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Brazil watchdog issues formal notice on cryptocurrency investment

On September 19, the Securities and Exchange Commission of Brazil (CVM) issued a notice that established how Brazilian investors could partake in cryptocurrency derivative markets.

“Instruction 555, when dealing with foreign investment, does not reject indirect investment in cryptoassets. However, it is up to the administrators, managers and independent auditors to observe certain diligence in the acquisition and maintenance in the wallet of those assets.”

The notice also asserts that there is a regulatory requirement for investors and managers to “combat and prevent” money laundering. As such, Brazilians are advised to invest on exchanges that are subject to the “supervision of regulatory bodies.” For Brazilian, access to financial vehicles is limited to regulated derivative markets such as the CBOE Global Markets and CME.

Clear guidelines for responsible investing

The CVM urges managers to ensure that chosen investment structures comply with anti-money laundering policies. In addition, the notice recommends provisions must be taken into account to “minimize the risk” of investing in a fraudulent cryptoasset. These include the verification of variables associated with the issuance, management, and governance of the cryptoasset.

“Important examples of this assessment are (i) whether the base software is free and open-source or closed-source; (ii) whether the technology is public, transparent, accessible and verifiable by any user; (iii) whether there are arrangements that give rise to conflicts of interest or the concentration of excessive powers in the issuer or promoter of the cryptoasset, or the use of aggressive selling techniques; (iv) the trading liquidity of the cryptoasset; (v) the nature of the network, consensus and validation protocols, and software used; (vi) the profile of the developer team, as well as their degree of involvement with the project.”

Superintendent Daniel Maeda confirmed that a cryptocurrency investment guide would be issued for to the Brazilian public as well.

This notice by the CVM opens doors for over a million Brazilian investors interested in cryptocurrency derivatives.