New Rules Classify Digital Currencies As “Securities” In Brazil

Specific Regulations On Cryptocurrencies Are Missing

A new document containing fresh rules and guidelines has been issued in Brazil by the country’s securities watchdog Securities & Exchange Commission (CVM).

In these guidelines/rules, CVM has also discussed in brief the issue of cryptocurrencies, particularly those which CVM believes are ‘securities’ but based on cryptocurrencies.

Acknowledges Difficulty In Differentiating Cryptocurrencies From Securities

The guidelines also endorse that there is a huge vacuum with regard to the subject which is apparent because of the lack of clear and exclusive regulations. CVM admitted that the law does not define digital currencies

On the other hand, there is no provision in the law through which the difference between a ‘security’ and ‘cryptocurrency’ can be made, acknowledged CVM.

Definition Provided

However, in the newly set up guidelines, CVM has defined ‘cryptocurrencies’ to mean an asset in the digital form which can be recorded in DLT (i.e. Distributed Ledger Technology) and can be transacted as and when required.

Fresh guidelines provided that digital tokens which can unambiguously be classified as ‘securities’ should either be in the shape of shares, right coupons, split certificates, subscription bonuses and receipts, and debentures.

Other Tokens Too Can Be Classified

The guidelines further suggested that apart from the defined tokens, CVM can further classify other tokens depending on their structures.

Further clarification was provided by CVM that there shall be no requirement of obtaining prior approval of the authority before tokenization of the digital assets.

However, in case the digital assets fall in the classification of ‘securities’, then prior approval is mandatory and digital assets shall further be subject to compliance with the security regulations already in place.

Crypto Assets Divided Into 3 Major Categories

In the latest guidelines, CVM has further categorized digital assets into three major categories firstly payment tokens which are meant for replicating traditional fiats, storing value, and for exchange.

The second category consists of tokens which are pure ‘utility’ tokens and include digital tokens meant for accessing and obtaining services and products.

In the third category, there are tokens that are backed by traditional assets which also include digital NFTs, stablecoins, and other security tokens.

Further Characterization of Third Category

Certain elements concerning the third category too have been clearly identified. CVM has determined that the assets in the third category shall be classified as ‘securities’ until and unless their specifics suggest otherwise.

In the document, it has been revealed that CVM shall continue to wield its power over the crypto markets existing in Brazil. The authority further said that it shall make sure to apply new rules in letter and spirit.

However, it may be noted that the guidelines/rules are not permanent and hence cannot fulfill the vacuum for proper law. At best, a temporary solution could be offered by CVM.