Brazilian Securities And Exchange Commission (CVM) Outlines Standards, Names Crypto Assets as Securities

A recent guiding opinion document from the Brazilian Securities and Exchange Commission (CVM) discusses the topic of crypto-based securities. The document specifies cryptocurrencies as digitally represented assets protected by cryptography technology. They can be transacted with and stored using Distributed Ledger Technologies (DLT). It was also acknowledged that a regulatory vacuum exists on the topic due to the lack of specific regulation.

The new standards require that tokens that qualify as securities be digital representations of the following legal instruments: shares, debentures, subscription bonuses; right coupons, subscription receipts, and split certificates relating to the securities; certificates of deposit of securities; and debenture notes. Similar to this, different types of tokens may also qualify as securities based on their classification. The CVM also stressed that although tokenizing assets won’t require prior organization permission or registration, it would still need to abide by current security legislation if the resultant assets are regarded as securities.

Additionally, the document categorizes bitcoin holdings into three groups. The first is referred to as payment tokens, consisting of assets that aim to imitate the roles of fiat money as an exchange medium, a unit of account, and a store of value. The second class comprises all tokens used to purchase or access certain products or services, known as utility tokens. The term “asset-backed tokens” refers to the third category of tokens, which includes any tokens that are digital representations of physical or virtual assets. Stablecoins, security tokens, and non-fungible tokens (NFTs) fall under this category.

According to the characteristics of each token in the class, the CVM indicates that components of this last class may be regarded as securities. The document reveals that the CVM will keep an eye on the cryptocurrency markets and act under these new standards. These standards, however, are susceptible to future modification if relevant legislation is approved. A local cryptocurrency exchange called Mercado Bitcoin was served with a subpoena by the CVM last month about its fixed-income token investment proposals.

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