Brazil’s Digital Asset Accounting Overhaul

In November 2024, Brazil’s Federal Revenue Service (RFB) launched a public consultation to implement new accounting rules for digital assets, aiming to enhance transparency and regulatory oversight in the rapidly evolving crypto market. The consultation, which began on November 7, 2024, and was extended to December 20, 2024, sought input from cryptoasset service providers on reporting requirements for transactions involving cross-border transfers, cryptoassets linked to other assets, deposits to decentralized finance (DeFi) platforms, and fractionalization of non-fungible tokens (NFTs). This initiative aligns with Brazil’s broader efforts to regulate the virtual asset market, following the enactment of Law No. 14,478/2022, which established the Central Bank of Brazil (BCB) as the primary regulator for crypto-assets and service providers not classified as securities.

Background and Regulatory Framework

The Brazilian government’s proactive approach to digital asset regulation began with the passage of Law No. 14,478/2022, known as the “Legal Framework for Virtual Assets.” This legislation defined virtual assets and designated the BCB as the authority responsible for regulating and overseeing the crypto market, excluding assets classified as securities, which remain under the jurisdiction of the Brazilian Securities and Exchange Commission (CVM). The law also outlined the activities of Virtual Asset Service Providers (VASPs), including exchanges, custodians, and brokers, and established the framework for their authorization and supervision.

Investor Identification, Introduction, and negotiation.

In June 2023, Decree No. 11,563 was published, further detailing the BCB’s powers and responsibilities in regulating the virtual asset market. This decree emphasized the BCB’s role in authorizing VASPs and overseeing their operations, while maintaining the CVM’s authority over securities-related assets. Both the law and the decree came into effect on June 20, 2023, marking a significant step in formalizing Brazil’s approach to digital asset regulation.

Public Consultation on Accounting Rules

The RFB’s public consultation aimed to gather feedback on proposed accounting standards for digital assets, focusing on several key areas:

1. Cross-Border Transfers: Reporting requirements for cryptoasset transactions involving transfers between Brazil and other countries.

2. Linked Cryptoassets: Guidelines for accounting cryptoassets that are linked to other types of assets.

3. DeFi Deposits: Standards for reporting deposits of cryptoassets to decentralized finance platforms.

4. NFT Fractionalization: Accounting practices for the fractionalization of non-fungible tokens (NFTs).

By addressing these areas, the RFB sought to create a standardized framework that enhances transparency and consistency in the reporting of digital asset transactions. The extended consultation period allowed stakeholders ample time to provide input, ensuring that the final regulations would be well-informed and balanced.

Alignment with Broader Regulatory Efforts

This consultation is part of a series of regulatory initiatives by Brazilian authorities to establish a comprehensive framework for the virtual asset market. In November 2024, the BCB published Public Consultation Notices No. 109 and 110, which proposed regulations for VASPs and other institutions licensed by the BCB to engage in virtual asset activities. These proposals aimed to protect consumers and investors, ensure the proper functioning of the virtual asset market, and mitigate risks associated with money laundering and other illicit activities.

The BCB’s proposed regulations included:

• Definitions: Clear definitions of key terms such as “stablecoin,” “smart contract,” “network fork,” “airdrop,” and “staking.”

• VASPs Classification: Categorization of VASPs into three types—intermediaries, custodians, and brokers—each subject to specific capital and net worth requirements ranging from BRL 1 million to BRL 3 million.

• Additional Capital Requirements: For intermediaries and brokers offering margin account transactions and staking, an additional BRL 2 million was required.

• Payment Accounts: Intermediaries and brokers were mandated to offer payment accounts to protect clients, adhering to relevant regulations.

• Authorization and Operations: Existing institutions could continue operations by demonstrating compliance with minimum capital and net worth requirements and undergoing a two-phase authorization process.

These proposals aimed to establish a legally secure environment, ensure the soundness and efficiency of VASPs, and mitigate risks associated with virtual asset activities.

Implications for the Digital Asset Market

The RFB’s initiative to implement new accounting rules for digital assets represents a significant step toward formalizing and regulating Brazil’s crypto market. By establishing clear reporting requirements, the government aims to enhance transparency, reduce the risk of illicit activities, and provide a more stable environment for investors and service providers.

For VASPs and other stakeholders, the new accounting standards will necessitate adjustments to their reporting practices and internal controls. While this may involve initial challenges, the long-term benefits include increased credibility and trust in the Brazilian digital asset market, potentially attracting more institutional investors and fostering innovation.

Conclusion

Brazil’s proactive approach to regulating digital assets reflects a global trend toward establishing clear frameworks for the crypto market. By implementing standardized accounting rules and comprehensive regulations, Brazil aims to create a secure and transparent environment that supports the growth and development of the virtual asset sector. Stakeholders are encouraged to engage actively in the consultation process to ensure that the final regulations effectively address the complexities of the digital asset landscape.

References

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• “pags-20231231,” U.S. Securities and Exchange Commission, December 31, 2023. (sec.gov)

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