By: Antonio Carlos Mazzucco and Luiz Gustavo Doles
On October 11, 2022, CVM issued CVM Guidance Opinion No. 40, clarifying the entity's opinion on how cryptoassets that fall under the concept of securities should be treated in Brazil in view of the growing supply of cryptoassets.
The document is necessary since the concept of security described in article 2 of law 6,385/1976 is quite broad:
Art. 2º The following securities are subject to the regime of this Law:
(…)
IX – when publicly offered, any other securities or collective investment contracts, which generate the right to participation, partnership or remuneration, including those resulting from the provision of services, the income from which comes from the efforts of the entrepreneur or third parties.
Thus, it is entirely possible for token or cryptocurrency offerings to be made via distributed ledger technologies, known as Initial Coin Offerings or ICOs, fall within the concept of securities whose distribution must occur in accordance with CVM rules, such as Resolution 160, which comes into force in 2023.
However, there are several types of crypto assets that are not securities, such as cryptocurrencies used as payment or utility tokens.[1].
This is a topic that has already been discussed in several other jurisdictions and has been studied by the CVM itself for some time.
The entity has already stated that:
- ICOs may be considered as securities offerings provided that the requirements described above are met.[2]; and
- National investment funds cannot acquire cryptoassets since they, in themselves, do not constitute securities, and investment in shares of foreign funds that contain this type of asset is permitted.[3]
However, the matter was not exhausted with such statements, making it necessary to issue a more robust document so that the market's doubts could be resolved.
Thus, the CVM created CVM Guidance Opinion No. 40, consolidating the CVM's understanding of the rules applicable to cryptoassets that are securities, ensuring greater predictability and security, as well as fostering an environment favorable to the development of cryptoassets, with integrity and adherence to relevant constitutional and legal principles..
It is worth noting that the CVM may change its understanding regarding the matters described in the opinion at any time, but the document already provides us with a series of more concrete responses to various market demands.
We will separate our analysis into a few articles to address the topics in greater depth, and we will address the additional obligations of companies that deal with cryptoassets as described in the opinion.
As described in CVM Resolution No. 135/22, the admission to secondary trading of any security, including those represented in the form of cryptoassets, must occur in organized markets that have authorization from the CVM.
Therefore, companies interested in intermediating the purchase and sale of cryptoassets that are considered securities must request their registration with the CVM as an entity managing an organized market, and must organize themselves internally to do so.
As an example, we bring article 20 of Resolution 135.[4] which requires such companies to have a robust governance structure in addition to the various technical criteria listed in the same standard.
This includes the use of internal systems that ensure the correct recording of digital assets and clear identification of all rights and obligations inherent to each token.
The distribution itself must also take into account the specific CVM rules on the matter, in particular Resolution 160, which will come into effect in early 2023.
All of these obligations must be on companies' radar since failure to comply with such obligations may result in administrative proceedings at the CVM and the consequent application of various sanctions, including the payment of a fine and temporary disqualification, for up to a maximum of 20 (twenty) years, from carrying out activities related to the capital markets in Brazil.
Thus, the CVM made it clear that it has the regulatory capacity to deal with cryptoassets without exceeding its jurisdiction, and it is up to the market to make the necessary adjustments so as not to expose its operations and its customers to risks.
[1] A utility token is an asset based on blockchain technology that allows the use of certain services.
[2] Available at https://www.gov.br/cvm/pt-br/assuntos/noticias/initial-coin-offerings–icos–88b47653f11b4a78a276877f6d877c04 – accessed on 11/17/2022
[3] Available at https://conteudo.cvm.gov.br/legislacao/oficios-circulares/sin/oc-sin-1118.html – accessed on 11/17/2022
[4] Art. 20. The entity administering an organized market must have the following bodies:
I – board of directors
II – audit committee, in compliance with the provisions of item III of art. 152;
III – internal audit;
IV – general management;
V – self-regulation department;
VI – self-regulation council; and
VII – board of directors of the self-regulation department.