Bill Regulating the Brazilian Crypto Industry Approved by Chamber of Deputies.
Brazil is one step closer to fully regulating its local cryptocurrency scene, as the Chamber of Deputies recently approved a bill.
The lower house of the National Congress of Brazil, the Chamber of Deputies, has approved Bill 4401/21 (formerly dubbed PL 2303/15), which seeks to effectively enact an appropriate regulatory framework for the Brazilian crypto industry. According to a report from the Brazilian internet portal UOL, the Chamber of Deputies approved the bill on Tuesday after months of delay. The efforts started when Brazil’s Committee on Economic Affairs (CAE) approved the bill in February this year to regulate crypto.
The Chamber of Deputies’ approval comes seven months after the upper house of the Brazilian Congress, the Federal Senate, approved the bill in April. The Chamber had deferred the approval due to a necessity to eliminate some controversial aspects of the bill. The approval follows a successful removal of the controversial parts by the members of the Chamber. The bill now awaits the signature of Brazilian president Jair Bolsonaro to become law.
The bill which Chamber of Deputies member Aureo Ribeiro proposed stipulates certain provisions regarding cryptocurrency trading and investments aimed at protecting consumers, bolstering innovation within the scene, and improving transparency of crypto operations.
One bill’s provisions spell out punishment for criminal activities involving cryptocurrencies. According to the bill, individuals convicted of crypto-related crimes will be slapped with a fine in addition to a jail term that ranges from two to six years. This is especially important, considering the current rapid surge of crypto crimes. In July, Brazil introduced its crypto crime investigation unit due to this increase in crypto-related frauds.
Furthermore, the bill creates a virtual service provider license, which would be required from virtual asset entities seeking to provide crypto-focused services to consumers in the Latin American country.
Additionally, firms already domiciled in Brazil will get a 180-day grace period to acquaint themselves with the bill’s new provisions before it becomes law. This provision was included by the Chamber of Deputies following the removal of a section that states that companies will be required to comply with the demands of the law once it is approved.
Regarding cryptocurrencies considered securities by the Brazilian financial authorities, the bill notes that such assets will be kept under the surveillance of Brazil’s Securities and Exchange Commission. Conversely, assets not regarded as securities will be regulated by another financial agency appointed by the executive. Speculations point to the country’s central bank due to its experience.
Expungement of the Asset Segregation Provision
As previously mentioned, the approval delay from the Chamber of Deputies was influenced by several debates concerning the removal of numerous controversial points in the version of the bill approved by the Senate.
The necessity to vote on the bill sooner was also prompted by the desire from the Chamber to pass approval before president-elect Luiz Inácio Lula da Silva assumes office next year, as the house expressed concern about the new administration’s antagonism to the law.
One of the controversial points is in the area of asset segregation. Asset segregation limits the power and control brokerage entities have over client deposits, assuring clients that they have absolute possession of their funds within the firm. In the event of an implosion, as was recently witnessed with FTX, customer funds are remitted back to them and not used to settle creditors during the firm’s bankruptcy process.
The recent collapse of FTX underscored the necessity of asset segregation to ensure proper consumer protection measures. This has once again rejuvenated discussions on why the policy is essential.
As approved by the Senate in April, the bill made provisions for asset segregation to protect clients. Notwithstanding, the Chamber of Deputies rapporteur for the PL, 34-year-old deputy Expedito Netto, expunged this section from the bill. He asserted that companies should be free to invest customer funds as they deem fit, as they would be in the client’s best interest. “These companies will have the power to invest the capital in transforming it into more profits,” Netto remarked at a June 10 conference, citing the freedom banks have to invest with customers’ funds.
Netto’s decision has attracted backlash and criticisms from several financial and crypto-focused entities in Brazil. Notably, the director of Innovation, Products, and Services at the Brazilian Federation of Banks, Leandro Vilain, noted that a comparison between crypto exchanges and banks is misplaced.