EN | European vs Brazilian Crypto Regulation: Key Differences and Implications | MERGE São Paulo

Uh well, in this panel we will explore the evolution of the regulation in Brazil and European Union. And for that I we are glad to receive here Mariana de la Roche Wills, founder and CEO of Black Bogel Consulting. Catarina Veloso, director regulatory and compliance at Notabene. Marina Villanonga, partner at Ascensia Abogados. Uh O Thiago, chief of regulatory legal and policy for Brazil and El Salvador uh at Binance.

Uh we will start with Mariana. Uh you have served as advisor in regulatory development process in several institutions. And from your perspective, how would you evaluate both the process and the outcomes in the regulation in Europe European European Union as a community and its members? Okay. Um hi everyone.

Good morning. Thank you for the invitation. I hope you can hear me. Um I guess um I'm I'm just going to go to the basic because we have like three European experts. I don't want to cover all the grounds, but I think something that I noticed this week here in Brazil is that there is imagination that the process with MiCA was easier and that now we have a clear uh framework that is completely harmonized in Europe and everything is working process

[laughter]

working perfectly and um just please feel free to interrupt me if you think that it's not correct what I'm saying, but um I think that that's as an image as it's an imaginary that we created like people's minds. So just like the German trains being on time like that's like for certain not not the reality. Um what happened with MiCA is that it was a really ambitious project. And we tried to get like if you understand how regulations works in Europe like you have like at the European level directives and regulations. The interpretation level at the level of the regulation is really minimum.

The idea is that once it is agreed like the member states applied the regulation without deviating so much. This in practice didn't happen. So the different uh national jurisdictions have doing different tweaks uh to MiCA that are over complicating what was already really complex regulation. Uh on top of that there was a lot of things that were open for second level regulation and that needed to be defined by the ESMA, the European Securities Authorities, and the EBA, the European Bank Authorities. And this has taken a lot of time.

So in the meantime, while um in the future I hope that MiCA brings the clarity that we were expecting, there is a really big gap right now. Um there is uncertainty as well on how it's going to uh develop at the end of the day. And what we have been seeing is a consolidation consolidation of the market. So for the banks getting a MiCA license, well that's absolutely not a problem. They already have like everything in place back then, so they just need to adapt and do a gap analysis that is like easy.

For exchanges that were already in the market and they were already like getting licenses in parallel, that's also um fairly simple process. For new players is really complicated. Um and for small players because the cost of compliance just increased quite a lot. Um but we're getting there. I don't want to say that it's all bad.

I think that um what we are creating is a place where like users feel more comfortable to interact because there's a certain idea of uh security and safety that comes with regulation. So I see that as a market advantage. But I would like the other ones to maybe jump in also and say what they think. Do you hear me now? Okay.

Um so yeah, this is true and uh I would like to just make the other side of the story um because as you said, for big players MiCA is perfect because they can adapt easily or uh reasonably easily. Uh but me as a lawyer and working with many different types of companies um I see many of my clients struggling trying to comply with MiCA because as you said, Mariana, it it is not easy at all for small players, for crypto-native companies to put in place all these big requirements. Uh so um many of the companies that are trying to get the MiCA licenses they are really having a good time uh not a good time at all. Um and uh it requires to put so many resources, efforts and um I don't think that not anyone trying to get a MiCA license is going to get it. So um we need to figure out how can we let other types of players being in the market.

Um and I think that this one of the challenges we have to face. Reina, because you already approach our next question is as a legal advisor, how challenge what challenges did you identify when helping clients apply in MiCA and try to expand to another country for for example, Brazil? If you want to complement the the answer.

Yeah, as I said, for for smaller players is very difficult and then if we achieve a MiCA license and then we want to expand then the the complication is multiplying because for example, in Brazil the the capital requirements are bigger and if they have been struggling trying to comply with MiCA, then they when they try to go to Brazil, it's almost impossible if they are not as big as a bank. We have had several clients in our firm uh precisely trying to do this. First of all, getting the MiCA license and then trying to go to Brazil because of course it is a big big market and is very attractive, but uh at the end of the day they have just dropped out the idea. It's like, okay, let's do it in I don't know where, but not now. We are not ready.

So um nowadays I think that for medium-size small-size companies, it is not foreseeable. Not not not at all. Very this positive is perspective. Uh now from uh for Catarina, from the perspective of a technology company who helps other firms to compliance with regulations, what uh challenges and opportunity did you identify throughout the legal framework development process today in the European Union, its member, and if you want to uh add other countries according to your experience as well? Thank you so much.

