BRAZIL Law and Practice Contributed by: Fabio Cendão, Heitor Maia, Eduardo Faria and Gabriel Lobato, Faria, Cendão & Maia Advogados (FCM Law)
For smaller offerings involving tokens with the nature of securities, CVM Resolution No 88, on investment crowdfunding, may be a relevant regulatory route. In that case, the offering must be conducted through an authorised electronic platform and comply with the applicable limits, information requirements and other conditions. Within the VASP framework, technical and descriptive documentation for the project also assumes regula- tory relevance for the selection and listing of virtual assets. Under the Annex to BCB Resolution No 520, this documentation forms part of the due diligence criteria and must describe, among other elements, the proposal, objectives, concepts, governance, architec- ture and underlying technology of the project. In practice, the white paper may perform a relevant function in this process, provided that it contains suf- ficient technical and economic information to sup- port the VASP’s analysis, without thereby becoming a regulatory document equivalent to a prospectus or offering document required by the CVM. 2.5 Market Abuse Market Abuse and Insider Dealing Brazil has a consolidated framework for preventing and enforcing market abuse and insider dealing rules within the securities market. This regime, provided mainly under Law No 6,385/1976 and CVM regula- tion, prohibits practices such as price manipulation, the creation of artificial conditions of demand, sup- ply or price, fraudulent transactions, unfair practices and trading based on material information not yet dis- closed to the market. In the crypto-asset market, the application of these rules depends on the legal nature of the token and the transaction. Where the crypto-asset is classified as a security, or where the structure involves a public offering, collective investment contract, intermedia- tion, distribution or trading subject to CVM jurisdic- tion, the traditional capital markets rules on market abuse apply. The main difference is that Brazil does not yet have an autonomous and general market abuse regime appli- cable indiscriminately to all crypto-assets. For assets
that do not have the nature of securities, abusive con- duct tends to be addressed through a combination of rules applicable to VASPs, consumer protection rules, civil liability, anti-fraud rules, AML/CFT and criminal offences. As the Central Bank regime for VASPs is consolidated, issues such as operational transparency, transaction monitoring, prevention of conflicts of interest and mar- ket integrity are expected to gain greater regulatory relevance. 2.6 Non-Compliance In Brazil, enforcement activity involving crypto-assets has been more intense where the transaction enters the CVM’s perimeter of competence, especially in cases of irregular offerings of securities, collective investment contracts, fraud, unauthorised interme- diation or inadequate disclosure of information to the market. The main consequences include stop orders, market alerts, administrative enforcement proceedings, the imposition of significant fines and communication to other competent authorities, including for criminal investigation or the assessment of offences in other spheres. In cross-border transactions, Brazilian regulators tend to consider the offer, distribution or solicitation of investors resident in Brazil as a sufficient connect- ing factor to justify local action, even if the offeror, platform or part of the technological infrastructure is located abroad. This approach is relevant where there is advertising directed at the Brazilian public, content made avail- able in Portuguese, acceptance of local investors or the use of payment and relationship channels aimed at the domestic market. The trend is for continuity of the approach already adopted: controlled openness to innovation, com- bined with greater requirements for regulatory compli- ance, governance, internal controls, AML/CFT, trans- parency and risk prevention.
111 CHAMBERS.COM
Powered by FlippingBook