Brazil Prepares to Let Tradfi Institutions Embrace Crypto

The Central Bank of Brazil is preparing to open the cryptocurrency market to traditional finance institutions, which will be able to operate in this industry with clarity after the enactment of the upcoming regulation. Small crypto startups might face challenges in regularizing their situation due to the high bar this framework will impose.

Central Bank of Brazil Drafts Regulation Helping Traditional Finance Enter Crypto

Brazilian authorities are preparing to lay the groundwork to allow traditional finance (tradfi) institutions, such as banks, brokerages, and investment platforms, to enter the cryptocurrency market. The Central Bank of Brazil is set to approve stringent regulations that will impose new restrictions on small crypto startups, which have dominated the market since its inception.

However, local media estimates that many Brazilian crypto companies will be unable to fulfill the new framework’s requirements, including getting a virtual assets service provider (VASP) license. Tradfi institutions will have an easier entry due to the higher level of compliance they face.

According to insiders, the central bank has already decided to establish minimum operational capital requirements for crypto industries depending on their operations. For intermediaries, this will be a million reais (close to $174,000), while it will be double for custodians. Brokers, able to carry out the two activities, will have to register three million reais in capital (close to $522,000).

This would guarantee that the institutions have the resources to safeguard the security of customers’ capital. Nonetheless, this will also limit the activities of crypto micro companies in Brazil.

Fabio Rodarte, an associate at Levy and Salomao, criticized this course of action due to its equal treatment of all actors in the Brazilian market. “The central bank could have established other authorization requirements in a manner proportional to the individual and systemic risks offered,” he assessed.

Industry stakeholders are concerned about the inclusion of more compliance rules requiring additional tooling in this new regulation. An unidentified industry expert noted that the travel rule is particularly concerning. “If you take everything we will have to report to the IRS, plus what we will have to report to the Central Bank, the tools we have will not be enough,” he concluded.

The bank hopes to finalize these rules by 2025, balancing user protection and innovation in the field.

Read more: Central Bank of Brazil Aims to Finalize Crypto Exchange Regulation by Early 2025

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