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Brazil takes important step towards developing a leading crypto asset regulatory framework

Tl;dr: The Banco Central do Brasil (BCB) is consulting with stakeholders on a future regulatory regime, and Coinbase is  delighted to contribute our perspectives on how to implement a comprehensive regulatory scheme for Virtual Assets Service Providers. 

By Fabio Plein, Tom Duff Gordon

International

, February 1, 2024

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Crypto creates economic freedom by ensuring that people can participate fairly in the economy, and Coinbase is on a mission to increase economic freedom for more than 1 billion people. We’re updating the century-old financial system by providing a trusted platform that makes it easy for people and institutions to engage with crypto assets, including trading, staking, safekeeping, spending, and fast, free global transfers. 

In 2023 we launched in Brazil, and have since then built out a dedicated team on the ground, integrated Pix for easy account top-up using Brazilian Reals, localized our app with 24/7 email support, partnered with Ebanx, and streamlined the user onboarding process. It is a key market for Coinbase, individually, but also for our expansion in Latin America. We are thrilled to continue investing and building in Brazil. 

We have been encouraged by BCB’s efforts to launch dedicated policy initiatives related to blockchain, digital assets, and other innovations shaping the future of finance and we want to support practical, thoughtful and clear regulation that will keep people safe without stifling innovation. 

Currently holding the G20 Presidency, Brazil is leading the  global debate around a regulatory framework for digital assets, as they seek to promote a tokenized economy.  In our response to the public consultation (find here in EN and PT) we provide our views on how regulators should approach implementing a comprehensive regulatory scheme for virtual assets and Virtual Assets Service Providers which promote customer protection, operate across jurisdictions, promote the unique advantages offered by the blockchain and  empower customers to make informed decisions. Being at the helm of the G20, we believe Brazil will play an important role in driving global regulatory coherence for the entire digital asset sector. 

A central focus of BCB is safeguarding, and we strongly support regulatory efforts to ensure that customer assets are secure and protected. At Coinbase, we believe that customer assets should be held on a fully reserved, 1:1 basis. Such assets should not be staked, pledged, rehypothecated, or otherwise used except with the customer’s express, informed consent. This should be an expectation of all registered custodians. Intermediaries should be required to disclose how assets are held and used, and the BCB should have sufficient oversight powers to ensure intermediaries follow through with these disclosures. 

It is also important that the BCB help enshrine proper protections for customers in the event of a VASP’s insolvency, including processes for the resolution of claims on the insolvent VASP in a timely and orderly manner. Brazil should require VASPs to track assets through robust record-keeping, so that the assets can be returned to their rightful owners quickly should the need arise. Moreover, the BCB should make clear that in the event of a VASP’s insolvency, customers’ assets should not be used to satisfy the claims of any other creditors of the VASP, and customers should otherwise be treated as having priority over other creditors of the relevant VASP. 

The customer property protections in place at traditional financial (tradfi) institutions, like securities brokerage firms, may provide a useful example to the BCB's approach. Notably, the supervisory approach has been to allow these institutions to: 

  • Hold customer assets in omnibus customer accounts;

  • Maintain some limited firm-origin assets in the  customer omnibus account solely to support the operation of the market; and 

  • Rehypothecate customer funds with their clients’ express permission.

We believe VASPs should be permitted to do the same. Furthermore, we also believe VASPs should be allowed to take advantage of cutting-edge custody and security technology leveraging global solutions.

Coinbase is committed to assisting Brazil achieve its vision of a tokenized economy and is glad to share its vision for the future of the digital economy. We will continue to engage with, listen to and learn from Brazilian regulators and policymakers as we seek to build a trusted and resilient crypto ecosystem. We want to be a constructive resource to the Brazilian government as they formulate a long-term strategy for how to build the cryptoeconomy. 

We stand ready!  🇧🇷

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Tom Duff Gordon

About Tom Duff Gordon

Tom Duff Gordon is Vice President of International Policy at Coinbase, where he drives the company’s engagement with policymakers in global markets across the UK, Europe, APAC,  LatAm, and the MENA region. Tom previously served as Managing Director at Credit Suisse, Head of Public Policy Europe and UK, where he had responsibility across all areas of regulatory policy and government affairs and chaired the internal global Credit Suisse policy committee, which coordinates positioning on international and cross-border issues. Tom is on the Board of the International Regulatory Strategy Group (IRSG), the leading, cross-sectoral UK regulatory policy trade association, where he chaired one of the standing committees. For three years he co-chaired the main policy committee for the Association of Financial Markets in Europe (AFME). Tom holds an MA degree from the University of Oxford. He began his career as a consultant at Accenture.