THE NEW CRYPTO-ASSETS LAW COMES INTO EFFECT IN JUNE AND STILL LEAVES POINTS OF DOUBT FOR THE MARKET.

THE NEW CRYPTO-ASSETS LAW COMES INTO EFFECT IN JUNE AND STILL LEAVES POINTS OF DOUBT FOR THE MARKET.

Law 14.478 was sanctioned at the end of 2022 and deals with the regulation of crypto-assets in Brazil. With a vacatio legis of 180 days, it will begin to take effect on the upcoming 19th of June, 2023. The law presents several important provisions about the regulation of virtual assets (like cryptocurrencies) in Brazil. While each one can interpret the text in different ways, here are five points of the law that, in our understanding and experience, have generated controversy:

1. Definition of virtual assets: The law defines “virtual assets” in a way that excludes several categories of assets, such as national and foreign currencies, electronic currency, loyalty program points, and representations of assets whose issuance, record-keeping, trading, or settlement is provided for in law or regulation. This can be challenged based on its scope or exclusions. For example, by excluding national currencies, it removes official digital assets from its scope, such as the case of Digital Real or other CBDCs (Central Bank Digital Currencies).
2. Operating authorization: The law establishes that virtual asset service providers can only operate in the country with prior authorization from a federal Public Administration body or entity. This could generate debate about bureaucracy and barriers to entry into the sector, as well as doubts about the responsible authority. Since debates about the regulation of crypto-assets began, Central Bank and CVM have been questioned whether one or the other would regulate the matter, but no body has stepped forward to address the topic without legislative initiative. This initiative did not come with the Law, and therefore the debate continues.
3. Virtual asset service providers and associated crimes: The law also establishes penalties for fraud involving virtual assets, as well as includes virtual asset service providers in money laundering provisions. The conditions under which these penalties are applied can be contested. Furthermore, the legislator could have delved deeper into themes dear to the prevention and persecution of such crimes, such as setting rules for preventing currency evasion, so difficult to identify when it comes to operations with crypto-assets.
4. Time for adaptation: The six-month period for virtual asset service providers to adapt to the provisions of the new law and the rules established by the federal Public Administration body or entity may be considered short for some companies, leading to debates about the viability of this deadline. The deadline is even shorter when considering the lack of objectivity of the legal text, requiring for its concretization an executive order that may or may not come in a way that is beneficial to the market.
5. Asset segregation: Perhaps one of the most important points debated by the crypto-asset market was left out of the new law, namely, the segregation between the assets of the exchanges and the clients’ assets. With the absence of this point, the law loses much of the strength it could have.

Lastly, it’s worth noting that any legislation that regulates new technologies, like virtual assets, is typically the subject of debate and controversy due to its complexity, the rapid pace of technological change, and the need to balance innovation, consumer protection, and prevention of illegal activities. We will continue to follow the topic and make ourselves available to answer questions about crypto-assets and related subjects.