Cryptocurrency Regulations in Brazil Prior to 2023

As of the period leading up to 2023, Brazil presented a complex landscape regarding the regulation of cryptocurrencies. This environment was shaped by a combination of legislative action, regulatory agency guidance, and overarching legal principles that governed digital assets.

General Regulatory Environment: Before specific regulations were introduced, the Brazilian legal system did not have a framework explicitly dedicated to cryptocurrencies. However, existing laws and regulations provided guidance on how cryptocurrencies were treated. Virtual currencies were not considered legal tender in Brazil, as the Brazilian real is the country’s legal currency. Cryptocurrencies, under this regime, were generally considered assets under the general Civil Code regime (Law 10406/02).

Initial Coin Offerings (ICOs): ICOs, particularly those resembling securities, fell under the purview of the Capital Markets Law and the regulatory framework of the Brazilian Securities Exchange Commission (CVM). As such, these offerings were subject to CVM Ruling 400/03 and other relevant CVM guidance.

Lack of Specific Anti-Money Laundering Laws for Cryptocurrencies: Brazilian law did not have specific provisions for an anti-money laundering regime dedicated to virtual currencies. However, the existing Anti-Money Laundering Law could be extended to virtual currencies in various contexts.

Taxation of Cryptocurrencies: The Brazilian tax law did not have specific provisions for cryptocurrencies. However, the Brazilian tax authorities required that virtual currencies be declared in income tax statements. Capital gains derived from the sale of virtual currencies were subject to income tax.

Government and Central Bank Warnings: The Brazilian government and the Brazilian Federal Reserve Bank (Banco Central do Brasil) expressed concerns over the risks posed by cryptocurrencies. In 2017, the Central Bank issued a notice alerting citizens to the risks involved in the custody and trading of virtual currencies. This notice highlighted that cryptocurrencies were neither issued nor guaranteed by any monetary authority, implying that the entire risk lay with the holders.

Lack of Regulation by the Brazilian Federal Reserve Bank: Companies dealing in virtual currencies on behalf of users were not regulated, authorized, or supervised by the Brazilian Federal Reserve Bank. This lack of specific regulation extended to the entire legal and regulatory framework related to the National Financial System in Brazil.

Distinction from Electronic Money: Virtual currencies were distinctly defined from electronic money as per Law 12,865 of October 9, 2013. Electronic money was regulated by normative acts issued by the Brazilian Federal Reserve Bank, according to the guidelines of the National Monetary Council.

Legislative Proposals: In late 2020, Brazilian lawmakers proposed legislation aimed at regulating cryptocurrencies and establishing laws governing their business use.

Introduction of the Brazilian Virtual Assets Law: In December 2022, Brazil enacted Law No 14,478/22, known as the Brazilian Virtual Assets Law. This law, which came into force in June 2023, marked a significant shift in the regulatory landscape for virtual assets in Brazil. The Central Bank of Brazil (BACEN) was tasked with issuing ancillary regulations and supervising activities involving virtual assets as per this law.

Scope of BACEN’s Jurisdiction and the Virtual Assets Law: BACEN’s jurisdiction under this new legal framework was not unrestricted. Virtual assets were not considered currency in Brazil, and the new law expressly excluded tokenized currencies and virtual assets issued by Central Banks (CBDCs) from its definition of virtual assets. Cryptocurrencies such as Bitcoin, Ether, Litecoin, and Dogecoin were included in the definition of virtual assets and therefore came under BACEN’s jurisdiction.

Regulatory Involvement of CVM: The CVM, which oversees securities in Brazil, also engaged in the regulation of virtual assets. It published regulatory guidance and regulations for types of virtual assets that may classify as securities, especially regarding the characterisation of “tokens of receivables” or “fixed income tokens” as securities.

Enforcement of the Brazilian Virtual Assets Law: As of the time of reporting, only the principles and certain rules related to consumer defense and criminal law set forth in the Brazilian Virtual Assets Law were enforceable, with BACEN and CVM indicating plans to publish ancillary regulations for public comments.

In summary, the landscape for cryptocurrency regulation in Brazil prior to 2023 was marked by a gradual shift from a general legal framework to a more specific regulatory regime. The enactment of the Brazilian Virtual Assets Law and subsequent regulatory actions signaled Brazil’s recognition of the growing significance of digital assets in its financial system, culminating in a more structured and defined regulatory environment.