Brazilian Crypto Law Returns to Agenda as FTX Collapse Sends Shockwaves By Reuters

© Reuters. FILE PHOTO: Representations of cryptocurrencies are seen in front of a declining chart shown of stocks in this illustration taken on November 10, 2022. REUTERS/Dado Ruvic/Illustration

By Isabel Woodford

(Reuters) – Brazilian crypto advocates are urging lawmakers to give final approval to a bill aimed at strengthening oversight of the sector, after the collapse of FTX – once an industry darling – has raised new concerns about unregulated digital currencies.

Roberto Dagnoni, a senior executive at the SoftBank-backed Mercado Exchange, said the law had been “kind of lethargic” during the election period, but now it should be a priority.

“If there is a good side (to the FTX debacle), it will take precedence over the law,” he told Reuters on Tuesday. “The rules that currently exist weren’t applicable to some players, so they can do whatever they like… This (the law) is going to change a lot.”

The bill, which passed the Senate earlier this year and is now awaiting lower chamber approval, would force all domestically active crypto providers to have a physical entity in the country, and mandatory disclosure of suspected money laundering and other criminal activity. The text sets out fines and even imprisonment for violations.

Brazil is one of the world’s top 10 active markets for cryptocurrencies, according to 2022 Chainalysis data.

Fernando Forlán, former head of the country’s blockchain association, also said he hoped the FTX saga would be “enough push” to pass the law.

Furlan added that while the law may make it difficult for so-called dot-com cryptocurrency exchanges and smaller groups to operate due to higher reporting standards, this was a healthy trade-off.

“If it works for Brazilian investors, it’s a good law,” he added.

The law could be passed sooner than previously expected.

Last week, the Folha de Sao Paulo newspaper quoted House Speaker Arthur Lira as saying the house was ready to vote on the law before the end of the year.

“It is important that we start setting rules” on cryptocurrencies, the head of Brazil’s securities regulator, said in a plenary session, and that the bill is “very close.”

However, some key players doubt that the bill will pass so quickly, given the 2023 budget issues that took priority after Luiz Inacio Lula da Silva’s victory in the presidential election.

Lira did not immediately respond to a request for comment.

FTX declared bankruptcy last week and faces scrutiny from US authorities, amid reports that $10 billion in client assets has been transferred from the cryptocurrency exchange to Alameda Research, FTX founder Sam Bankman-Fried.

FTX did not have a large presence in Latin America.

Dagnoni told Reuters that Mercado Bitcoin, which is primarily active in Brazil and Portugal, has not been exposed to FTX, having developed its own custodial solution for storing clients’ assets.

He added that his exchange had even seen “net positive” volume inflows, despite mass withdrawals globally.

“I think people separate assets from bad management,” he said.

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