Shalini Nagarajan

Brazil lawmakers have formally approved a regulatory framework set to govern the country’s crypto sector.



The bill <a href="https://blockworks.co/news/historic-brazilian-bill-regulating-crypto-heads-to-senate-vote" target="_blank" rel="noreferrer noopener">drew attention</a> earlier this year after a previous version passed through the Senate in April. It had since since been stuck in the Chamber of Deputies, the government&#8217;s lower house.



Local media <a href="https://www.infomoney.com.br/mercados/camara-aprova-marco-regulatorio-dos-criptoativos-no-brasil/" target="_blank" rel="noreferrer noopener">reported</a> that the text, written by federal deputy Aureo Ribeiro, includes a new crime: digital asset embezzlement, which appears targeted at exchange operators. 



Penalties include prison time between two to six years along with fines, which can also be handed out to entities which operate in Brazil without a physical presence. 



There&#8217;s also a rule requiring crypto companies such as exchanges and other intermediaries to hold a virtual service provider license, similar to rules set in place across the US and Europe.&nbsp;



The country’s efforts to regulate local crypto players comes amid turmoil in the wider digital asset space. Strife was most recently prompted by the collapse of FTX, which has left up to one million users out of pocket including regular investors, crypto projects and hedge funds. 



Former FTX CEO Sam Bankman-Fried allegedly siphoned user funds to make risky bets across crypto markets via sister trading unit Alameda Research, leading to a multibillion-dollar black hole in its balance sheet and a crippling liquidity crisis.



Brazil lawmakers however disagreed over whether to demand crypto exchanges ensure client funds are segregated from operational cash. This would hypothetically protect customers from corporate malfeasance and other crippling events such as exchange bankruptcy.



But Ribeiro effectively opposed this proposed change, saying it would stifle the crypto market. Currently on hold, the asset segregation issue will be debated at a later date.



<h3 class="wp-block-heading">Crypto is big in Brazil</h3>



Government-appointed bodies will reportedly decide which digital assets can be listed for trade, and relevant companies will have an 180-day grace period to comply with the incoming rules.



Brazil, which has suffered from high <a href="https://blockworks.co/news/what-is-an-inflation-hedge-finding-stability-in-todays-market">inflation</a> for decades, is one of the most active crypto markets in the world, according to recent <a href="https://blog.chainalysis.com/reports/2022-global-crypto-adoption-index/" target="_blank" rel="noreferrer noopener">Chainalysis data</a>. <a href="https://thepaypers.com/thought-leader-insights/the-crypto-landscape-in-brazil--1258289" target="_blank" rel="noreferrer noopener">About 5%</a> of its population actively invests in crypto, and more than 900 Brazil-based companies currently accept crypto as payment. 



One silver lining could be that the domino-style tumbling of unregulated crypto firms over the past year may usher in regulated institutions with stronger compliance frameworks and robust risk systems. At least, that&#8217;s what Brazil&#8217;s incoming crypto regulations could inspire.



Brazil’s bill is already approved, but it will now head for a signature from outgoing president Jair Bolsonaro before his term ends on Dec. 31. Luiz Inácio Lula da Silva is expected to take up office on Jan. 1.



Some lawmakers reportedly preferred the bill be approved during Bolsonaro&#8217;s term, over fears Silva may not be as enthusiastic about cryptocurrency.



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Brazil Crypto Laws Demand Up to 6 Years Prison for Embezzlement

Sebastian Sinclair

<div id="highlights-block_6215aaa65de98" class="highlights">
 <ul>
 <li>Brazil&#8217;s Senate will vote on a bill that seeks to regulate crypto throughout Latin America&#8217;s largest economy</li>
 <li>Supervision and inspection of digital assets will be handled by the country&#8217;s central bank</li>
 </ul>
 
</div>



Brazil&#8217;s Senate is set to vote on a bill aiming to regulate and legitimize digital assets throughout Latin America&#8217;s largest economy.



<a href="https://www25.senado.leg.br/web/atividade/materias/-/materia/137512" target="_blank" rel="noreferrer noopener">Bill 3825/2019</a> — which heads to a vote after clearing the country&#8217;s economic affairs committee on Tuesday — proposes regulatory guidelines for Brazil&#8217;s <meta charset="utf-8">digital asset market, including an exchange licensing regime.



Introduced by Senator Flávio Arns, the bill specifically seeks to regulate services related to operations carried out with crypto on electronic trading platforms. It marks the first time such a bill is being considered in South America.



Supervision and inspection of digital assets will be handled by the country&#8217;s central bank, the bill reads. The Comissao de Valores Mobiliarios (Brazil&#8217;s Securities and Exchange Commission) will be charged with overseeing initial coin offerings.



The aim of <a href="https://legis.senado.leg.br/sdleg-getter/documento?dm=9073852&amp;ts=1645541387306&amp;disposition=inline" target="_blank" rel="noreferrer noopener">the bill</a>, proponents claim, is to regulate crypto-related crime and bring the unregulated market under the gaze of financial watchdogs in an attempt to monetize and police the budding industry. The guidelines draw up exact definitions of what constitutes virtual asset service providers, such as exchanges, and what constitutes crypto.



Measures to combat money laundering and other illegal activity, as well as penalties being applied to &#8220;fraudulent&#8221; or &#8220;reckless management&#8221; of crypto exchanges, are also being considered in the proposed legislation.



Following approval by the Senate plenary, the bill will need to be ratified by the Brazilian Chamber of Deputies — the country&#8217;s lower house, composed of representatives of all Brazilian states and the federal district. From there, President Jair Bolsonaro can choose to approve or veto the bill.



&#8220;The world is not waiting for the laggards,&#8221; said Rafael Bezerra, director of supervision at Brazil&#8217;s Financial Activities Control Council in a <a href="https://www.youtube.com/watch?v=XIvOyE1GrKU&amp;t=44s&amp;ab_channel=TVSenado" target="_blank" rel="noreferrer noopener">video</a>. &#8220;It is important that we do not place ourselves among them in the near future.&#8221;



Last year, El Salvador moved to legalize bitcoin as legal tender alongside its national currency and the US dollar. The country&#8217;s president, Nayib Bukele, has been vocal about detaching his nation&#8217;s dependence on foreign interference in the country&#8217;s crypto decisions.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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