In Brazil, only 40 crypto companies applied for VASP licenses

The Central Bank of Brazil has completed the application process for virtual asset service providers (VASP) wishing to continue operations in the country. The result is modest: out of the expected 150-200 crypto companies, only about 40 submitted applications. This will lead to noticeable market consolidation.

Those who managed to submit their documents will be able to operate while the regulator reviews their applications. Companies that missed the October 30 deadline have been given a month to wind down operations and exit in an orderly manner. Meanwhile, the Central Bank has up to two years to review any application, making entry into the Brazilian market a lengthy process for new players.

Thiago Severo, a cryptocurrency expert at the Brazilian law firm Panucci, Severo e Nebias Advogados (PSNA), explained the small number of applications not only by high capital requirements but also by compliance costs. According to him, each company is now required to send daily reports to the Central Bank on the custody of each client's funds and monthly confirmations of reserves. Additionally, audited balance sheets for three years and an audit-ready anti-money laundering program are needed. "Many smaller platforms concluded they could not meet such requirements," Severo noted.

Major players, including Binance and Itaú, have submitted applications. This means that client funds will be held by companies with more substantial security budgets, which will practically improve protection protocols. According to Severo, such companies will become infrastructure and service providers for smaller firms. Medium-sized banks, cooperatives, and retailers will be able to offer cryptocurrency without creating their own exchange by hiring an authorized provider. The main legal question is who provides the regulated service and who is accountable to the client, the expert explained.

Starting November 6, banks and payment systems will not be able to process transactions for VASP not under the regulatory regime. This will effectively prevent such companies from attracting Brazilian clients through the traditional fiat system.