Um So let me start by giving you a bit of context on what's happening today with with Brazil. So we we have a new regulatory framework that entered into force on the 2nd of February uh 2026. Um Uh and when it comes to travel rule, the travel rule is being So for context, Notabene is uh is a travel rule solution provider. So we've helped many jurisdictions roll out uh the travel rule. And in Brazil, uh the travel rule is being implemented in a in a phased way.

So uh there's two phases for travel rule implementation. Phase one runs from 2nd of February 2026 until 2nd February 2027. During this phase, travel rule applies only for domestic transfers and the market has until the end of phase one to be compliant with travel rule for domestic transfers. Uh and then there's a second phase of implementation which is between 2nd February 2027 and 2nd February 2028, uh where travel rule starts applying to international transfers as well. So travel rule becomes fully applicable on the 2nd of February 2028.

So in Brazil, you have a very generous grace period to implement the travel rule, which I see as an opportunity, uh but I always uh bring up the European versus UK example as as a way to to show the market how to take the best advantage of the grace period that we that you were granted. So uh the travel rule came into force in 2023 in the UK. We ran a yearly survey to understand the status of travel rule compliance and implementation throughout the world uh for the past 5 years. And the first survey that we ran after the regulations coming to force in the UK showed that the UK cohort of respondents had a 100% compliance rate. So any everyone that we surveyed said we are already complying with the travel rule.

Uh and this was because the grace periods they had a year and a half or or less of grace period to implement. But the grace period was used in a very effective way. So there was a very well concerted effort between um uh companies, the regulators, industry associations, and so the market was very well prepared to implement. The regulator understood the challenges in practice. They issued guidance to make the requirements easier for firms uh because they understood the challenges even be even ahead of the regulatory deadline.

So it was a very successful um you know, concerted effort. And so we saw 100% compliance rate. So very smooth roll out. Now then in 2024, I was working on the implementation of travel in the in the EU. And when we ran the survey after the requirements came into force on the 30th of December 2024, we saw that only 30 30% of European companies were already compliant.

So there were 70% of companies that were not yet compliant. And this shows again one of the one of the challenges is or one of the objectives with making both MiCA and the transfer funds regulation, which is where travel rule requirements come from, regulation so directly applicable across member states was to harmonize implementation, but as Mariana just said, that was not really the reality. So, it So, when travel rule came into force, there were many questions in the market on whether travel rule was even in force. There's still questions in the market about whether travel rule is in force. So, we saw that the rollout was definitely not as effective as we saw it happening in the UK.

Now, the the use particular right, we need to harmonize implementation across 20 27 member states. They all have different approaches to digital assets. There's many authorities involved, and I think the Brazil with a very long grace period and with one regulator, one market, you have an opportunity to do things right. Um and so, we're we look forward to continue to support the rollout here in Brazil. Just just a a kind of a comparison of what can go right and what can go wrong.

Can I build one thing on that one? Cuz they like you just brought up like the perfect thing of like what can you do better in other jurisdictions is you need to have institutions that are prepared to deploy the regulation, right? And I think that this is where we failed, and then we also like saw them regulators taking the compliance officers from the industry because no one better than us understand what is it that we needed to to develop, right? So, the idea of MiCA was that once you get into one European country, you get the license, and then you passport to all of them. So, it was supposed to facilitate, right?

Like this is the main idea. So, instead of like getting one license in France and then one license in Germany and then one license in Austria, once you get to Germany, you say as okay, I'm going to operate in Austria, Malta, France, Spain, the regulator communicate with the other regulator, no need to present anything else, you just passport. The reality is that that is not what is happening because everyone went to some jurisdictions that apparently were more friendly giving the licenses and those that were more um I don't know how to put it in words that are not going to backfire, but those that were more strict, let's say it like that, um didn't want to receive these passported licenses. They want to have like extra requirements, which is absolutely not within MiCA. It's like I would even call it illegal.

Like even the commission said that that's not how it works.

I believe we were we were all thinking in the same word

[laughter]

Yeah, yeah. But we cannot say it. But we cannot say it.

Yeah. So, I think that this was the issue. And on top of that, you have some regulators that were not prepared to receive the amount of licenses requirements that arrived. So, everyone start to apply it, and then you have these massive waiting list, and the authorities cannot give the license. So, grandfathering went through, and these companies do not have license, and if you don't have a license, you need to suspend operations, you cannot keep operating.

And then because of the delay at the regulator at the regulators level and the authorities, they are completely stuck. So, what happened? These companies went and tried to just like get licenses in different jurisdictions. So, at the end of the day, it didn't make any sense. And just to to add some something else to this that I completely agree, uh different uh regulators in different countries within the European Union are differently prepared to understand MiCA.

