Circle's response to Brazilian Central Bank's RFCs 109 and 111 to regulate VASPs activity

Circle has submitted its response to two significant regulatory consultations by the Central Bank of Brazil: Public Consultation No. 109/2024 and Public Consultation No. 111/2024. These consultations focus on the regulatory framework for Virtual Asset Service Providers (VASPs) and the integration of virtual assets into the foreign exchange market, respectively. Circle supports Brazil’s efforts to establish clear, proportional regulations that foster innovation while ensuring financial stability and consumer protection.

Key Findings

• Brazil is positioning itself as a global leader in digital finance and has the opportunity to set international benchmarks for virtual asset regulations.
• Clear, predictable regulatory frameworks will enhance competitiveness, attract international fintech firms, and promote financial inclusion.
• High standards for stablecoin issuers, including strict reserve backing and transparency, are essential to consumer confidence and financial stability.
• Overly complex licensing and compliance requirements could stifle innovation and limit market efficiency.
• A risk-based regulatory approach is preferable to outright restrictions, particularly regarding self-custodied wallets and foreign exchange transactions.
• Harmonizing Brazil’s regulatory approach with international standards will facilitate cross-border digital asset transactions and economic integration.

Highlights of Circle’s Response to Public Consultation No. 109/2024 (VASPs and Stablecoins)

1. Regulatory Clarity & Market Leadership: Circle advocates for a well-defined regulatory framework to prevent unnecessary complexity and foster Brazil’s leadership in digital asset markets.
2. Stablecoin Regulation & Best Practices: The company supports strong reserve requirements (1:1 fiat backing) and transparency measures, aligning with international benchmarks such as the EU’s MiCA.
3. Operational Efficiency & Entry Barriers: Circle calls for streamlined licensing processes and consistent regulatory treatment of different digital assets to prevent arbitrage.
4. Consumer Protection & Regulatory Enforcement: Stronger oversight of VASPs is recommended to mitigate financial crimes and ensure market integrity.

Highlights of Circle’s Response to Public Consultation No. 111/2024 (Virtual Assets in Foreign Exchange)

1. Regulatory Clarity & Market Leadership: Brazil should align with global regulatory best practices, ensuring competitiveness and stability in digital finance.
2. Stablecoin Regulation & Consumer Protection: Circle supports strict reserve and transparency requirements and urges caution of the systemic risks that can come from alternative forms of stablecoin reserve structures that are not rooted in high quality liquid assets.
3. Foreign Exchange Compliance & Market Efficiency: Licensing processes should be simplified to enable smoother integration with international financial institutions.
4. Self-Custody & Transactional Flexibility: The proposed ban on self-custodied wallets is viewed as restrictive, with Circle advocating for a risk-based approach instead.
5. Integration with International Financial Systems: Brazil should harmonize its digital asset regulations with global financial standards to enhance cross-border stablecoin use.

Strategic Approach

Circle’s strategy is to support Brazil’s ambitions in digital finance while ensuring that regulations remain innovation-friendly. The firm is actively engaging with the Central Bank to shape the regulatory framework in a manner that balances financial stability, consumer protection, and market growth. Brazil’s approach to digital asset regulation could serve as a model for other emerging markets, reinforcing its status as a leader in the evolving global financial ecosystem, and Circle wants to remain positioned as a trusted partner to collaborate in shaping up the Brazilian regulatory framework.