Brazil | Market Passport

Population: 213 million

Wealth in domestic bank deposits: 953 billion USD (March 2023)

Offshore expatriated wealth: 21.7 billion USD

Main offshore banking locations: N/A

Number of individual brokerage accounts: 3.23 million (2021)

Crypto adoption (% of population): 15.1 million (6.98%)

TLDR

Brazil is evolving its financial and monetary regulations towards a more globally integrated and less bureaucratic model. This includes the modernization of its foreign exchange market, making it easier for foreign investment and international transactions to occur, as well as enhancing the local securities market. The country is also gradually warming to the potential of cryptocurrencies and blockchain technology, with several promising initiatives underway at the federal level.

Exchange controls

Historically, Brazil has been characterized by stringent and complex exchange rules. However, the country is now transitioning towards a scenario of free capital movement and simplified operations, facilitated by the new Legal Framework for the Foreign Exchange Market (Law 14,286, of 12/31/2021). This law, implemented by the Central Bank of Brazil (BACEN) and the National Monetary Council (CMN), is driving significant change and increased legal certainty from 2023 onwards.

The new regulatory environment aims to reduce the cost of transactions involving foreign currencies and increase the convertibility of the Real. These changes are also expected to facilitate foreign investment and attract foreign capital, particularly for infrastructure projects, public service concessions, and the exploration of natural resources. It additionally promotes investments in the Brazilian financial and capital market.

Among the significant changes introduced by this law are the circulation of Brazilian currency abroad, enabling the payment of local obligations in foreign currency, allowing foreign currency purchase and sale transactions between local individuals, and expanding the possibility of opening foreign currency accounts in the country. This shift in regulation enhances the role of local banks and foreign exchange brokers in managing payment orders in Reais from abroad or sent abroad.

Distribution rules for foreign investment products

Brazilian securities law is primarily guided by two laws: Law 6.385/76, which establishes the Securities and Exchange Commission of Brazil (CVM), and Law 6.404/76, often referred to as the “Corporation Act”. The CVM is responsible for issuing instructions and resolutions that regulate specific areas of the securities market. For instance, CVM Instruction 356 regulates the organization and operation of receivables investment funds, Instruction 359 relates to Exchange Traded Index Funds, and Resolution CVM 1 establishes the nomenclature of acts to be issued by the CVM. The CVM also issues deliberations, which are binding statements of its understanding of the law, and legal opinions to clarify provisions of the law.

The CVM is equipped with broad powers, including surveillance of markets, issuers, and market intermediaries, carrying out investigations, imposing sanctions, and suspending trading of securities. The National Monetary Council (CMN), another key part of the Brazilian financial system’s regulatory structure, formulates monetary and credit policies to ensure currency stability and the development of the national economy.

Qualified investors

The Brazilian Securities and Exchange Commission, also known as Comissão de Valores Mobiliários (CVM), has defined distinct categories of investors within the Brazilian securities market. In 2014, these categories underwent a revision, leading to the creation of a new investor category termed “professional investor” or “overqualified investor.” These changes were incorporated into CVM Instruction No. 554 of December 17, 2014, and were officially implemented on July 1, 2015.

Investors are classified into different categories based on their equity, which applies to both individuals and legal entities. The two main categories are qualified investors, who hold financial investments exceeding R$ 1 million, and professional investors, who hold financial investments exceeding R$ 10 million.

Professional investors are those who either work daily in the financial market or possess a high net worth, enabling them to hire service providers to assist them in making investment decisions involving a wide range of assets. All investment funds are considered professional investors. This change is seen as fitting because investment decisions on behalf of the investment fund are made by the administrator of the securities portfolio registered with CVM.

Qualified investors, on the other hand, include professional investors and certain other individuals who require a greater level of regulatory protection than professional investors. This category includes individuals or legal entities that hold financial investments in an amount superior to R$ 1 million and that additionally attest in writing their qualified investor condition according.

Cryptocurrency regulation

As of 2023, Brazil’s attitude towards crypto-assets and cryptocurrencies has grown increasingly favorable, particularly within federal public authorities. Numerous public agencies are actively exploring and developing projects and systems based on blockchain technology to streamline public administration processes. Concurrently, the federal legislative branch is scrutinizing various bills intended to provide a comprehensive regulatory framework for crypto-assets and exchanges, thereby promoting a nurturing environment for the cryptocurrency industry in Brazil.

Traditionally, the Brazilian Real has been the sole legal tender in Brazil. Despite the private use of cryptocurrencies and other virtual assets as alternative payment methods, these are classified as goods or movable property, not acknowledged as money or equivalent to fiat currency. Law No. 12,865/13, enacted in October 2013, defines the concepts of “electronic money” or “electronic currency” and regulates payment systems. However, the Brazilian Central Bank (BCB) has explicitly stated that cryptocurrencies do not fall under these definitions. In 2017, the BCB reiterated that cryptocurrency exchanges and storage service providers are not under their regulatory purview or supervision, thereby cautioning potential users about the inherent risks in such activities.

The concept of crypto-assets was more formally defined in May 2019, when the Federal Revenue Office (RFB) issued a normative ruling introducing reporting requirements for transactions involving such assets. As per this ruling, a crypto-asset is considered a digital representation of value, traded electronically using cryptography and distributed registration technologies. These can be used as a form of investment, value transfer instrument, or a means of accessing services, yet are not recognized as currency.

Furthermore, the Brazilian government has embarked on various blockchain and crypto-asset related projects. These initiatives include the creation of the BNDES token by the Brazilian National Development Bank to enhance transparency in lending processes and the Financial and Technological Innovations Laboratory (LIFT) to stimulate innovation within the Brazilian National Financial System. The introduction of the Real Digital, a Central Bank Digital Currency (CBDC), is also expected in 2023 or 2024.