Obras y Servicios Públicos S.N.C. (“Banobras”) and ALIDE (an association of development banks in Latin America), the BNDES launched the Latam Projects Hub, a new platform that offers investors a unified view of a set of investment opportunities in concessions, public-private partnerships and privatizations in Latin America, providing strategic information about the projects.
Easy access to available information will make investors more visible for a regional portfolio approach, so they can be better prepared for bidding processes. In addition, the Latam Projects Hub will enable financial institutions to follow-up on the regional infrastructure market and engage in multimarket operations.