The Brazilian Securities Commission (“CVM”) published on October 11, 2022 the Guidance Opinion No 40 (“Opinion”), consolidating its understanding of the rules applicable to cryptoassets classified as securities.
In a nutshell, the Opinion aims at clarifying the scope of action and the means through which CVM shall exercise its powers to regulate, supervise and discipline the performance of players of the capital market arena in relation to the theme, establishing such guidelines based on the principle of full and fair disclosure.
The Opinion aims at determining the definition of cryptoassets for the purpose of current regulation, as well as identifying which cryptoassets would be classified as securities and, further, classifying them initially according to their representation, since such assets are usually represented through tokens and their classification is performed according to the technology and the functions performed. Accordingly, the Opinion introduces the concepts of:
- Cryptocurrency or payment token, which aims at performing the functions of currency, notably as a unit of account, means of exchange and store value;
- Utility token, which is used to access or purchase particular products or services; and
- Asset-backed token, which represents one or more assets, tangible or intangible, and can be considered securities or not, depending on their nature.
In accordance with CVM’s understanding, the classification of tokens in taxonomy has the purpose of indicating the legal treatment that should be adopted. However, such classification is not exhaustive and does not limit the scope of CVM, the action of which will depend on the analysis of the asset in the particular case.
According to the Opinion, although tokenization itself is not subject to prior approval from or registration with CVM, the public offering of cryptoassets shall be subject to its supervision whenever the condition of security is verified.
In short, CVM clarifies that the cryptoasset shall be construed as a security when:
- it is a digital representation of any of the securities provided for in items I to VIII of article 2 of Law No. 6,385/1976 and/or within Law No. 14,430/2022; or
- fall within the broad concept of security provided for in item IX of article 2 of Law No. 6,385/1976, to the extent that it is a collective investment agreement, noting that CVM has been performing the “Howey Test” to determine whether a given asset shall be construed as a security for purposes of classification contemplated by the aforementioned provision, notwithstanding the fact that eventually its understanding may differ from the US Securities and Exchange Commission’s given the particularity of each case.
Also, as a guidance to the implementation of public offerings, the Opinion contains a disclosure sample list of recommendations for specific information to be included in the required offering documents, as applicable. The list includes disclosure information related both to the rights of the holders of the tokens as well as to the trading, infrastructure and ownership of the tokens.
CVM also emphasizes that intermediaries that operate in the offering of cryptoassets in the secondary market shall also comply with the agency’s regulation on securities trading. CVM determines that the intermediary must ensure, when offering such cryptoassets, an adequate level of transparency and information regarding the characteristics and risks associated with the assets.
Regarding investment funds, reinforcing the need for transparency fostered by the Opinion, the fund administrator and manager should evaluate the appropriate level of disclosure of potential risks linked to the assets in the fund’s mandatory disclosure materials. It should be noted that CVM has already expressed its agreement with the possibility and the terms that must be observed for direct and indirect investment in cryptoassets by investment funds incorporated in Brazil through Circular Letters No. 1/2018/CVM/SIN and No. 11/2018/CVM/SIN.
Finally, CVM informs that it will continue to deepen its study and analysis of the topic, as well as that it is attentive to the marginal market of cryptoassets that are securities. Accordingly, CVM also emphasizes that it may adopt appropriate legal measures for the prevention and punishment of violations of rules of the Brazilian securities market, and that the Opinion is not an exhaustive guidance on the topic, which is innovative and will still require discussions in the future.
Our capital markets team is available to provide further clarification on the subject matter