Brazil's securities regulator is pushing a mandatory shift to asset tokenization, paired with artificial intelligence-powered surveillance, to overhaul supervision of a fund industry whose growth has outgrown traditional oversight, the agency's president said.
Otto Lobo, president of the CVM, Brazil's equivalent of the U.S. Securities and Exchange Commission, said the transition is necessary because conventional surveillance methods have been overwhelmed by the expansion of the country's fund industry.
Scale of the fund market
Valor Econômico reported that the industry has reached a net worth of $2.32 trillion across more than 34,000 active structures, a scale that Lobo said makes traditional oversight methods obsolete.
Funding and staffing for modernization
The modernization effort is expected to add 1,200 new employees over the next few years. It follows a Supreme Court decision allowing the CVM to retain 70% of its inspection fee revenue, which the source said makes the move to more modern oversight structures possible.
What distributed ledgers offer
Speaking at a conference, Lobo said decentralized ledger technologies (DLTs) offer an edge over traditional methods, citing:
- Immediate settlement
- Elimination of counterparty risk
- A continuous audit trail
- Digital records that include the final beneficiaries of each transaction
He also said anti-money-laundering procedures would be implemented at the asset level using smart contracts, simplifying the application of compliance and know-your-customer requirements for regulators.
Lower entry costs for investors
Lobo said the changes would benefit customers as well, with entry costs to money market funds as low as $20, opening the market to new customers and a potentially large addressable market.
Pilot tests and market integrity
"We're already testing three DLTs, with the possibility of creating native digital assets, with the possibility of then overseeing that market in a very different way," Lobo said, adding that maintaining market integrity is crucial for tokenized assets.
The tests refer to an experimental pilot program run by the CVM's tokenization working group to map contract logic and test cybersecurity risks before a full blockchain rollout. Lobo previously said that "tokenization is already transforming capital market infrastructure and brings relevant opportunities to increase efficiency, innovation, and access to new business models."
Exchange plans
B3, Brazil's stock exchange, is advancing tokenization services that will operate in parallel with traditional market securities and share liquidity with them. The exchange expects the platform to be ready by 2027.
