LIMASSOL, CYPRUS, November 14, 2023 – Brazil’s securities regulator, the Comissão de Valores Mobiliários (CVM), is planning to develop a second regulatory sandbox program set to launch in 2024, centred on cryptocurrency and tokenisation applications.
On October 4 2023, at the Rio Innovation Week, the superintendent of institutional investor supervision with the CVM, Daniel Maeda, unveiled plans to explore a regulatory sandbox for use cases of tokenisation, stating that the agency aims to build on learnings from its first sandbox initiative that followed positive experiences that saw over $36 million in assets tokenised.
Overview
Maeda emphasised that the CVM purposefully leaves the use cases open rather than predefining them so as not to limit innovation. The regulator does not intend to define specific cases for exploration within the sandbox, as the primary objective is to allow innovation to permeate the CVM without pre-established limitations.
Maeda said, “We do not define specific cases because we want to let innovation reach CVM without prior limitations. Tokenisation opportunities around agribusiness and Environmental, Social and Governance (ESG) metrics have particularly caught the regulator’s attention”. The superintendent revealed that the sandbox serves as a controlled environment where businesses can test innovative financial products, business models, services and delivery mechanisms without immediately injuring all the normal regulatory consequences.
This approach is pivotal in enabling the CVM to understand the implications of innovations and technology in the financial market by facilitating the formulation of appropriate regulatory responses to emerging risks and opportunities.
Tokenisation Versus Traditional Financial Systems
The superintendent emphasised that the CVM’s endeavours to launch the second sandbox were propelled by positive experience tokenising substantial assets. Tokenisation, which involves converting rights to an asset into a digital token in a blockchain, presents many benefits, including enhanced transparency, reduced costs and the democratisation of investments.
The values align with the commission’s principles, thereby delivering a compelling case for further exploration and adoption. The superintendent also underscored the importance of considering developments in the digital asset space and examining how other countries have handled regulation. This approach is instrumental in ensuring that the regulatory framework developed is robust, comprehensive, and adaptable to the evolving landscape of digital assets and blockchain technology.
Maeda said, “I have a lot of respect for the [United States Securities and Exchange Commission], and I don’t think it’s up to me to point out their stance as right or wrong”. Maeda added, “What I can say is that we at CVM saw many benefits in this market to leverage processes. Through tokenisation, the investor gains transparency and lower costs, in addition to increasing the democratisation of investments, which are values the commission carries”.
Navigating Regulatory Challenges and Prospects
The superintendent revealed that the CVM planned to wait for changes to be implemented in Brazil’s crypto market, including those related to the country’s central bank digital currency, the Drex, according to experts at Bitcoin Decode. Maeda highlighted that both the securities regulator and central bank should consider developments in the digital asset space, ensuring that the regulatory frameworks developed are in harmony with global trends and best practices.
In June 2023, Brazilian President Luiz Inácio Lula da Silva signed a framework into law, establishing the different roles the country’s central bank and CVM would play in regulating digital assets under a December 2022 law on a legal framework for crypto in Brazil. Furthermore, in November 2023, Brazil plans to launch a program that issues identification documents through a private blockchain, which is part of an effort to safeguard personal data and mitigate fraud. President of Serpro, Alexandre Amorim, enticed that the immutability and decentralisation of blockchain made it an ideal technology for the country’s digital identification project.
Amorim said, “Blockchain technology plays a critical role in protecting personal data and preventing fraud, offering a more secure digital experience for Brazilian citizens”. Amorim added, “Utilising the b-Cadastros blockchain platform significantly enhances the security and reliability of the National Identity Card project”. Over the past few years, Brazil has been working to unify identity issuance across its states. According to the announcement, the newly adopted technology will allow a more secure data exchange between the Federal Revenue and government departments.
Brazil’s central bank announced a tightening of deregulation in October amid a significant surge in crypto adoption in Brazil. Governor Campos Neto highlighted the popularity of stablecoins. Neto said, “The bank will respond to these tendencies by tightening regulation and bringing crypto platforms under its supervision. Problems related to crypto could include tax evasion or illicit activities”.
Brazil’s Comissão de Valores Mobiliários approach toward exploring tokenisation through a regulatory sandbox is embarking on a journey that could potentially reshape Brazil’s financial landscape. The 2024 launch time frame allows Brazil to develop its sandbox policies with a fuller understanding of cryptocurrencies.
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