So, there were some someone that there they will they have been working with crypto beforehand, and they would understand better what MiCA is trying to regulate, and there were others that they had to study from zero, and uh it took longer way longer for them to understand how to grant a license. So, the the waiting periods and all the process is very very different from one country to the other. So, at the end of the day, the passporting, as Mariana said, is not working uh properly, and there's regulatory arbitrage. But it's not all about Ah, it's not No, no. Well, thank you, and we we'll continue with Thiago, which is a minority here now.

[laughter]

Um Thiago, you are in charge of legal and regulatory department of one of the largest VASP in the world. So, what are the challenges do you identify and probably opportunities also when implementing regulatory requirements in different countries across different countries and considering the several considering the several services provided by by Binance? Yeah, that's a good question, and it's related to my mission first in Binance, which is to ensure the users that the regulation wouldn't affect them badly, right? So, this is the mission, and then the challenges come after. So, the Central Bank developed this regulation across two to three years.

We joined uh the conversations with the Central Bank in several times to address some topics that the Central Bank accepted, such as keeping the global order book protected, avoiding create the creation of a local order book, protecting the self-custody uh uh to the user. The Central Bank initially was aiming to uh to prohibit the Central Bank the the self-custody. So, there are a lot of important things that the Central Bank already authorized and changing the regulation. And jointly with the the sector and also other companies, we made made it through. But it still there are some parts, and I think it's related also to to some parts that are the other members shared here in Brazil that we need a little bit of of improvement.

The first one is regarding the requirements to apply for a license, right? So, we have minimum capital in Brazil, which is around 10.8 million reais. It's This is something around $2 million. Most of the players won't have this capital to apply.

And you And then you might say the audience and also you might say, "Ambra, you are Binance. That's That's That's so good for you." Yeah, it might be good if you if you see from a competition perspective, but it's not good as a service provider. So, every single minor exchange and OTC uses my solutions and my services to provide these services to to other clients that they have a relationship with. So, this is not good from a company perspective, and it's not good also from a competition perspective because it's good to have competitors in the market.

The other important important point is that the Central Bank required following the the banking regulation a minimum of three directors. This is common from a broker-dealer banking perspective and other entities, but when coming to the crypto service, this is difficult. Uh I I received this data saying that there is something around 70 uh companies that are willing to apply for a license, and they already changed their name in the bylaws. If we consider that the 70 companies need to follow exactly what is provision of the Central Bank, we are considering that we would have something around 210 directors because there is three directors per company, and we would have something around a minimum of 70 700 million uh capital for these entities. So, probably they won't have it, right?

Uh and the other important part is that the Central Bank also required a lot of reporting uh by these entities of the users' transactions, right? And it's not easy to get most of this this information much probably because of what Catarina just said because in order to to define if a transaction is coming from a non-resident or from a resident, I would need to implement the travel rule prior to reporting the effects reports required by the Central Bank. Because the reports in a very quick way because we have no not so many minutes, but uh the reports uh deals with uh self-custody deposits and withdrawals and also international payments. But in order to check if the the wallet is uh from a non-resident or not, I would need to apply and to implement the travel rule. And the point, as Catarina already mentioned, is that the travel rule periods and grace periods are larger than the periods for the effects reports.

The effects reports would start from May this year, and the and the travel rule, the first part, the domestic part, starts from February 2027. So, it's very difficult for us to implement uh it without the travel rule. So, there are some challenges in our regulation, uh but I think like from the Brazil perspective, I think that we are we are inspired by MiCA in in some parts. I believe the good parts. Uh prob Yeah, the probably the good parts.

So, when coming to listing requirements, I think that we have a good uh objective list. Uh we are, of course, prohibiting the algorithm uh stablecoins, and I think this is global due to the Luna crash. Uh we have good grounds from a corporate governance. It's well structured. Uh the custody models follows globally what has been done like when coming to segregation.

I think MiCA is not so strong when coming to segregation from what I read, but I'm not like specialized in MiCA, but from Brazil perspective, the Central Bank did a good work when coming to the segregation. This This ensures protection to the user that if anything happens to the exchange, to the player, this wouldn't affect their assets. So, I think like there's good parts, bad parts, parts that needs development, and that's it. Sandra, do you mind if I just add one point here?

Yes, yes, that's fine. Thank you so much for bringing up the the overlap between travel rule regulations and effects obligations that come up in May. This is a very important point. And I'm not so So, the the interpretation that we've been running with, and I'm so not saying it's correct, but subject to confirmation with the BCV, and please do that that work with each of your firms, is that because in the travel rule framework, it explicitly says that firms can rely on self-declarations until 2028, then um I've been running with the interpretation that for the purposes of the FX reporting, you could rely on self-declarations as well. Um, one thing that is important to note from just an operational perspective is if you're going to build the infrastructure that you need to, for instance, identify uh counterparties behind the wallets, which is needed for travel rule, uh if you're going to build if you're going to build it for travel rule, do it kill two birds with one stone and build it earlier to comply with the FX obligations.

