Brazil's central bank plans crypto regulations by year-end

Brazil’s central bank has announced a multi-phase plan to regulate cryptocurrencies and virtual asset service providers (VASPs). The bank aims to finalize the regulatory proposals by the end of 2024, enforcing transparency around the benefits and risks of these investments.

Phased approach and public consultations

The development of the framework will include several phases. The phased rollout includes public consultations and the development of a complementary framework for VASP operations. 

A public consultation initally began in December 2023 and concluded in January 2024. Feedback from this will inform a new consultation scheduled for the second half of this year.

The central bank will also regulate stablecoins, particularly those used for payments and foreign exchange. Internal planning is underway for these regulations as part of the broader framework development.

Nagel Lisanias Paulino, from the BC Financial System Regulation Department, noted the central bank's focus on providing minimum requirements for service providers and ensuring appropriate practices when dealing with customers. 

Under a 2023 Presidential decree, the central bank has been granted authority to regulate virtual asset services and VASPs. This authority is distinct from the local Securities and Exchange Commission (CVM), which retains control over securities. 

The goal is to protect investors from fraud and scams, requiring VASPs to adhere to anti-money laundering (AML) and similar compliance procedures.

Love hate relationship with crypto

Amidst this backdrop, Brazilian authorities recently banned crypto donations to political parties and candidates. The electoral court emphasized the need for transparency and traceability in campaign financing to protect elections from irregular or illicit practices.

Brazil’s central bank is also hosting the G20 Techsprint program and developing its wholesale central bank digital currency (CBDC) initiative, DREX. This initiative aims to support financial inclusion and the interbank settlement of tokenized deposits. 

Brazil’s successful Pix mobile payment system complements these efforts, expanding financial services, including credit and wealth management through DREX.