Brazil's new crypto regulatory framework and strict requirements are consolidating the country's industry, prompting numerous exchanges to terminate operations and exit the market.
According to reports from Valor Economico, only five virtual asset service providers (VASPs) submitted authorization requests to the Central Bank of Brazil ahead of the upcoming deadline. Of those submissions, one application has already been rejected, leaving four still under review. Internal sources stated that the rejected company failed to prove it was operating in the country before February 2—when the new rules took effect—and did not meet the minimum capital standards. The identities of the companies seeking approval have not been disclosed.
The framework introduced by the central bank requires exchanges to submit constant reports, design compliance plans, and hold up to $7.2 million in capital. Tatiana Guazzelli, a partner at Pinheiro Neto Advogados, noted that the number of applications could increase in October as companies clarify doubts regarding the new regime. However, analysts previously estimated that only 10 out of roughly 300 companies would possess the necessary structure to comply with the regulations and minimum capital requirements.
The strict rules have already impacted the market. On September 17, Argentina-based exchange Lemon announced it would wind down its operations in Brazil, citing that obtaining a license would require tying up a disproportionate amount of capital relative to its operation size.
The deadline for entities to introduce their applications is October 30. While exchanges already established in Brazil are permitted to operate while the central bank reviews their applications, new applicants following the deadline will have to wait for permits to be issued before launching operations—a process estimated to take up to three years. Meanwhile, industry associations are requesting an extension to the application deadline due to the extensive time required to implement the central bank's compliance and capital recommendations.