To have some automations that allow to that allow you to improve the customer experience, but I've been running with the interpretation that self-declarations are okay and you don't need to to receive the information from a counterparty, but I would love to hear your thoughts on it and whether you have confirmation from the BCB on that. The Yeah, the the Central Bank they did not formalize that they will accept self-declarations, but we all understand the sector that is no other way because we don't have the travel rule implemented. But, the point here is that uh let's assume a scenario here. A user deposits crypto in Binance, right? Like he made a deposit.

And and beyond the the the information, we also have the limits, right? 100,000 uh dollars per sub and and uh and 500,000 for broker dealers. Uh the user deposits the money the the the assets in Binance from a self-custody wallet. Uh what Binance should do in order to check if that wallet is from a non-resident or a resident because I don't have this information since I do not have travel rule implemented yet? I should block the usage of that fund until the user tell me, "No, this is from my This is my self-custody wallet or this is from a friend that I just know."

You know? Uh and it's very difficult for us to use only self-declaration in some scenarios. This is one of them. Uh a deposit coming on chain to us and the difficulty to say this deposit is coming from a non-resident or from a resident because depending of the scenario, we would need to report some information for the international and other information for the national. So, I think this is the this is the main point and this is something that one of the largest Brazilian associations, ABICripto, is already uh uh delivering to the Central Bank.

And tomorrow we are going to have a meeting with them to to show exactly uh the challenges of the of it. But, like to be very honest, the Central Bank has a point. I think every single Central Bank in the world understands the monetary policies that challenging when coming to the usage of stablecoins, especially the dollar ones. I think this is something for Europe as well. I I have been in the past in the in a panel of the World Bank against Swift.

It was easy for me because crypto against Swift from a traditional perspective is better, but definitely there were some uh Central Banks in the audience and and they asked me a lot about the monetary policies, including the Central Bank of Brazil. And of course, when the Central Bank is willing to have these FX reports, Central Bank is willing to have the control of the economic balance, right? Of Brazil, like the incomes and the outcomes of USDT, USDC, and others, right? So, uh there are some challenges and the FX reports comes to address the monetary policy of Brazil. This is completely understandable, but it's still there are some challenges to to implement it.

I I need to play devil's advocate here cuz I'm a really pragmatic person. I'm going to do a super fast, but like we are creating so many reports and we are like all the time reporting in compliance and the cost of compliance is getting so expensive. And I did a spoke with like some of the authorities and I what are they doing with those reports? They they cannot even follow through with the AML reports. So, we are just like getting more reports.

I don't think a report will affect monetary policy. Like the report will just tell me what is happening, but it will not impact on the effects of like a euro stablecoin coming or a dollar stablecoin coming into the country, right? Like they the genie is out of the the bottle. They will not stop it with like reports, right? What we are making is just like trying to just like fit requirements that we have for the traditional financial system into a crypto place.

And for me, this is the biggest mistake at the regulatory level and not try to do it like native. There's different ways that we can do like travel rule with native web three. Uh there is like ways to do like compliance with like native web three. These are not implemented not because we cannot do it at the technology level, it's because the regulator doesn't know how to use it. And what we need to do is just like instead of like saying like, "Yeah, yeah, okay, I'm complying."

We need to say like, "Okay, I comply, but like this makes absolutely no sense." Like we need to start like thinking forward because otherwise we are just like we're going to fall behind because there is another country that will not care about all of this. They will just care about like bringing the companies and bringing the money and they're going to get it. You are saying like this because you're not in Europe right now.

[laughter]

I say it like that to the commission. They see me like I don't mind. The debate is getting inspired. He's saying in Europe as well. Here in Brazil we need more people like to defend the user, you know?

If you keep inviting me, I will keep saying it. But, I will ask a minute more if is it possible? A minute more? Because I'm saying I Marina, do do you want to add anything to this? Not not to travel rule.

[laughter]

No, no, no, no. I I was just saying that Mariana is saying this everywhere.

[laughter]

Okay, well. She's not hiding. Well, uh as our panelists said, regulatory compliance is has involved higher high costs. And that left small countries like Uruguay, my country, behind because it's it's not probably that BSPs want to bear that high cost for a few users like us, 3 million. So, users are are being left behind in this case for the high cost.

Maybe if we have a community regulation like European Union or a more higher level of of cooperation in the Mercosur will be better for us. But, well, we are expecting what happened with the our big neighbors, Brazil and Argentina, and see what happened in the future. Thank you so much for your attention and thank you for our members of the panel. So, see you around.