What's at stake in the cryptocurrency market with the approval of PL 4,401
The Federal Senate recently approved the bill that regulates the cryptocurrency market (digital currencies) and cryptoassets, such as NFT’s (Non-Fungible Tokens) and stablecoins (traditional market assets, such as the dollar and gold) in Brazil.
In a symbolic vote and without using the terms cryptocurrency and cryptoassets, the PL passed the Senate Economic Affairs Committee and now returns for a vote in the Chamber of Deputies. If there are no further changes, it will be sanctioned by President Jair Bolsonaro.
Although the proposal is positive for taking a step towards the regulatory framework of the cryptocurrency market in Brazil, the simplistic way that it addressed some relevant topics deserves attention.
In Article 3, PL describes a crypto asset as a value that can be traded or transferred by electronic means and used for payments or investment. The expression “electronic media” gives rise to private and/or non-legitimate digital representations, which can be seen as crypto-assets, just remember that there was a PL in which it placed crypto-assets with miles system points from private companies on the same technological level
Let me explain: Cryptoassets need to transit a Blockchain, where there is a ledger (public record book), decentralization, transaction auditing and incorruptibility.
Another point that makes no sense is the blatant attempt to interfere by the State in the governance of financial institutions, brought up in Article 7 and, of course, it is also a flawed point. The State can, and should, be informed about the transactions and agents that make up the management of organizations that work with crypto assets, in the same way as with other financial market institutions. However, it is not up to him to authorize the hiring of private companies, nor to approve the incorporation of companies. For me, it was clear that the project confuses the right to information with interference in the exercise of the activity.
There are aspects in the PL that also generate legal uncertainties. This is the case of Article 8, which establishes that “institutions authorized to operate by the Central Bank of Brazil may exclusively provide the service of virtual assets, or accumulate it with other activities, in the form of the regulation to be edited by the body or entity of the federal public administration indicated in an act of the federal executive branch”.
It is not known for sure whether the legislator authorizes institutions that have already been authorized or banks to take custody of crypto-assets, or whether this entity of the federal public administration, indicated in an act of the Executive Branch, should be under the umbrella of the BC . In my view, this citation is unnecessary, since the project already provides for the creation of a specific body or entity. Such a citation only unnecessarily brought confusion to the body of the legislative project.
Not everything, however, is critical of the project. Articles 10, 11 and 12, which focus on aspects of criminal law and the criminalization of embezzlement and improper practices with the use of crypto-assets, are very welcome. I agree that virtual assets with the purpose of legal materiality for criminal matters should be capitulated in the penal code.
Another important point that deserves praise is the segregation of brokers' assets, provided for in Article 13, included to protect consumers even more.
It is worth mentioning that one of the greatest virtues of cryptocurrencies is that it is a digital currency and is not tied to traditional banking practices such as, for example, fractional reserve, in which banks can take part of the capital of a customer's deposit and link to credit to offer to the market.
In the case of cryptocurrencies, the crypto asset deposit that is in the custody of the exchange cannot be used as custody capital for private operations, except in voluntary situations, such as staking. In this case, the customer voluntarily leases their crypto assets to exchanges for a certain period of time.
It is worth noting that these usual financial practices within brokerages, such as savings, loans and leasing of crypto assets were not even mentioned in the PL.
I believe that the project is more the kick-off for the regulatory framework of the cryptocurrency market in Brazil, than the conclusive step for its operation, considering that it deals in a generic way with the regularity of companies that work with cryptoassets.
The project missed the opportunity to allow the legal seal of projects based on blockchain technology as a way for the country to grow in technology.
Just analyze the “Proposal for a Regulation of the European Parliament”, signed in Brussels, Belgium, in September 2020, in which we see the concern of the European legislator so that the regulation does not impede the advancement of technology.
This bill could have dealt with cryptocommodity, crownfunding through tokenization projects and even legalized the contractual relationships of smart contracts (contracts between people created on public blockchains). Brazil can appropriate such technologies to overcome the lack of credit in the market and use people as agents of this economic transformation! Blockchain comes to democratize middle class access to investments in tangible projects and to simplify and debureaucratize relationships.
Luiz Góes is Brazilian, born in Rio de Janeiro, 38 years old and is currently CEO of Lyopay, a fintech in Dubai, United Arab Emirates, which operates in more than 80 countries and recently won the CryptoExpo Dubai award for best solution Crypto. In Brazil, he founded LGBank, a Cryptobank dedicated to blockchain projects and asset tokenization.