Statements of the Central Bank of Brazil and of the Brazilian Securities Exchange Commission regarding the use of cryptocurrency and Initial Coin Offerings (ICOs) in Brazil
In the context of the new resources globally used to fund technology startups, the Initial Coin Offerings (“ICOs”), which have some similarity to IPOs, are becoming increasingly popular. In ICOs, investors give their cryptocurrency (such as Bitcoin or Ether) in exchange for new units of the new cryptocurrency or crypto-token that are being issued by the offering startup, either for use in the startup environment itself or to acquire business partners’ goods and services.
Although cryptocurrencies/crypto-tokens are not yet regulated in Brazil, Brazilian authorities, in particular the Central Bank of Brazil (“Bacen”) and the Brazilian Securities Exchange Commission (“CVM”), are progressively studying their usage and how such new technologies will be treated by the Brazilian legislation. Nonetheless, both Bacen and CVM have been issuing statements on cryptocurrency/crypto-token and ICO. More recently, on November 16, 2017, Bacen and CVM issued statements in respect of these matters, as summarized below:
- Statement 31.379/17 of Bacen: Reinforced what has been informed in previous statements, that transactions involving cryptocurrency (virtual currency), such as ICOs, are not issued nor guaranteed by any monetary authority, and as a consequence their convertibility to sovereign currency is not guaranteed nor backed up in real assets of any nature, meaning that the risks arising from transactions with the use cryptocurrency are entirely of the parties involved; clarified, once again, that the cryptocurrency cannot be confused with the definition of electronic currency, which is set forth in Law No. 12.865/13 and its regulation by means of normative rulings and other acts enacted by Bacen and the Brazilian National Monetary Council; and the transactions with cryptocurrencies and cryptocurrency-related instruments that result in cross-border transfers based on foreign currency must strictly follow the applicable regulation, in particular that the transactions must be mandatorily performed by entities authorized by Bacen to operate in the foreign exchange market. Click here to read the full text in Portuguese of Statement 31.379/17 of Bacen.
- CVM’s FAQ on ICOs: Demonstrates, didactically, the meaning of ICO; provides the most common modalities of ICOs; instructs on the operationalization of those ICOs whose assets to be distributed to investors correspond to securities, once such ICOs shall then be subject to CVM ruling, especially to Ruling CVM 400, as well as clarifies CVM’s inspection attributions on those ICOs performed abroad and directed to the Brazil-resident investors; stresses out the automatic waiver of registration of public offering of crowdfunding (Ruling CVM 588), with own features; warns on the risks inherent to investments in ICOs (especially in respect of issuers or offerings not registered with the CVM). Click here to access the Portuguese version of CVM’s FAQ on ICOs.
In addition, Bacen also issued on November 16, 2017 a FAQ on cryptocurrency, with high-level information on cryptocurrency, mainly: what are cryptocurrencies; the non-regulation by Bacen of cryptocurrencies; how the purchase of goods and services by using cryptocurrencies works in Brazil; the Brazilian authorities’ supremacy to investigate, audit and punish those cases in which cryptocurrencies are used for illegal activities; the main risks associated with the use of cryptocurrencies in transactions; and, finally, the prohibition to use cryptocurrencies in foreign exchange cross-border transactions. Click here to access the Portuguese version of Bacen’s FAQ on cryptocurrency.
For further information on transactions involving cryptocurrency and ICOs in Brazil, please contact: João Carlos Mendonça (JoaoMendonca@felsberg.com.br), partner of Felsberg’s Corporate Department; and Matheus Cestari Mota (MatheusMota@felsberg.com.br), associate to Felsberg’s Corporate Department.
This article is of a solely informative nature, and does not contain any opinion, recommendation or legal advice from Felsberg Advogados concerning the subject matter covered.