The Banco Central do Brasil (BCB) is consulting with stakeholders on a future regulatory regime, and Coinbase (NASDAQ:COIN) is pleased to share their perspectives on how to implement a comprehensive regulatory scheme for Virtual Assets Service Providers.
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.”
Coinbase notes in a blog post that they are 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 Coinbase 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 their 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 their expansion in Latin America.”
They 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 their response to the public consultation, they provide their 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, they 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 Coinbase strongly support regulatory efforts to ensure that customer assets are secure and protected.”
At Coinbase, they 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.
Coinbase believe VASPs should be “permitted to do the same. Furthermore, they also believe VASPs should be allowed to take advantage of 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.”
They 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.”
They want to be a constructive resource “to the Brazilian government as they formulate a long-term strategy for how to build the cryptoeconomy.”