Brazil's president, Luiz Inácio Lula da Silva, a.k.a. Lula, signed legislation today that empowers the nation's central bank to regulate crypto, a move that could catalyze growth for the industry in Latin America's biggest economy.
The government decree Lula signed Wednesday will put in place rules outlined in a December law, which laid out a legal framework and definitions for crypto. The new rules go into effect on June 20 and will allow Brazil's central bank to decide which companies can operate in the market. It also maintains the power to regulate tokens labeled securities with the country's equivalent of the Securities and Exchange Commission, the Comissão de Valores Mobiliários, or CVM.
The law defines cryptocurrencies and virtual asset service providers, and it imposes laws to prevent money laundering and financing terrorism, with noncompliance possibly resulting in jail time, according to Bloomberg.
The central bank now has to establish a licensing system for virtual asset service providers, and all companies operating in the country must register. The framework for crypto could attract more companies and customers to the industry. Brazil is already home to Mercado Bitcoin, an exchange that has more than 3 million customers and hosts upward of $5 billion in trading volume.
Still, the law has some shortcomings. It does not address some segregation of assets for exchanges to prevent the commingling of customer funds, a key allegation in the case against FTX. It also does not clearly define which digital assets are securities.
But the new rules are a step forward in laying out clear expectations and punishments for the crypto industry, and they come weeks after Brazil launched a pilot program with major banks to test its central bank digital currency, the digital Real.
Brazil's approach stands in contrast to that of the U.S. Last week, the Securities and Exchange Commission sued two of the biggest crypto companies, Binance and Coinbase, for allegedly offering unregistered securities to U.S. citizens. SEC Chairman Gary Gensler has often stated that the crypto industry is the "Wild West," and has compared stablecoins to "casino chips."
